How to Hire Your First Employees in Vietnam: Labor Law Basics for Foreign Companies

Hiring your first employee in Vietnam involves more than writing an offer letter. Vietnam’s Labor Code applies the same way to a five-person startup as it does to a multinational, and foreign companies who skip the paperwork usually find out the hard way, through a labor inspection or a back-payment demand from the social insurance authority. 

Compliance here is detailed rather than complicated, and most of it comes down to following the right sequence rather than solving anything genuinely difficult.

This guide covers Vietnam labor law for foreign companies from the ground up, from what has to happen before you sign anyone, through contracts, wages, working hours, and what to do if the employment relationship ends.

Setting Up to Hire: What Comes Before Your First Employee

A foreign company cannot legally hire staff in Vietnam without a registered presence first. That usually means a wholly owned local entity, though a growing number of companies now use an Employer of Record to skip that step entirely.

Entity vs Employer of Record

The two paths lead to very different timelines and levels of control, and the right choice usually comes down to how confident the company is in its Vietnam headcount plan for the next year or two.

An entity gives full control over contracts, branding, and how the team is structured, but it comes with registered capital requirements and ongoing corporate governance. 

An Employer of Record can typically get a first hire started within days, since the provider already holds the local registrations needed to run payroll and file social insurance.

Registrations You Need Before Day One

Once the entity is in place, two separate registrations have to happen before any employee starts.

• A tax code, issued alongside business registration
• A Social Insurance unit code, registered with the local Social Insurance Agency
• An Initial Labor Declaration, filed with the provincial Department of Labor
• Internal Labor Regulations, mandatory once headcount reaches 10 employees

Skipping the Social Insurance registration is the most common early mistake, since it has to happen before the first employee addition can be reported, not alongside it. Companies also need to decide early whether contracts will run in Vietnamese only or bilingually, since Vietnamese law treats the Vietnamese text as controlling even when an English version exists for the foreign parent company’s records.

>>> Read more: What Do You Need to Start a Business in Vietnam

Employment Contracts and What They Must Include

Vietnam’s 2019 Labor Code recognizes only two types of labor contract. The old category for seasonal or specific-job work under 12 months was removed when the code took effect in 2021, so any short-term arrangement now falls under one of the two remaining types.

Types of Labor Contracts

Under current regulations, there are two legal types of labor contracts in Vietnam.

• Definite-term contracts: These agreements have a specific start and end date. The maximum duration for this type of contract is 36 months. You can renew a definite-term contract one time. If the employee continues working after the second definite-term contract expires, the agreement automatically becomes an indefinite-term contract.
• Indefinite-term contracts: These agreements do not have a set end date. They offer the highest level of job security for the employee. Terminating an indefinite-term contract requires specific legal grounds and long notice periods.

Signing a third fixed-term contract in a row with an ordinary local employee is treated as an indefinite-term contract by operation of law, whatever the paperwork actually says, so tracking renewal history matters more than it might seem at the two-contract stage.

What a Compliant Contract Must Cover

A labor contract in Vietnam needs to spell out several specific points, or it risks being challenged during an inspection.

• Job title, work location, and scope of duties
• Salary, allowances, and payment schedule
• Working hours and rest periods
• Contract duration and probation terms, if any
• Social insurance, health insurance, and unemployment insurance details
• Training and confidentiality clauses, where relevant

From 1 July 2026, contracts signed electronically must run through Vietnam’s National e-Contract Platform under Decree 337/2025/ND-CP, which requires both parties to hold a verified digital identity account or a valid ID document on file.

>>> Read more: Virtual Office in Ho Chi Minh City: Benefits, Costs & How to Choose

Probation Periods

Vietnamese law treats probation as a separate legal step from the labor contract itself, with its own limits on length and pay.

Probation pay must reach at least 85 percent of the salary agreed for the full role. Either side can end probation without notice or penalty, and the employer has to tell the employee the result once the period is up.

Whatever type of contract gets signed, the written version has to cover a set of items the law treats as non-negotiable:

• Names and addresses of both parties
• Job title and workplace
• Contract term and start date
• Salary, payment method, and pay date
• Working hours and rest breaks
• Social insurance and health insurance participation
• Training and skills upgrading terms

Working Hours, Overtime, and Rest

Standard working hours are capped at 8 hours a day and 48 hours a week, though the government actively encourages a 40-hour week where employers can manage it.

