When employees leave a company, employers must follow the correct rules for calculating severance pay to stay compliant and complete the offboarding process smoothly.
Employee separation under Vietnam Labor Code has clear guidelines, and it becomes very important for employers to understand when severance pay applies, how it is calculated and which salary components must be used.
There is also common confusion about eligibility, unemployment insurance periods and the exact formula. Many businesses are already solving these challenges using Yomly, one of the top HR and payroll software platforms in Vietnam.
We have created this guide to explain the full severance pay process in a simple and practical way. It covers eligibility rules, salary calculations, exclusions and step by step examples to help you calculate severance accurately and confidently.
What Is Severance Pay in Vietnam?
In Vietnam, severance pay is a mandatory financial benefit that employers must provide to eligible employees when their employment ends under specific conditions.
Some countries call this an end of service benefit, but in Vietnam it follows its own rules under the Labor Code. Its purpose is to support employees during the transition period after leaving a job and to recognize their service with the company.
Severance pay applies when an employee leaves the company through contract expiration, resignation with proper notice or mutual agreement, as long as they have worked for at least 12 months and meet the eligibility rules.
It does not apply in cases where the employee contributed to unemployment insurance for the entire working period, was dismissed for disciplinary reasons or resigned illegally.
It is also important to understand the difference between severance pay and job loss allowance.
- Severance pay is provided for normal separation cases such as resignation or contract expiry.
- Job loss allowance applies when an employee loses their job due to restructuring, changes in technology or economic reasons.
The calculation method and eligibility conditions are different for each, and employers must apply the correct one based on the exit scenario.
اقرأ أيضًا: A Complete List of Public Holidays In Vietnam
When Is an Employee Entitled to Severance Pay?
When you process employee offboarding, it is not always clear whether severance pay applies. Vietnam Labor Code sets very specific conditions for when employers must pay severance and when they are exempt. Here are the situations where severance pay is applicable.
1. Contract Expiration Without Renewal
If a fixed-term labor contract expires and the employer or employee chooses not to renew it, the employee is entitled to severance pay as long as they meet the minimum service requirement and have unpaid periods not covered by unemployment insurance.
2. Mutual Agreement Termination
When both the employer and employee agree to end the contract, severance pay must be provided if the employee has completed at least 12 months of work and any eligible years are not covered by unemployment insurance.
3. Employee Resignation With Proper Notice
Employees who resign and follow the correct notice period stated in the Labor Code are eligible for severance pay. The employer cannot refuse payment if all legal conditions are met.
4. Termination by Employer Where Severance Is Required
If the employer terminates the contract for reasons that do not fall under disciplinary dismissal or illegal behavior, severance must be paid. This includes termination due to operational needs, non-performance or medical reasons authorized by law.
5. Cases Where Severance Does Not Apply
An employee is not entitled to severance pay under the following conditions:
- They contributed to unemployment insurance for the entire eligible period
- They are dismissed due to disciplinary action
- They resign without proper notice
- They were working under a probation contract only
These are some important rules to understand because applying the wrong condition can lead to errors in final settlement. Before calculating severance pay, employers should always check which category the employee falls into and follow the correct requirement.
Eligibility Requirements for Severance Pay
Employers must understand the exact eligibility rules before calculating severance pay. To make this simple, here are the key conditions that determine whether an employee qualifies for severance in Vietnam. We are simplifying it further so you can quickly identify who is eligible.
Eligibility Requirements:
- Employee has completed at least 12 months of continuous service
- Employee did not contribute to unemployment insurance for the full working period
- Employee leaves under a valid separation type (contract expiry, resignation with notice, or mutual agreement)
- Employee is not dismissed for disciplinary reasons
- Employee did not resign illegally
- Employment was under an official labour contract
Yomly automatically tracks employment duration, contribution history and separation type, so you do not have to check these conditions manually. This ensures severance pay is calculated correctly and consistently for every employee.
Salary Components Used for Severance Calculation
When calculating severance pay in Vietnam, employers must use the average salary from the last six months of employment. This amount forms the base for the severance formula, so using the correct salary components is essential for accuracy and compliance.
1. Average Salary of the Last Six Months
The law requires employers to calculate the average monthly salary earned during the final six months before the employee leaves. This helps reflect the most recent and realistic earnings of the employee.
2. Salary Components That Must Be Included
Only the following components are included in the six-month average:
- الراتب الأساسي
- Contractual fixed allowances (meal allowance, position allowance, responsibility allowance, etc.)
