HR Outsourcing in Vietnam: Optimizing Operations for Business Success

FEATURED EXPERT

Ian Comandao

Business Consulting Manager at InCorp Vietnam

Ian is a sales and marketing professional who has worked over 15 years in key accounts management.

Vietnam’s booming economy and evolving business landscape offer opportunities and challenges. To thrive in this dynamic and competitive market, companies seek solutions like HR outsourcing. It enables them to streamline operations, ensure compliance, and maintain a competitive edge while focusing on core activities.

This article delves into HR outsourcing in Vietnam, outlining its advantages in efficiency, compliance, talent acquisition, and cost-saving. It also addresses challenges and underscores the significance of choosing the right provider. In a competitive market, HR outsourcing is a vital tool for growth, risk mitigation, and competitiveness.

Investing in Vietnam? Check out InCorp Vietnam’s HR & Payroll Services in Vietnam

What is HR Outsourcing?

HR outsourcing, commonly known as Human Resources outsourcing, is a contractual arrangement where a company partners with an external third-party provider to delegate the management and oversight of specific HR functions. These HR functions can range from highly specialized tasks like applicant tracking for affirmative action compliance to comprehensive outsourcing of the entire HR department.

It is a collaborative arrangement where a third-party organization manages HR functions for another business, enabling the latter to concentrate on core growth initiatives. The scope of HRO varies, encompassing fundamental HR services and support desks, all the way to more comprehensive partnerships with Professional Employer Organizations (PEOs). These PEOs offer a blend of strategic planning and daily administrative assistance to facilitate smoother HR operations.

Amongst others, a business can outsource the following responsibilities to external service providers:

• Conducting background checks, drug tests, and reference verifications
• Managing Benefits Administration
• Providing counseling services
• Ensuring legal compliance
• Processing payroll
• Handling performance management
• Managing recruitment and onboarding processes
• Facilitating retirement planning
• Overseeing safety management
• Talent acquisition
• Organizing training and upskilling initiatives
• Managing workplace risk mitigation

HR Outsourcing Benefits in Vietnam

Outsourcing HR functions in Vietnam offers businesses the opportunity to delegate their entire spectrum of HR requirements, spanning from the establishment of legal HR processes to recruitment, to a seasoned team of HR experts well-versed in the intricacies of this market. In this article, we delve into the key rationales behind opting for HR outsourcing in Vietnam.

Save Time and Increase Productivity

Managing payroll can be a laborious and time-intensive task, encompassing the meticulous tracking of employee benefits, deductions, onboarding, terminations, and adherence to evolving governmental regulations. Opting for outsourced payroll services empowers management to channel their energies into more pivotal endeavors that can significantly impact overall company productivity.

Navigating HR and Payroll Compliance with Vietnam’s ever-evolving laws can be a complex endeavor. Regulations change frequently, making it challenging for businesses to stay fully compliant. However, when you partner with outsourcing experts, you gain access to a team of highly qualified, well-trained professionals who specialize in keeping abreast of market updates. Additionally, the process of monitoring reports, including filing, updating, and ensuring compliance is also streamlined.

HR outsourcing provides businesses with the advantage of accessing a vast pool of skilled professionals in Vietnam. This is particularly valuable in the current landscape of increased competition for talent due to a surge in foreign investment and transitional setups in the country. HR professionals possess the expertise to efficiently connect with potential candidates, even passive ones who could be ideal additions to your team. 

Reduce Overhead Costs

Outsourcing your payroll operations can lead to substantial cost reductions. It eliminates the need for maintaining an in-house payroll department, resulting in reduced overhead expenses, including salaries and benefits for dedicated staff.

Furthermore, when it comes to navigating the legal intricacies of workforce acquisition, attempting to handle it independently increases the risk of unknowingly violating labor code regulations. Such violations can result in fines imposed by the government. 

Established HR or PEO agencies already have well-honed processes for sourcing and recruiting top talent, making them the most efficient solution for foreign companies entering the Vietnamese market. Creating such processes from scratch can be a time-consuming, resource-draining endeavor, not to mention the potential budgetary strain of building a recruitment system through trial and error.

Avoid IRS Penalties over Errors

One of the most significant challenges faced by in-house HR units is ensuring error-free compliance, and this often leads to penalties. Outsourcing partners take on the responsibility of guaranteeing error-free compliance and are held accountable in the event of any mishaps on their part. 