Standard Working Hours and Rest Days

Standard working time is capped at 8 hours a day and 48 hours a week, though the government actively encourages a 40-hour week and most foreign-invested employers in Ho Chi Minh City already run one, since it makes recruiting against multinational competitors easier. 

Every employee gets at least one full day of rest each week, usually Sunday, though a different day can be set in the contract if operations need it, which matters for retail, hospitality, and any business running seven days a week.

Overtime Limits and Pay Rates

Overtime has to be paid at a premium, and the premium depends on when the extra hours happen.

Daily overtime cannot go past 4 hours, and total working time including overtime cannot pass 12 hours in a day. Monthly overtime is capped at 40 hours, and annual overtime at 200 hours for most sectors, rising to 300 hours in manufacturing, textiles, and other seasonal industries once the labor authority has been notified. 

Overtime needs the employee’s written or electronic consent every time, outside a narrow set of emergencies defined by law. Vietnam then sets firm numerical ceilings on how much overtime a company can ask for. 

Statutory Leave and Public Holidays

Employees earn a minimum of 12 paid annual leave days a year, rising by one extra day for every five years of service with the same employer. 

Vietnam observes 12 statutory public holidays in 2026, up from the usual 11, after the government added Vietnam Culture Day on November 24 following a Politburo resolution earlier in the year. When a holiday lands on a weekend, employees get a substitute day off on the next working day.

• New Year’s Day, January 1
• Lunar New Year, Tet (5 days)
• Hung Kings’ Commemoration Day
• Reunification Day, April 30
• International Labor Day, May 1
• National Day, September 2 (2 days)
• Vietnam Culture Day, November 24 (new for 2026)

Foreign nationals working legally in Vietnam are entitled to all 11 Vietnamese public holidays, plus two additional fully paid days off:

1. One traditional New Year holiday of their home country.
2. One National Day of their home country.

If any official public holiday coincides with an employee’s regular weekly rest day (such as a Saturday or Sunday), the employer must provide a substitute rest day. This compensatory day off is legally required to be taken on the very next consecutive working day (usually a Monday).

Sick Leave and Maternity Leave

Sick pay and maternity pay both run through the social insurance fund rather than coming directly from the employer’s payroll, provided the employee has contributed for the required minimum period. Female employees get six months of fully paid maternity leave, extended for multiple births, and mothers of children under 12 months are entitled to a paid 60-minute break each working day.

Wages and Mandatory Contributions

Salary in Vietnam is never just the number on the offer letter. Mandatory contributions add a substantial amount on top for the employer, and getting the base numbers wrong tends to surface later during an audit rather than immediately.

Regional Minimum Wage

Vietnam sets its wage floor by region rather than nationally, and the applicable region depends on where the employee actually works, not where the company’s head office sits. Decree 293/2025/ND-CP raised all four regional floors by an average of 7.2 percent starting January 1, 2026. 

These figures set the floor, not the market rate. Most professional salaries in Ho Chi Minh City sit well above the Region I minimum, but the minimum still matters, since it also sets the base for several insurance calculations. 

Market salaries for office roles in Ho Chi Minh City tend to sit well above the regional minimum, and the figure matters mostly as the base used to calculate social insurance contributions and unemployment insurance caps, both of which scale off the regional wage rather than the salary actually paid. 

Social, Health, and Unemployment Insurance

Employers and employees both contribute to a combined social insurance package, generally referred to as SHUI.

Foreign employees pay the same social and health insurance rates but are exempt from unemployment insurance, which brings their combined contribution to 20.5 percent from the employer and 9.5 percent from the employee. 

Personal Income Tax Withholding

Employers withhold personal income tax at source under Vietnam’s progressive schedule, which runs from 5 percent up to 35 percent depending on income. 

Law 109/2025/QH15 raised the personal deduction from VND 11,000,000 to VND 15,500,000 a month, and the dependent deduction from VND 4,400,000 to VND 6,200,000 per dependent. Both apply to employment income from the 2026 tax year, even though the law formally takes effect on July 1, 2026. The number of tax brackets also dropped from seven to five, though the top rate stays at 35 percent 

13th Month Salary and Bonuses

A 13th month salary is not required by law, but it is such a widespread custom around Tet that skipping it can hurt retention more than the cost of paying it. Companies that offer it typically state the terms clearly in the labor contract or a separate bonus policy, since an undocumented informal promise is harder to manage consistently across a growing team.

