Hire Contractors in Vietnam

Vietnam emerges as the Tiger Cub economy in Southeast Asia. With a workforce of over 52 million, Vietnam offers a vast talent pool across various industries. 

However, it is also true that only about 26% of the domestic labor force are trained workers with degrees and certificates. Therefore, outsourcing specialized tasks to foreign contractors is common for global businesses in Vietnam. 

Incidentally, Vietnam’s updated labor code allows you to onboard contractors and manage them based on three factors of engagement: a formal employment contract, managerial oversight, and regular salary. 

The degree of control over these factors will differentiate an employee from an independent contractor. 

Continue reading this guide to explore the intricacies of the process, challenges, and best practices to hire contractors in Vietnam compliantly.

How to Hire Contractors in Vietnam

You can hire contractors in Vietnam directly or through a contractor management company to ensure 100% compliance and success.

Hiring contractors directly involves finding and managing them independently. However, you must begin with: 

1. Establishing a legal presence in Vietnam through six different types
   • Representative Office
   • Limited Liability Company
   • Joint-Stock Company
   • Branch Office
   • Joint Venture
   • Public Private Partnership
2. Clearly outline the project scope, required skills, and deliverables before advertising for open positions.
3. Utilize online platforms like LinkedIn and popular freelance marketplaces like Guru.com, VietGigs, Truelancer, Upwork, and referrals.
4. Draft a comprehensive service contract outlining terms, payment, intellectual property, and dispute resolution.
5. Provide necessary information and resources for the contractor to start working.
6. Handle invoicing, payments, and necessary tax withholdings.

However, there is an easier way for businesses to work with independent contractors in Vietnam, such as through contractor management software like Skuad. 

Hiring contractors through Skuad AOR

Skuad is an Agent of Record (AOR) platform that simplifies the process of hiring contractors in Vietnam and other countries. By partnering with Skuad, you can focus on your core business while we handle the complexities of contractor management:

1. Handle the contract creation and management process, ensuring compliance with local labor laws.
2. Facilitate the onboarding process, including necessary paperwork and documentation.
3. Ensure compliance with local tax and labor regulations, mitigating risks for your business.
4. Manage risks associated with contractor misclassification, intellectual property rights, and other potential issues.

How to pay contractors in Vietnam

While you are not obliged to transfer statutory employee benefits when engaging an independent contractor in Vietnam, you can utilize Skuad to handle the payment process for timely and accurate disbursements. 

However, if you are employing contractors directly, you must gather the necessary information for compliance under foreign contractor withholding tax in Vietnam. You also need to maintain detailed records of payments, invoices, and tax-related documents before you can choose from any of the following payment methods:

Hiring Contractors Directly Vs. Hiring Contractors Via Skuad

Here’s a comprehensive comparison table between the impact of directly hiring and hiring contractors via Skuad.

If you hire contractors directly, go through this detailed checklist to avoid misclassification.  

Cost of Hiring Contractors in Vietnam

Technology professionals in Vietnam typically earn between VND 230,000 and VND 270,000 per hour ($10-USD 12) for full-time or contract roles. 

Freelancers in the same field command higher rates, ranging from VND 460,000 to VND 570,000 per hour ($20-USD 25).

Furthermore, you may incur an additional cost of nearly 25.50% on an annual salary of USD 60,000 for payroll and taxation compliance. 

Challenges of Hiring Contractors in Vietnam

While hiring an independent contractor in Vietnam offers flexibility and cost-efficiency, you must consider the following unique set of challenges:

1) Managing service contracts: 

Employment agreements enforce statutory protections under labor laws. Thus, service contracts are viewed as a better alternative to hiring contractors in Vietnam. However, service contracts in Vietnam are high risk for businesses as 

• Wrongly classifying an employee and independent contractor in Vietnam can have significant legal and financial repercussions.
• Moreover, tax authorities tend to classify independent contractors in Vietnam as employees if they haven't registered their businesses. 
• Further, the three-month exemption for foreign workers in Vietnam is often misused. 
• This leaves companies vulnerable to legal impositions when they employ foreigners on consecutive short-term contracts of less than 90 days.