According to the IRS, approximately 40% of small companies face an average annual penalty of $845 due to late or inaccurate filings and payments. Remaining up-to-date with the constantly evolving regulations at the state, federal, municipal, and industry-specific levels can indeed be a daunting task. However, by collaborating with a qualified outsourced payroll service provider, you gain access to a dedicated team that is committed to staying informed about all developments that could impact your payroll. You can also eliminate all concerns about compliance failures that might result in fines imposed by the Ministry of Labor. 

Improve Security

Payroll processing is a complex task that demands trustworthy personnel for its management. Even with long-term and reliable staff, there’s always a risk of identity theft, embezzlement, or misuse of business information for personal gain.

Most payroll service providers are equipped with technology that can detect and alert clients to any signs of payroll fraud. Additionally, online payroll systems provide a secure environment for storing sensitive payroll information, reducing the risk of unauthorized access or data breaches.

Staff with Better Experience but low Turnover Rate

In Vietnam, high staff turnover rates can be attributed to several factors deeply rooted in the country’s culture and economic landscape. Understanding these reasons is crucial for building a stable and dedicated team.

• Traditional Culture: In Vietnam, young individuals often live with their families until marriage. This cultural norm means they don’t solely rely on their job for financial support, as their parents provide for their basic needs. Consequently, they may find it easier to quit without immediate financial repercussions.
• The Era of the Side Gig: The digital revolution and the post-COVID landscape have encouraged Vietnamese youth to start side businesses at a remarkable rate. Around 70% of Vietnamese individuals engage in side jobs alongside their full-time employment. This trend adds an element of uncertainty to the workforce, as employees juggle multiple commitments.

To address these challenges, it’s essential to evaluate and optimize your HR practices. Inefficient HR departments can lead to employee frustration, especially when concerns go unaddressed or when unsuitable candidates are hired.

Outsourcing HR to a professional provider in Vietnam can help in several ways. HR experts can assess candidates not only based on qualifications but also on their personalities and cultural alignment. Moreover, experienced HR providers understand Vietnamese employees’ needs, cultural nuances, and how these factors impact an international organization. Outsourcing HR can significantly contribute to employee retention by ensuring the right people are hired and fostering a positive work environment.

What do HR and Payroll Outsourcing Companies in Vietnam do?

HR and payroll outsourcing companies in Vietnam offer a range of essential services to support businesses in managing their human resources efficiently. These services, amongst others, can be categorized into monthly and annual offerings. The monthly offerings include the following:

• Payroll Processing and Reporting: Managing payroll in Vietnam can indeed be complex due to the intricacies of local legislation and labor laws. Accurate payroll processing is not only essential for paying employees promptly but also for complying with tax and social security regulations. Payroll processing and reporting are continuous services provided by outsourcing partners. Businesses typically pay for these services through regular monthly, quarterly, or annual fees. By outsourcing this critical function, companies can offload the burdensome administrative tasks associated with payroll. Outsourcing partners are responsible for all internal aspects of payroll management, including accurate calculation, tax compliance, and social security contributions.
• Social Insurance Reporting
• Personal Income Tax Reporting and Tracking
• Consultation about Employment or Labor Relationships

The annual Services include the following:

• Labor Declaration Report: This annual report is submitted to the labor department, providing details on the number of employees currently employed by the company, including any foreign workers.
• Personal Income Tax Finalization and Settlement: At the end of the tax year, this service ensures that any overpaid personal income taxes are refunded to employees in compliance with tax regulations.
• Social Insurance Finalization: This report assesses workers’ social insurance coverage based on the duration they have been enrolled in social insurance programs.
• Company Regulation Registration: Companies are required to register their internal labor rules with the relevant authorities.

Other administrative tasks serviced include the below:

• Recruitment: HR services encompass the entire recruitment process, including talent acquisition, selection, contract consulting, and procedures. This ongoing service can be billed monthly, quarterly, or annually. The services include assessing client needs, searching and shortlisting candidates, conducting pre-interviews, facilitating labor union approvals, managing labor agreements, arranging interviews, and implementing comprehensive onboarding procedures.
• HR System Registration & Trade Union Establishment: HR system registration and trade union establishment are one-time services, with charges incurred only during the registration and establishment phase. In Ho Chi Minh City, trade unions play a crucial role in maintaining a harmonious work culture by mediating between employees and employers to protect workers’ rights effectively.
• Initial Labor Registration: This process involves registering employees under their respective employer’s company. The outsourcing partner also handles an official declaration for contributing 2% of Social Salary Funding to the Vietnam Trade Union. Additionally, they assist in creating Company Regulations and obtaining approval from relevant authorities, which may include standard company policies and HR policies. Additionally, salary scale registration determines the salary level for each position or job title, establishing a structured salary framework based on different positions within the company.
• Initial Social Insurance Registration: Social Insurance registration encompasses participation and adjustments to the declaration sheet for Social, Health, and Unemployment Insurance for each employee. The outsourcing partner is responsible for delivering documents containing the list of employee information and the company’s labor force.

