Understanding Labor Contracts in China, India and Vietnam Employing Foreign Nationals Across Asia: Visa Procedures P.04 P.10 P.14 Comparing Employee Termination Procedures Across Asia HR Administration: Labor Contracts, Visas and Termination Procedures www.asiabriefing.com Issue 14 • March and April 2015 From Dezan Shira & Associates
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1
Understanding Labor Contracts in China, India and Vietnam
Employing Foreign Nationals Across Asia: Visa Procedures
P.04
P.10
P.14 Comparing Employee Termination Procedures Across Asia
HR Administration: Labor Contracts, Visas and Termination Procedures
For queries regarding the content of this magazine, please contact:[email protected]
ReferenceAsia Briefing and related titles are produced by Asia Briefing Ltd., a wholly owned subsidiary of Dezan Shira Group.
Content is provided by Dezan Shira & Associates. No liability may be accepted for any of the contents of this publication. Readers are strongly advised to seek professional advice when actively looking to implement suggestions made within this publication.
Adam LivermorePartner
Dezan Shira & AssociatesDalian, Mumbai, New Delhi,
CreditsPublisher / Chris Devonshire-EllisSenior Editor / Samuel WrestEditors / Charles Small & Steven ElsingaIntern / Grace TateDesign / Jessica Huang & Estela Mi
Table of Contents
Understanding Labor Contracts in
China, India and Vietnam
Employing Foreign Nationals
Across Asia: Visa Procedures
Comparing Employee Termination
Procedures Across Asia
P.04
P.10
P.14This Issue’s Topic
HR Administration: Labor Contracts, Visas and Termination Procedures
“? ” The 2015 Asia Tax Comparator
Manufacturing Hubs Across Emerging Asia
Minimum Wage Developments Across Emerging Asia
Understanding Asia’s Individual Income Tax Rates
Payroll and Human Resource Services
Report: ASEAN Should Facilitate Visa Procedures
Obtaining a Multi-Year Employment Permit in China
INDIA BRIEFING Registering your Indian Employment Visa
Foreign companies expanding their operations into the Asia-Pacific need to be fully versed in the region’s various hiring policies. While firms are permitted to hire both domestic and overseas employees, businesses will be faced with a unique array of considerations and challenges that do not exist in the West.
Within Asia, the laws that govern hiring procedures vary significantly from country to country, with numerous affiliated conditions and stipulations. Companies looking to establish a presence in more than one of the region’s booming economies will not be able to do so under a single policy, as may be possible in other parts of the world. Rather, the procedures of each country will need to be individually interpreted, which will better prepare a company to decide which Asian jurisdiction best suits their operation.
Generally speaking, Indian employment contracts are less restrictive than those of China and Vietnam and can offer greater flexibility to the employer. Chinese and Vietnamese employment law tends to provide more protection to the employee and can force employers into unwanted contractual obligations if proper due diligence isn’t paid.
Foreign enterprises in Asia generally opt to hire employees on a fixed-term basis in order to mitigate liability for unjust dismissal. In this section, we detail how these types of contracts are structured in China, India and Vietnam, outline the other main types of employment contracts available to employers, and provide practical guidance for maintaining compliance before and during an employment relationship.
ChinaIn principle, a company does not have to be located in China in order to hire staff to work in China. However, unless the employment contract is entered into via an invested entity on the Chinese mainland, it will not be regulated by relevant Chinese legislation. As a result, the company won’t be able to make mandatory benefit contributions for employees in China or deduct individual income tax before paying salaries, neither of which is likely to attract talent to one’s operations.
Fixed-term ContractThe vast majority of employees hired in China’s private sector are given fixed-term contracts. This type of contract creates an employer-employee relationship for a fixed length of time and can be used for both part-time and full-time work.
In China, a fixed-term contract can only be renewed once. When a contract is renewed for a second time, the employee must be given an open-term contract. This is why an employer needs to be careful when determining the contract length – if two successive short fixed-term contracts are offered and accepted, then the employee will automatically obtain an open-term contract, which makes termination far more difficult.
The employer needs to sign a written contract with the employee within one month, starting from the day the employee starts working at the company. If not, the employee will be entitled to double salary for each month that they have gone without a contract. If a year passes without a written contract, the employee’s contract switches to open-term.
Understanding Labor Contracts in China, India and VietnamBy Dezan Shira & Associates
Shanghai, Delhi and Ho Chi Minh City Offices
5
Issue 13 • March and April 2015 • Asia Briefing
IndiaIndia, like others, has adopted varying measures to regulate the conditions under which employment contracts are written, applied and interpreted. Labor is a concurrent subject in the Indian Constitution, and is therefore subject to legislation from both state and central governments.
