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July 2, 2019

Labor Law Updates in Cambodia—Q1 and Q2 2019

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Following major developments in Cambodian labor law in 2018 and early 2019, in the past six months Cambodia’s Ministry of Labor and Vocational Training (MLVT) has continued to make substantial clarifications and revisions to employment law in Cambodia that employers should be aware of. The changes fall into three categories:

1.  Foreign Workers and Employment Contracts

On March 29, 2019, the MLVT enacted its Notification on the Registration of Foreign Employment Contracts. This allows employers to submit Khmer-language translations of their company’s employment contracts when applying for work permits for foreign employees. Both fixed duration contracts (FDCs) and undefined duration contracts (UDCs) will be accepted. These regulations replace the previous rules, which required an employer to submit a contract that followed an MLVT template, and deemed an FDC the only contract type valid for a work permit.

Finally, the notification specifies that if the contract expires or is amended, the employer must submit an updated agreement.

2.  Fixed Duration Contracts and Renewals

On March 17, 2019, the MLVT enacted its Instruction on Determination of Type of Employment Contracts. This sets the maximum duration of an initial FDC for a local or foreign employee at two years. The contract can be renewed one or more times so long as the total duration of the renewals does not exceed an additional two years, after which it will be deemed a UDC.

If an employee reaches the maximum duration for an FDC and the employer wants to continue the employment on an FDC basis, a one-month break must be inserted between the expiration of the FDC and the start of a new one.

3.  Seniority Payments

The Instruction on Payment of New Seniority Indemnity Each Year from 2019, which was enacted on June 10, 2019, stipulates that seniority be counted once every six months (a “semester”). Employees who have worked for at least one month and who work until the end of a semester are entitled to seniority payments equaling seven and a half days of average wages and other benefits each semester, for a total of fifteen days’ ongoing seniority payments per year. The payments for each semester are to be made during the second payment period for June and December, respectively; this occurs between the 1st and 7th of the following month.

The MLVT issued two other instructions to lay out the process for paying seniority back payments. The calculation of the back payments only includes actual wages, not bonuses.

In the non-garment sector, employers must make back payments (which accrue at 15 days per year) starting in December 2021 at a rate of three days per semester. In the garment sector (including textiles and footwear), back payments are due at a rate of 15 days per semester, and the maximum seniority back payment amount cannot exceed 6 months of average net wages. In calculating the daily average basic net wage, employers must treat a month as 26 working days.

On April 11, 2019, a Ministry of Economy and Finance circular clarified that seniority payments are not to be included in a Cambodian employee’s taxable salary; however, they will be included in a foreign employee’s taxable salary. In either case, seniority payments can be included in a company’s tax-deductible expenses.

For more information on these developments, or on any aspect of labor and employment in Cambodia, please contact our Cambodia office at [email protected] or +855 23 964 210.

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