Risks of HR and Payroll Outsourcing

While outsourcing HR functions can offer numerous benefits, it’s essential to consider the associated risks and challenges:

• Less Control: HR teams are often seen as the heart of an organization, managing critical aspects of employees’ lives. Outsourcing these functions can lead to a perceived loss of control over sensitive matters.
• Impact on Company Culture: Outsourcing HR can potentially affect company culture, sometimes in ways that don’t align with your organization’s values and mission. This can be costly and disappointing.
• Finding the Right Service Provider: Identifying an external HR partner who aligns with your company’s culture and values can be a time-consuming process. Onboarding them effectively can also take more time than anticipated.
• Communication Challenges: External HR providers often manage multiple clients, which can lead to longer response times during busy periods. This may slow down essential processes for your organization.
• Additional HR Support: While outsourcing is intended to save time, it may require your internal HR team to provide support, especially if the external provider lacks full access to your HR information system. This can lead to information gaps and delays in critical processes.
• Data Security at Stake: In the digital age, data is a critical asset for businesses. Outsourcing HR functions may expose sensitive employee data to potential security risks. The increasing prevalence of cybercrime has made data security one of the most significant challenges in HR outsourcing today.
• No Cost Limits: A significant challenge when outsourcing HR functions is striking the right balance between cost and quality. While you may discover cost-effective HR service providers, there’s a potential trade-off with performance quality. HR is a mission-critical function for any business, and subpar performance by the outsourcing provider can have severe consequences. Finding a high-quality HR provider that fits within your budget can be a challenging task, especially in the realm of international business.
• Lack of a Personal Approach: Outsourcing HR tasks to external providers can sometimes result in a lack of flexibility, which may lead to employee demotivation. When external entities dictate tasks and methods, internal staff members might lose motivation. This could be exacerbated when support is provided remotely rather than on-site, as it might feel like the human touch is removed from human resources. 

Who Should Outsource HR & Payroll?

HR and Payroll Outsourcing can benefit a wide range of organizations and businesses, including:

• Small and Medium-sized Enterprises (SMEs): SMEs often lack the resources to maintain an in-house HR and payroll department. Outsourcing these functions can help them efficiently manage HR processes and ensure compliance while focusing on core business operations.
• Foreign Companies Expanding into Vietnam: For foreign businesses entering the Vietnamese market, outsourcing HR and payroll can be particularly beneficial. It allows them to navigate the complexities of Vietnamese labor laws, cultural nuances, and recruitment challenges with the help of local experts.
• Companies with Limited HR Expertise: Businesses that lack in-house HR expertise or have a small HR team may struggle with managing complex HR and payroll tasks. Outsourcing provides access to a dedicated team of HR professionals.
• Businesses in Highly Regulated Industries: Industries with strict regulations, such as healthcare or finance, can benefit from outsourcing to ensure compliance with industry-specific requirements.

HR and Payroll Outsourcing can be beneficial for a wide array of organizations, from startups and SMEs to larger enterprises, as it offer expertise, efficiency, compliance, and cost-saving advantages that contribute to overall business success.

How to Obtain a License with HR Outsourcing in Vietnam

Employment Services Agencies

Employment Service Companies provide various services to their clients in Vietnam. The most important one among them is providing counseling to the employees of a firm. These agencies counsel the people to get a job, select an occupation based on their skill set, and provide them counseling services that would help them clear the recruitment exams.

According to Decree No. 52/2014/ND-CP, the HR license for employment services agencies is valid for only five years (60 months). After that period, the license needs to be renewed. The enterprise applying for the license must have a stable location used as the head office for at least three years. The enterprise can own the building, or it can be rented property. However relevant documents must be attached to the application dossier.

The registration process requires an amount to be deposited to the bank. The enterprise must deposit 300,000,000 VND to the bank where it has opened its main transaction account and this amount of capital would be frozen into the bank account during company operation. After completing all these requirements, the application forms and the documents are submitted to the government. The government will respond to the application within 15 days.