In India, “workmen” are entitled statutory rights, but “non-workmen” have no such protection. Indian labor law distinguishes between workmen and non-workmen type employees as follows:
• A workman is a person (including apprentices) employed in any industry undertaking manual, unskilled, skilled, technical, operational, clerical or supervisory work earning less than US$25.89 (Rs 1,600) per month
• A non-workman is a person employed in a managerial, administrative or supervisory capacity drawing wages in excess of US$25.89 (Rs 1,600) per month
Regardless of whether a person is employed on a permanent, temporary or part-time basis, employers should offer a written contract setting out the terms and conditions of the employment relationship. These must meet the minimum statutory requirements set out in either the SE Act of the state where the employee is based or the ID Act, depending on the employee’s classification.
Fixed-term ContractLike China, the majority of employees hired in India’s private sector are given fixed-term contracts. A fixed-term contract creates an employer-employee relationship for a fixed length of time and can be used for part-time, full-time or temporary work.
In India, there are no limits to the amount of successive standard fixed-term contracts that can be issued, nor is there a maximum cumulated duration of successive standard fixed-term contracts.
The employer should sign a written contract with the employee within one month of starting work at the company. However, unlike China, failure to do so after one year does not result in an open-term contract. While open-term contracts do exist in India – and create an employer-employee
relationship for an indefinite length of time – they
can only be established through mutual agreement.
Employment Trends in Asia in 2014-2015
Decrease14%
Sustain42%
Increase44%
Decrease7%
Sustain45%
Increase48%
Bonuses Related To:
Companies Intending to O�er Bonuses this Year
Nil12%
Less than 10%15%
More than 50%51%
From 10%to 20%
From 20%to 50%
13% 9%
Percentage of Sta� Salary Intended to be Awarded as Bonus
Less than 10%34%
100%11%
From 11%to 50%
44%From 51%
to 99%
11%
80% 73%
11% 5% 4%
Employee Performance Employer Performance
65%
35%
YES
NO
Guaranteed Other Hours Billed
Asia Based Companies that would Consider Hiring Foreign Sta� in Skill Shortage Areas
Permanent Sta� Levels of Asia Based Companies in Previous 12 Months
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First published in 2008, Vietnam Briefing magazine is newly expanding to six issues this year. Its content covers foreign direct investment, legal, tax, financing, cost and operational issues across Vietnam. Written inhouse by professionals specialising in Vietnamese law, tax and compliance based in Vietnam, Vietnam Briefing is the ideal starting point for CEOs and CFOs considering Vietnam as an investment destination.
• Business license, organization code, Articles of Association
• Official letter explaining why the company must hire a foreigner
• Official letter stating the intention to hire the person in question
• Application form
CHINA
13
INDIA VIETNAM
• Permission letter that requests approval for the applicant’s visa
• Sponsorship letter• Tax liability letter pledging responsibility for
the applicant’s income tax in India• Justification letter confirming that a qualified
Indian candidate was unavailable/unsuitable• Details of the applicant’s unique specialization
and professional capabilities• Appointment letter detailing the job role
and salary• Comprehensive employment contract• Copy of the company’s Permanent Account
Number (PAN) card• The company’s Incorporation Certificate• Application form
• Proof of government approval to employee foreign workers
• Valid labor contract• Copy of company license certified by
government authority office• Application form
• Passport• Health certificate (depending on city, may
be required from home country or upon arrival in China)
• CV in Chinese• Credentials (e.g. copy of academic degree)• Criminal record check (depending on city,
may not be required)• Passport-size photo
• A completed visa application form• A valid passport• A passport sized photo• Proof of address, such as a driver’s license
or utility bill• A detailed curriculum vitae
• Passport• Health certificate (either in home country
or from select list of hospitals in Vietnam)• 3 passport sized photos• CV • Credentials (e.g. copy of degree, reference
letters covering several years’ work experience)
• Work permit form• Work permit application letter• Criminal record check
• At least 18 years old• In good health • Has no criminal record• Has the required professional skills & work
experience to fulfill the role
• At least 18 years old• In good health• Filling a position unsuitable for a qualified
Indian employee• Will not be working in a routine, secretarial
or clerical job• Must have an annual salary in excess of US$
25,000 (with the exception of language teachers, ethnic cooks, embassy staff and voluntary workers)
• At least 18 years old• In good health• A manager, executive director or expert with
technical skills and knowledge necessary for the job
• Not currently subject to criminal prosecution or any criminal sentence in Vietnam or overseas, or have a criminal record
Approximate time to complete
6WEEKS
6WEEKS
8WEEKS
Comparison of Employment Visa Requirements in China, India, and Vietnam
EMPLOYEE ELIGIBILITY
DOCUMENTS REQUIRED FROM EMPLOYEE
DOCUMENTS REQUIRED FROM EMPLOYEE
DOCUMENTS REQUIRED FROM EMPLOYEE
EMPLOYEE ELIGIBILITY EMPLOYEE ELIGIBILITY
DOCUMENTS REQUIRED FROM EMPLOYER
DOCUMENTS REQUIRED FROM EMPLOYER
DOCUMENTS REQUIRED FROM EMPLOYER
14
Asia Briefing • Issue 14 • March and April 2015
Comparing Employee Termination Procedures Across AsiaBy Dezan Shira & Associates
Shanghai, Delhi and Ho Chi Minh City Offices
For foreign enterprises operating in Asia, terminating
an employee is a process fraught with various dos
and don’ts. Employers may encounter regulations
that seem to offer an overly high degree of protection
to the employee’s job security, or anachronistic
legislation that hasn’t kept pace with the given
country’s current environment.