2) Foreign contractor withholding tax in Vietnam

• Vietnam's foreign contractor tax (FCT) is a complex system with various rules and requirements.
• In most cases, companies are responsible for registration, withholding, and paying the applicable foreign contractor tax in Vietnam, up to 10% of total project payments.
• In some cases, foreign independent contractors in Vietnam may be taxed 20% of their net profit from the project. 

• However, Vietnam’s double taxation agreements with other countries can affect the tax liability.
• Therefore, companies hiring an independent contractor in Vietnam should also look at FCT regulations to ensure payroll compliance.

3) Talent acquisition 

• The competition for top talent in Vietnam requires companies to differentiate their employer brand.
• This results in the growing demand for skilled labor, and contractors have more options, making it challenging to retain them.
• They may get better bargaining terms during project negotiations.

Fortunately, there are specialized contractor management services like Skuad for payment processing, dispute resolution, and safeguarding intellectual property rights throughout the contract period.

How to Convert a Contractor into an Employee in Vietnam

Converting a contractor into an employee in Vietnam involves legal compliance and tax implications. 

It follows a similar approach to switching from 1099 contractor to W2 employee status by the US companies, and you can mitigate it in any of the two ways:

Method 1: Direct conversion

• Establish a legal entity in Vietnam to comply with labor laws.
• Create a formal employment contract outlining terms, conditions, benefits, and working hours.
• Manage the onboarding process, payroll, and benefits administration in-house.
• Ensure compliance with Vietnamese labor and tax regulations and transfer all statutory benefits to employees. 

Method 2: Using an EOR (Employer of Record)

• Choose a reputable EOR to handle employment-related tasks.
• The EOR will manage the transition from contractor to employee status.
• They handle onboarding, payroll, and benefits administration.
• They also ensure compliance with local labor and tax regulations.

Hire Contractors in Vietnam with Skuad

While direct hiring offers greater control, it also comes with significant overhead. Alternatively, leveraging a platform like Skuad can streamline the process, ensuring compliance and allowing businesses to focus on core competencies. 

Skuad handles onboarding, paying, and managing independent contractors in Vietnam and over 160 other countries without requiring local entity setup.

Book a demo to explore Skuad’s independent contractor management solutions.

FAQs

1) How do I hire independent contractors in Vietnam?

You can hire contractors in Vietnam in two ways: through direct hiring or a contractor management service like Skuad. The most significant advantage of using Skuad’s Agent of Record service is that you can onboard and manage contractors without setting up a legal entity in Vietnam. 

2) How do I pay an independent contractor living in Vietnam?

To pay an independent contractor living in Vietnam, you can use direct bank transfers, international wire transfers, or digital payment platforms like PayPal or Wise. However, the easiest mode of paying independent contractors in Vietnam is through a third-party payroll service for added convenience and compliance support. 

3) How does Skuad help hire and pay independent contractors in Vietnam?

Skuad simplifies the process of hiring and paying independent contractors in Vietnam by acting as an Agent of Record (AOR). They handle onboarding, IP protection, payroll, and tax compliance, allowing businesses to focus on their core operations. Skuad ensures adherence to local labor laws and provides a seamless experience for the client and the contractor.

4) Do I have to notify the IRS when hiring a foreign contractor working in a foreign country?

Usually, you do not need to notify the IRS specifically when hiring a foreign contractor who works exclusively outside the United States. However, you should require the foreign contractor to complete an IRS Form W-8BEN. This form certifies their foreign status and helps determine if any withholding is required.

5) What is the difference between an independent contractor and an employee?

Vietnam emphasizes three primary criteria to differentiate employees from contractors: the existence of a formal employment contract, direct managerial control, and the receipt of a regular salary.

Moreover, independent contractors enjoy flexible work schedules and may be treated differently for tax purposes.