A point worth noting is that Decree No. 23/2021/ND-CP on detailing employment service centers and employment service enterprises will take effect on June 1st, 2021. The newly added conditions are that the company’s statutory representative must be the business manager, should not be facing any criminal prosecution, and must have at least a bachelor’s or 2 years’ work experience in connection with employment service within 05 consecutive years before applying for the license. Additionally, the settlement duration will be shortened to 7 working days.

Labor Outsourcing Services Agencies

Labor outsourcing agencies are responsible for providing labor to the firm in times of need. If a firm has had a sudden increase in the demand for labor, a labor outsourcing agency will be responsible for providing fair labor. In case the laborer at the firm is on maternity leave or has been involved in an accident, the labor outsourcing agency will help replace those workers. It ensures that the firm keeps operating at the optimal speed without any loss.

The legal representative applying for the license for the firm must be in a managing position in the firm, should not have any criminal conviction, and the representative must have experience of at least three years of working in labor dispatch or labor supply in the last five years before the application for licensing is submitted. If a person follows all these requirements, they can apply for the license.

The license is only valid for five years (60 months). Once the period is over, the firm must renew the license before it can continue its operation. Before applying for the license, the enterprise must pay a deposit of 2,000,000,000 VND. It is important to Set Up a Labor dispatch Business in Vietnam.

Once these requirements are met, the enterprise can apply for the license. The relevant documents that need to be attached are a copy of the enterprise registration certificate and the certificate of the deposit made to the bank. The representative must also attach their resume, criminal record, and a certificate showing their experience in the field.

Some HR and Payroll Outsourcing Companies in Ho Chi Minh City

Adecco Vietnam

Adecco Vietnam is a global leader in HR solutions, offering staffing, workforce management, and talent development services. With a strong presence in Ho Chi Minh City, Adecco connects businesses with skilled professionals across various industries.

ManpowerGroup Vietnam

ManpowerGroup is a well-established HR outsourcing company with a focus on workforce solutions, recruitment, and talent development. They provide comprehensive HR services to businesses in Ho Chi Minh City and beyond.

HR2B

HR2B is a leading HR outsourcing firm in Vietnam, offering a wide range of services, including executive search, payroll outsourcing, and HR consulting. They have a strong presence in Ho Chi Minh City, serving both local and international clients.

Navigos Search

Navigos Search specializes in executive search and talent acquisition services. They have a deep understanding of the Vietnamese job market and assist businesses in Ho Chi Minh City with their recruitment needs.

InCorp Vietnam

InCorp Vietnam is a one-stop avenue for professional payroll and HR outsourcing services in Ho Chi Minh City. Our experienced consultants ensure that your payroll data is handled in line with the accounting standards in Vietnam. It also offers tax guidance and post-payroll audit services, which save you time and allow you to focus on your core company operations.

InCorp Vietnam provides a comprehensive spectrum of payroll services to ensure immaculate payroll and HR compliance in Ho Chi Minh City. These include:

• Payroll outsourcing
• HR administrative services
• Cutting-edge staffing solutions
• Support in acquiring a Work permit
• Support in acquiring a Temporary Residence Card

Having an outsourcing partner like InCorp Vietnam on board to deliver talent-driven operations, increases your chances of succeeding in today’s highly competitive business market. Fill out the form below and our consultants will get back to you.

Conclusion

HR outsourcing in Vietnam presents a multifaceted solution for businesses seeking to optimize their operations and enhance their competitive edge in this dynamic market. By entrusting HR functions to experienced partners, companies can navigate the intricacies of local regulations, foster compliance, and bolster data security.

However, it’s crucial to recognize potential drawbacks. While outsourcing can be a powerful tool, selecting the right service provider is paramount. Diligent research, alignment with company values, and cultural compatibility are essential.

Ultimately, HR outsourcing in Vietnam serves as a strategic lever for businesses aiming to drive growth, mitigate risks, and maintain a competitive edge in a vibrant and evolving marketplace.

About Us

InCorp Vietnam is a leading provider of global market entry services. We are part of InCorp group, a regional leader in corporate solutions, that encompasses 8 countries in Asia-Pacific, headquartered in Singapore. With over 1,100 legal experts serving over 15,000 Corporate Clients across the region, our expertise speaks for itself. We provide transparent legal consulting, setup, and advice based on local requirements to make your business perfectly fit into the market with healthy growth.

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