- Fixed monthly payments stated in the labour contract
These components must be consistent and clearly defined in the contract.
3. Salary Components That Must Be Excluded
The following components are not used for severance calculation:
- Bonuses and incentive payments
- Overtime pay
- Commission-based earnings
- One-time payments
- Irregular or performance-based allowances
These payments fluctuate and do not reflect guaranteed earnings.
4. Example for Clarity
If an employee earned the following in the last six months:
- Basic salary: 10,000,000 VND
- Position allowance: 2,000,000 VND
- Meal allowance: 1,000,000 VND
- Monthly averages remain consistent
Average salary for severance calculation = 13,000,000 VND
Bonuses or overtime earned during these months would not be included.
Severance Pay Formula Under Vietnam Labor Law
Here is a simple and accurate overview of the severance pay formula used in Vietnam. You can use this structure to calculate the exact amount owed to an eligible employee during offboarding.
1. Standard Formula
Severance pay is calculated as:
Half a month of average salary × Number of eligible years of service
Eligible years of service exclude periods where the employee contributed to unemployment insurance.
2. Calculating Partial Years
If an employee worked additional months beyond full years, those months must be calculated proportionally.
على سبيل المثال:
- 6 months of service = 0.5 year
- 4 months of service = 0.33 year
This ensures every month worked is accounted for in the final amount.
3. Excluding Unemployment Insurance Periods
Only periods not covered by unemployment insurance qualify for severance pay.
If an employee paid into unemployment insurance for certain years, those years are removed from the total eligible service before applying the formula.
4. Job Loss Allowance (Different From Severance Pay)
Job loss allowance applies when an employee loses their job due to restructuring, technology changes or organizational reasons.
The formula for job loss allowance is different and must not be confused with severance pay. Employers should review which case applies before calculation.
Step-by-Step Severance Pay Calculation Examples
Let us take two practical examples to understand exactly how severance pay is calculated under Vietnam Labor Law. These examples follow the official formula and use real salary figures to make the process easy to follow.
Example 1: Employee with 2 Years 5 Months of Service
Employee details:
- Average salary of last 6 months: 12,000,000 VND
- Total service: 2 years 5 months
- Unemployment insurance paid for: 2 full years
Step 1: Identify eligible service period
Only periods not covered by unemployment insurance qualify.
Eligible service = 5 months = 0.42 year
Step 2: Apply severance formula
Severance = 0.5 × 12,000,000 × 0.42 = 2,520,000 VND
Final severance pay: 2,520,000 VND
Example 2: Employee with 7 Years of Service
Employee details:
- Average salary of last 6 months: 15,000,000 VND
- Total service: 7 years
- Unemployment insurance paid for: 6 years
Step 1: Identify eligible service period
Only 1 year is not covered by unemployment insurance.
Eligible service = 1 year
Step 2: Apply severance formula
Severance = 0.5 × 15,000,000 × 1 = 7,500,000 VND
Final severance pay: 7,500,000 VND
These examples show how important it is to identify the correct eligible service period before applying the formula. Yomly calculates these values automatically, removing all guesswork for employers.
Special Cases That Affect Severance Pay
There might be some cases where the standard severance calculation does not apply directly. These situations can change the eligible service period or the salary used in the calculation. Here are the main cases employers should be aware of:
- Salary increases or changes in the last 6 months
- Long periods of unpaid leave
- Employee transfers between subsidiaries
- Mergers or restructuring affecting contract terms
- Probation periods that do not count toward service
- Disciplinary termination under Labor Code
- Employment gaps or rejoining after separation
Yomly can be set up with your company’s rules and Vietnam Labor Law requirements, so all these cases are calculated correctly and consistently. This ensures your severance payments are accurate every time.
Calculate Severance Pay in Vietnam With Confidence
In Vietnam, every single part of the severance process must follow the Labor Code, and even small mistakes can lead to disputes or compliance issues. Employers also need to understand different guidelines for eligibility, unemployment insurance periods and salary components, which can make manual calculations difficult and time consuming.
Enterprise businesses across Vietnam are already using Yomly to automate severance calculations, final settlements and payroll processing. If you are managing a growing workforce or handling complex offboarding cases, Yomly offers a reliable and accurate way to stay compliant. Whether you have 50 employees or more than 250 employees, you can streamline the entire process in one platform.
Book a demo and see how our HR and payroll software can simplify severance calculations and help you manage compliance with confidence.
