Cutting standard working hours and offering progressive payment for overtime without changing the ceiling of overtime hours would run up costs for businesses, impacting their performance.

Aiming to create a comprehensive policy ensuring the benefits of employees and employers alike, the Central Institute for Economic Management (CIEM) on September 18 organised the workshop titled “Draft Labour Code: Unexpected impacts on the economy” with the attendance of ministries, branches, business associations, international organisations, and other stakeholders.

Speaking at the workshop, CIEM’s director Nguyen Dinh Cung said that the scope of the Labour Code’s regulations is huge and deeply impacts the local business environment as well as the nation’s economic competitiveness. He went on to claim that the draft Labour Code contains several inadequacies. Once the draft is approved, it will ause a hiccup in the growth of manufacturing activities, which will lead to a fall in export turnover. As a result, the new regulations would first affect the lives of labourers, then the competitiveness of domestic companies.

One of the most debated parts of the draft is keeping the ceiling on overtime hours, introducing progressive payment for overtime (meaning a VND70,000 hourly bonus for working 95 hours overtime and VND100,000 after), and cutting the standard working hours.

For instance, if the new regulations are applied to Samsung Vietnam, the company will suffer $2 million in monthly costs, equalling about $24 million per annum. Such a huge cost burden will impact its manufacturing activities and may prompt the company to relocate its factory to another country. As a result, the local export turnover will sharply reduce and the performance of suppliers for Samsung Vietnam will be affected in turn.

Compared to other regional countries, the productivity of Vietnamese labourers is relatevely low. At the workshop it was shared that the country’s labour productivity in 2017 reached $10,232, equaling 7.2 per cent of Singapore’s, 18.4 per cent of Malaysia’s, 36.2 per cent of Thailand’s, 43 per cent of Indonesia’s, and 55 per cent of the Philippines’. Notably, Laos, Cambodia, the Philippines, and Malaysia still have 48-hour working weeks like Vietnam.

Accordingly, the draft Labour Code may have a six-fold impact on the economy. These include:

– Falling local export turnover;

– Falling government revenue;

– Falling competitiveness in international markets;

– Weakening the government’s efforts to attract FDI;

– Unclear clauses in the draft may obstacle the growth of companies, making them reduce manufacturing scale or start redundancy programmes due to the financial impact; and

– Undue cost burden on companies.

Vietnam Investment Review