How to Hire Contractors in Vietnam

Vietnam stands out as one of Southeast Asia’s most rapidly expanding economies. Its rich cultural diversity and affordable living costs makes the country appealing to local freelancers, as well as foreign remote workers and digital nomads. As a business owner, engaging independent contractors in Vietnam allows you to tap into niche expertise on a project-by-project basis – all without establishing a local entity. 

However, it is important to understand local labor and tax regulations related to hiring contractors in Vietnam. Perhaps the biggest offense many employers fall into is misclassifying full-time employees with freelancers. 

In this article, we will give you insights into the country’s labor laws, tax compliance, and strategies to prevent the misclassification of employees as contractors.

Understanding Vietnam’s Freelance Network

Who Should Hire Contractors in Vietnam?

 Vietnam’s rapidly growing economy and expanding skilled labor pool, especially in sectors like IT and technology outsourcing. You should consider hiring freelancers if you need temporary staff with specialized skills on a by-project basis. Hiring contractors also suits companies wanting to minimize administrative burdens related to social insurance, benefits, and labor protections that apply to full-time employees. You can also hire contractors if you don’t have a legal entity in Vietnam. 

Definition of a “Contractor” Under the Vietnamese Labor Code

As a result of a huge demand for freelancers in Vietnam, the Vietnamese Labor Code was expanded in 2021 to broaden the definition of an employee. This includes anyone who: 

1. Works based on a contractual agreement or labor contract with the employer
2. Operates under the supervision or control of the employer
3. Receives a regular salary from the employer

If a labor contract indicates that the individual is supervised by the employer and receives a salary, that person is classified as an employee. Conversely, if these conditions are not met, the individual is considered a contractor or freelancer. Contractors typically work without a formal labor contract and have greater flexibility to determine how they perform their tasks.

Key differences between employees and independent contractors in Vietnam include:

• Employees benefit from statutory employment protections under Vietnamese law, whereas independent contractors do not have access to these legal protections.
• Employment contracts are compulsory for employees but are not legally required for independent contractors.

Risks of Misclassifying a Contractor in Vietnam

Hiring freelancers in Vietnam requires careful legal classification to distinguish them from your full-time employees. While Vietnam does not have a specific employment law dedicated to freelancers, they are generally governed under civil or commercial law rather than labor law. Distinction between freelancer and full-time employee hinges on factors such as:

• Degree of control over how, when, and where work is done (freelancers have significant autonomy).
• Integration into the company’s core operations (freelancers usually work on specific projects, not integrated into daily operations).
• Provision of tools and equipment (freelancers typically supply their own).
• Financial risk (freelancers bear more risk and can profit or lose).
• Duration and exclusivity (freelancers work on non-exclusive, project-based terms).
• Payment method (freelancers are oftentimes paid per deliverable or project, not a fixed salary).

To formalize this distinction, you need a comprehensive employment contract. It must emphasize the independent nature of your employee-employer relationship, avoiding terms that imply formal employment. Freelance contracts should clearly specify: 

• Parties involved
• Scope of work and deliverables
• Timelines and milestones
• Payment terms and schedules
• Confidentiality and intellectual property rights
• Termination conditions
• Governing law (Vietnamese law) and dispute resolution mechanisms

What Should You Consider When Managing Contractors in Vietnam

Preparations Before Hiring Contractors in Vietnam

Before hiring contractors in Vietnam, there are key preparations you need to do in order to ensure legal compliance and project success. Before you hire a contractor, you need to clearly define the following: 

• Role: Specify the contractor’s responsibilities and authority.
• Project Scope: Detail the tasks, objectives, and deliverables expected.
• Timeline: Set clear start and end dates, including milestones.
• Deliverables: Define measurable outputs and quality standards.
• Required Skills: Identify necessary expertise and experience to match project needs.

Once defined, you can draft a comprehensive independent contractor agreement. This document should cover the scope of work, timeline, payment terms, and provisions for changes or dispute resolution for your freelancers in Vietnam. Make sure you carefully review and agree on the contract before mutually signing. 

