Severance allowance and retrenchment allowance are two typical allowance payable by the employer to the employee in case the employer has not contributed the redundancy insurance.

Severance allowance which is equal to the aggregate amount of half of one month’s wages for each year of employment plus wage allowances (if any) shall be paid to the employee regularly employee for a period of 12 months or more upon termination of labour contract in the following cases:

  • The labour contract is terminated due to:
  • The expiry of the contract;
  • The tasks stated in the contract have been completed;
  • Both parties agree to terminate the contract;
  • The employee is sentenced to serve a jail term or is restricted from performing his perform job in accordance with a decision of a court;
  • The employee dies or is declared missing by a court;
  • From 1 May 2013, there are some other circumstances added i.e. the employee is retired, the employee is dismissed, the employee is declared by court to lost civil capacity and the corporate employer cease operation;
  • The labour contract is lawfully unilaterally terminated by either the employee other employer; and
  • The employee is dismissed by the employer because she/he as absent from work for an aggregate of five days in one month or an aggregate of twenty days in one year on her/his own will without proper reasons.

Retrenchment allowance which is equivalent to the aggregate amount of one month’s wages for each year of employment (but no less than 02 months’ wages) shall be paid to the employee regularly employed for a period of 12 months or more becomes unemployed as the result of the following circumstance:

  • Organizational restructuring or technological changes by employer in below cases:
    • Partial or complete change of machinery, equipment in order to achieve increase capacity; or
    • Change of lines of product or product structure leading reduction of a number of required employees, or
    • Merge or dissolution of a number of units within an entity; and
    • Merge, consolidation, division, separation or transfer of the ownership or the right to manage or the right to use the assets of the enterprises.

Where the employer and the employee have contributed unemployment insurance premiums in accordance with the pro visions of the Law on SI, the unemployment allowance payable by Social Insurance Agency to the affected employee shall be the replacement of the severance allowance or retrenchment allowance payable by the employer as from the date at which the unemployment insurance was contributed.