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February 24, 2023

Trends and Hurdles for Employers in Southeast Asia in 2023

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International Employment Lawyer

Many companies have moved to Southeast Asia to benefit from the advantages of this vibrant and diverse market. The region is already a manufacturing hub for a multitude of industries—computer and automotive products in Thailand, textiles in Cambodia, and footwear and electrical goods in Vietnam, to name a few—and an increasing number of companies worldwide are reconfiguring their supply chains to include regional suppliers.

A key challenge is keeping up to date with employment law trends in these jurisdictions to ensure compliance with local regulations—and avoid costly, time-consuming business interruption. Here we outline trends and recent regulatory developments in Cambodia, Thailand, and Vietnam, and consider what they mean for employers.

Cambodia

The Ministry of Labour and Vocational Training (MLVT) is likely to pursue a more proactive enforcement strategy in 2023. Last May, the MLVT announced companies would be required to submit a twice yearly self-declaration on labour compliance through a new online system.

The self-declaration form requires companies to confirm and upload evidence of compliance, and the MLVT online system—through which the ministry can easily determine if a company is compliant –generates a report that lists all fines.

Companies should comply with the self-declaration requirement and carefully review the form to understand what fines will apply for non-compliance.

On 1 October 2022, regulations relating to the National Social Security Fund (NSSF) pension system came into effect, and employers and employees began making NSSF pension contributions.

Over the next five years, total compulsory pension contributions will amount to 4% of an employee’s wage, half of which is paid by the employer and half deducted from the employee’s salary. The contribution wage is capped at KHR 1.2m (USD 300).

Employers are currently required to pay a relatively small amount (KHR 24,000, or around USD 6). This will increase to 10.75% over a ten-year period. Further, it is possible that the contribution wage could be increased in the future.

Since the government amended the labour law in October 2021, clarifying that employees with an individual dispute can file a complaint with the Arbitration Council, Cambodia has had a more transparent labour dispute resolution mechanism.

As a result, we are likely to see more employees filing claims against employers over the coming months and years, particularly over termination for cause. Previously, employees with an individual dispute could not access the Arbitration Council and only had recourse to the courts, where cost and transparency issues dissuaded many employees from filing claims.

Accordingly, employers should take care when terminating employees. If terminating an employee for cause, employers need to be sure that they can document the reason for termination.

Thailand

Parliament on 19 January passed the Work from Home Bill (formerly known as Labour Protection Act (No. 8) B.E. 2566 (2023)), which amends the country’s Labour Protection Act (LPA) to reflect current circumstances.

The accompanying legislative remark states that the proposed amendments to the LPA will provide additional options for work arrangements between employers and employees, upgrade the level of labour protection, increase work stability, and improve quality of life for employees in Thailand.

A ministerial regulation requires government, employers, and insurers to contribute to the Social Security Fund according to set contribution rates—one covering the period from 1 October to 31 December 2022, and the other covering the period from 1 January 2023 onward.

At times, the government alters these contribution rates to provide stimulus to employees and employers. This was done, for instance, to provide economic relief during the COVID-19 pandemic. Employers will need to stay alert to potential changes to prescribed contribution rates to the fund.

The Personal Data Protection Committee (PDPC) has released guidelines for data controllers on consent and notification to data subjects of required information (ie, collection, use, and disclosure of personal data). The guidelines do not have a legal binding effect. However, employers as data controllers may rely on these guidelines when processing data on internal subjects (such as employees) and external subjects (such as customers or suppliers).

Additionally, effective 1 October 2022, the minimum wage increased by approximately 5%. The minimum wage varies depending on the province.

Vietnam

Vietnam’s recent accession to the EU-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership obligates the country to ratify all core ILO conventions. Vietnam has not yet ratified the Convention on Freedom of Association and Collective Bargaining, but this is expected in 2023.

In the latest version of the Labor Code, which came into effect in 2021, Vietnam recognised trade unions independent from the Vietnam General Confederation of Labor (VGCL)—previously the only recognised union system. However, the Code does not provide details on the formation of independent trade unions or on how they will collectively bargain together with VGCL trade unions within an enterprise.

A decree clarifying these details is anticipated in 2023. It will enable formation of independent trade unions, meaning one enterprise may have multiple trade unions within it. Employers may then be required to consult with multiple unions on key management steps and collectively bargain with more than one union. These changes are likely to significantly add to the administrative burden of managing the workforce in Vietnam.

Vietnam has issued a draft decree on personal data privacy that would impose significant obligations on data processors—including employers. Under the decree, employers would need a special permit to process “sensitive personal information”, such as an individual’s financial and health information, criminal record, and other types of information routinely collected during recruitment and onboarding. A cross-border transfer of personal information would require a special permit, and additional security measures would also be required to protect employees’ personal data.

If the decree is passed in its current form, employers will face significant administrative burdens in managing employees’ personal data. It may be prudent to set aside a budget now to cover the costs and additional personnel necessary to implement the obligations under the new decree.

The provincial Departments of Labor, Invalids and Social Affairs and immigration bureaus have introduced internal policies changing application procedures for work permits and work visas, causing significant delays in obtaining these documents for foreign employees. The process now takes an average of four-to-five months (previously, it took two to three).

It is now also very onerous to apply for a work or business visa, as the use of agents to assist with this task has been curtailed. Visas on arrival have also been cancelled, and it is necessary to apply to the Vietnamese embassy or consulate in the worker’s home country.

These issues result in uncertain project timelines, difficulties retaining foreign employees, and delays in introducing foreign workers to Vietnam. Enterprises planning on engaging a foreign worker should begin the work permit application process well in advance and consider preparing contingency plans in case they are unable to obtain the necessary documentation.

The regulatory trends described in this article highlight the importance of having access to local expertise to maintain compliance with fluctuating requirements. With the proper guidance and understanding of employment laws in each jurisdiction, employers can avoid penalties, sidestep delays, and empower their employees to contribute to business success.

 

This article was originally published on the International Employment Lawyer website and is republished here with permission.

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