Failure to identify and adhere to the relevant laws
can result in unfair dismissal suits and prove costly
for the perpetrating company. As such, foreign
enterprises operating in the region need to be fully
versed in the relevant government framework to avoid
unnecessary disputes. Here, we outline the different
employee termination types that exist in China, India
and Vietnam, and highlight the differences that exist
between the three.
Types of TerminationTermination for CauseTermination for cause refers to termination resulting
from employee misconduct or incompetence and
takes immediate effect upon an employee’s receipt
of a termination notice.
Across China, India and Vietnam, this type of
termination does not require the employer to provide
severance payment to the employee. However, the
valid grounds for termination for cause do differ
slightly between the three. The employer must first
identify and then establish cause through an enquiry
that adheres to the laws of natural justice. In most
cases, an employee is entitled to either a warning
prior to termination, an internal review, a fair hearing,
or the right to respond to and defend any allegations.
‘Ordinary’ TerminationIf an employee has not committed any of the faults
that constitute a termination for cause, the employer is
still permitted to initiate ‘ordinary’ termination. In such
instances, the employer must provide the employee
with a written notice of termination, with reason, at
least 30 days prior to dismissal, unless stated otherwise
in the employment contract.
Even if an employee qualifies for ordinary termination,
there remain numerous stumbling blocks that a
foreign company in Asia may encounter. In China,
such terminations can be ‘blocked’ and deemed
invalid, usually in the instance that the employee has
contracted a disease or is pregnant/on maternity
leave. India’s antiquated Shops and Establishments Act
1953 may require the employer to notify the relevant
government authority of a termination event, which
can delay the process. In Vietnam, employers must
prove the fault of the employee and the employee
may defend themselves or request a lawyer.
Termination upon Expiry of ContractEmployers may also dismiss an employee by simply
not renewing their contract. Companies operating in
China and Vietnam are able to do so without providing
a reason, but are still required to pay severance. In
India, if the employee has been with the company
for a minimum of two years, a “fair” reason must
be provided for non-renewal. In the case that the
employee has been with the company for at least two
years and the reason for non-renewal is redundancy,
severance pay must also be provided, but not under
other conditions.
SPECIAL FEATURE
15
Comparison of Termination Procedures
Termination for Cause
Ordinary Termination (30 Days’ Notice)
Severance Payment Due
• Employee has committed a serious violation of company rules
• Company suffers serious loss that can be attributed to employee’s conduct
• Employee is convicted of a criminal offence
• The labor contract was signed under false assumptions
• Employee has established an employment relationship with another employer
• Mutual agreement to end labor contract• Employee cannot work due to sickness
or injury• The employee is incompetent for the
position, even after training or job transfer• Change in circumstances
• Applicable for both ordinary terminations and terminations upon expiry
• Capped at three times the average monthly salary in the given location
• Willful insubordination or disobedience• Theft, fraud or dishonesty • Willful damage to or loss of employer’s
goods• Taking or giving bribes or any illegal
gratification• Absence without leave for more than
10 days• Habitual late attendance• Disorderly behavior during working hours• Habitual negligence of work
• No legislated reasons. However, the employer will have to notify the relevant government authority of a termination event, and courts may demand a fair hearing for the employee. As a result, these types of terminations can be very protracted
• Owed in ordinary terminations. Only owed in terminations upon expiry if the employee has been with the company for at least 2 years and the reason for termination is redundancy
• Calculated on a case-by-case basis on duration of employment, performance and salary
• Theft, embezzlement, disclosure of business secrets
• Absent for either five days a month or 20 days a year without reason
• The employee recommits an ‘ordinary’ termination offence
• Employee fails to perform contracted duties
• Violation of labor discipline, regulations for which must have been recorded in contract
• The employee is sick or otherwise unable to work. If this reason, employees on indefinite contracts can be dismissed after 12 consecutive months; on definite term contracts, six months; and on seasonal contracts, half of the contract term
• Applicable for both ordinary terminations and terminations upon expiry, but only for employees that have worked for 12 months or longer
• Amount received is equivalent to one month’s wages for each year employed by company
China India Vietnam
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