Employers paying late salaries and noteworthy issues

Employers paying late salaries and noteworthy issues
Employers paying late salaries and noteworthy issues

2021 comes to an end with many problems remaining unsolved, especially financial problems are being faced by Vietnamese enterprises. As the Lunar New Year approaches, the issue of salaries and bonuses for employees becomes a pressing issue. As many enterprises are unable to address salary concerns, delay in paying salaries has become a huge burden for employers. Without proper legal knowledge, enterprises could suffer undesirable consequences including employees’ resignation, administrative fines, salary disputes, and so on. Therefore, this article shall explain the legal consequences for employers when they are facing the issue of late payment of salaries to employees.

Salary payment period according to the provisions of the Labor Code

According to current regulations, the salary payment period for employees is prescribed as follows:

  • Employees who receive hourly, daily and weekly wages shall be paid after such hours, days, and weeks of work or shall be paid in a lump sum as agreed by the two parties, but within 15 days, such wages must be paid in lump sum.
  • Employees receiving monthly salary are paid once a month or on a semi-monthly basis. The time of salary payment is agreed upon by both parties and must be fixed at a cyclical time.
  • Employees who are paid by product or by contract shall be paid according to the agreement between the two parties; if the work must be done for multiple months, the monthly salary shall be paid based on the volume of work done in that month.

Thus, the current labor law allows the parties to agree on the salary term. Nevertheless, depending on the type of job, the salary payment period may have its own set of rules to follow. As a result, the employer must consider the type of labor performed by the employee to determine the appropriate payment period in alignment with the legislation.

Legal consequences of late payment of salary compared to the agreed payment term

Late payment of salaries due to force majeure:

The current labor law stipulates provisions on late payment of salaries in case of force majeure. Accordingly, if the employer has taken all measures but still could not pay the salary on time as agreed with the employee, the delay in payment of salaries must not exceed 30 days from the due date of salary payment.

If the salary is paid late by 15 days or more, the employer must compensate the employee with an amount at least equal to the interest incurred on the amount which was paid late on the basis of interest rate on mobilizing deposits with a duration of 1 month of the bank where the employer opened the salary account for the employee announced at the time of salary payment.

Administrative fines:

The enterprise may be fined for administrative breaches if they pay their employees’ salaries late. Accordingly, depending on the number of employees whose salaries were paid late, the enterprise may be penalized between 10,000,000 VND and 100,000,000 VND.

Employees who are not paid on time usually file a complaint to the labor inspector, which will result in examination of the enterprise and administrative sanctions if the inspector finds supporting evidence for the breach.

The employee unilaterally terminates the contract:

Delay in salaries leading to mass layoffs also needs to be noted. This is especially true for enterprises producing garment, processing food, etc.

The current labor law gives the employee the right to unilaterally terminate the labor contract when the employer fails to pay the salary in full or does not pay the salary on time unless force majeure leads to such late payment of salaries as mentioned previously.

Being sued by the employee at a competent court:

Long delay in salary payment, has a serious impact on employees’ lives, and is also a key factor leading to employees taking higher legal actions to safeguard their rights and interests. Normally, for a quick settlement, employees go to the local labor agency to carry out procedures for conciliation with the enterprise, whereby the labor agency will act as an intermediary to help the parties negotiate and choose a possible solution. When the organization refuses to settle the problem or fails to correctly fulfill previously agreed conditions, the employer may be lawfully sued in a competent court.

In addition to facing lawsuits, enterprises also deal with the risk of strikes from employees. A strike may indirectly affect the reputation of the enterprise among its customers, partners, and suppliers as these parties would learn that the enterprise is facing financial problems. There is also the risk of facing a competent authority when such strike causes security and law & order issues.

Concurrently, due to the difficult situation caused by the epidemic, inadequate or delayed salary payment is a common problem in many enterprises. Some enterprises in this period even had to lay off many employees due to their inability to pay salaries.

Therefore, for several enterprises that are continuing to operate, if necessary, it may be required to notify and reach an agreement with employees on temporarily decreasing salaries during periods when the enterprise is low on orders and unable to offer service, such actions might be considered. In addition, employers and employees might contemplate not working during the period when the enterprise has no job according to the provisions of the Labor Code to maintain the enterprise’s labor force when the enterprise can return to production.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.