The Trade Union Fee

Even without an on-site union, employers owe a trade union fee equal to 2 percent of the payroll fund, paid to the higher-level union body. This surprises a lot of first-time foreign employers, who assume the obligation only applies once staff actually form a union.

>>> Read more: Vietnam Business Opportunities for Foreigners in 2026

Hiring Foreign Staff Alongside Local Employees

Most first hires in Vietnam are local, but companies that also bring in an expatriate manager or specialist face an extra layer of paperwork. 

A foreign employee generally needs a work permit before starting, and their labor contract term has to match the permit’s validity, which rules out an indefinite-term contract for anyone without permanent residence. 

Foreign employees also need to fall into one of four recognized categories, manager, executive director, expert, or technical worker, since the category chosen at the work permit stage determines what documents the company has to supply and how long the process takes.

The vacancy also has to be advertised publicly before the company can apply for the work permit, showing that the role could not be filled locally first. None of this changes the core labor law obligations, since a foreign employee still gets the same statutory leave, overtime protection, and insurance treatment as a Vietnamese one, aside from the unemployment insurance exemption already mentioned.

>>> Read more: Best Office Locations for Foreign Companies in Ho Chi Minh City

Ending Employment the Right Way

Vietnamese labor law leans firmly toward protecting the employee, and termination is where that shows up most clearly for foreign employers used to more flexible rules back home.

Notice Periods by Contract Type

Notice requirements scale with the type and length of the contract.

These notice periods apply to both employer-initiated termination and employee resignation in most ordinary circumstances.

Grounds for Lawful Termination

An employer cannot end a labor contract without a valid reason under the code. Acceptable grounds include repeated failure to meet agreed performance targets, redundancy from restructuring, prolonged illness beyond a set period, or serious breach of workplace rules following the correct disciplinary process.

 A disciplinary dismissal in particular has to follow a documented procedure, including written notice of the alleged violation and a hearing where the employee can respond, before the company can act on it. 

Terminating without following these grounds, or without the required notice, exposes the employer to reinstatement claims and back pay, and Vietnamese labor disputes tend to favor the employee by default unless the employer’s documentation clearly shows the process was followed correctly.

Severance Pay

Employees with at least 12 months of service are generally entitled to severance pay when the contract ends for reasons other than misconduct, calculated as half a month’s salary for each year worked before 2009, since unemployment insurance has covered the equivalent obligation for service after that point. The calculation uses the average salary from the six months before termination, and severance is separate from any unemployment insurance payout the employee later claims.

Where to Base Your First Vietnam Team

A first hire needs somewhere to actually sit, and a long lease rarely makes sense before headcount is proven out. Signing a two-year office lease around the same time as a first labor contract adds a second long-term commitment before the business has any real read on how fast the team will grow. 

• Start with a single hot desk or dedicated desk while the first hire settles in
• Move into a small private office once the team reaches three or four people
• Scale into a larger suite without breaking a lease, as headcount grows past that

The Sentry runs coworking and private office space across Ho Chi Minh City, built for companies at exactly this stage, past the first hire and still working out how much space they will need next.

• The Sentry C, 15 Le Thanh Ton Street, District 1. Private offices and dedicated desks among Saigon’s tech, venture capital, and creative community, sized for a first small team.
• SONATUS, 15 Le Thanh Ton Street, District 1. A central CBD address with global and Japanese-influenced design, for companies that want a professional front from day one.
• The Sentry Z, 25 Nguyen Binh Khiem Street, District 1. Vietnam’s first Lotus Gold certified coworking building, with room to grow as headcount increases.
• The Sentry Q, inside Orbital 2.0 at QTSC IT Park, District 12. A strong fit for engineering and product teams hiring from the tech talent pool based in QTSC.

Locations across District 1, Thao Dien, and the QTSC tech park in District 12 mean there is likely a Sentry space close to wherever your new hire already lives, which matters more than most founders expect during the first few months.

Book a tour today and see which space fits your team as it grows.