After signing the contract, you can start the onboarding process. You need to supply your freelancers with the necessary software, hardware, and access to company-specific workflows. Use clear and consistent channels (e.g., email, project management tools) and set expectations for reporting frequency and formats to your freelancers.

Payment and Tax Considerations for Hiring Vietnamese Contractors

Perhaps one of the most important factors to consider is payment and tax for contractors. The official currency in Vietnam is the Vietnamese Dong (VND). While some contractors may accept foreign currencies like USD, paying in VND is recommended to avoid unfavorable exchange rates and ensure compliance with local regulations. 

To distribute wages to freelancers, you can use the following: 

• Bank transfer
• Wire transfer
• Traditional money transfer (e.g. via Western Union)
• Digital payment using PayPal or Wise

Vietnam mandates the use of electronic invoicing (e-invoicing) for business transactions, including payments to contractors. You must register with the General Department of Taxation (GDT) and issue e-invoices that are digitally signed and comply with Vietnamese tax regulations. This applies to both Value Added Tax (VAT) invoices and sales invoices depending on the tax declaration method used. 

Independent contractors in Vietnam are responsible for managing their own taxes and social insurance contributions. Companies typically pay contractors based on invoiced amounts without withholding tax, but should ensure contractors comply with local tax laws. 

How to Terminate Freelancers in Vietnam

Terminating freelancers in Vietnam differs significantly from terminating full-time employees. Freelancers are engaged under service or independent contractor agreements under the Civil Code rather than full-time labor contracts under the Vietnamese Labor Code. Freelancer contracts generally allow more flexibility for termination compared to labor contracts, provided the terms are clearly defined.

Here are grounds for termination of freelancer contracts in Vietnam: 

• Completion of the contracted work or project.
• Mutual agreement between parties to terminate early.
• Contract rescission or early termination due to breach or force majeure.
• Other lawful grounds stipulated in the contract or under Vietnamese Civil Code Articles 422–428 and Commercial Law Articles 292.

Unlike labor contracts, there are no statutory requirements for terminating independent contractors unless specified under their contract. However, it is best practice to include a notice period clause in the contract to avoid disputes. Termination should be communicated in writing and should specify the reason for termination, effective date, and any final obligations.

There are no statutory requirements for employers to provide additional benefits or social insurance settlements to freelancers upon termination, including severance pay. Regardless, it is important to maintain written records of termination notices and any correspondence related to contract cessation.

Converting Contractors to Full-time Employees

Although many hire contractors in Vietnam for flexibility, there may be situations where companies transition freelancers to full-time employees. This step is beneficial especially if you want to retain valued contractors as permanent team members. To convert an independent contractor into an employee in Vietnam, you need to do the following: 

1. Communicate the change
2. Draft a new employment contract
3. Register for social and health insurance.
4. Update tax and payroll records
5. Obtain work permits if the freelancer is a foreigner in Vietnam.
6. Terminate the previous contractor agreement
7. Maintain documentation of the transition

Although it sounds like a complex process, RecruitGo’s team of experts can help simplify the process. We can help give advice regarding Vietnam’s local employment regulations and how to transition freelancers to full-time employees for your organization. 

The Best Way for Hiring Contractors in Vietnam

An effective alternative to directly hiring contractors in Vietnam is using an Employer of Record (EOR) service. An EOR is a third-party company that becomes the official legal employer of your contractors or employees in Vietnam. While the EOR handles all employment-related administrative, legal, payroll, tax, and compliance responsibilities, your business retains full control over the contractors’ day-to-day work, tasks, and project management.

Here are benefits of an EOR in Vietnam: 

• No Need to Establish a Local Entity: The EOR employs contractors under its own Vietnamese legal entity. It allows you to hire and manage talent without the time-consuming and costly process of setting up and registering a business in Vietnam.
• Compliance with Local Labor Laws: The EOR ensures full compliance with Vietnam’s labor regulations, tax withholding, social insurance, and mandatory benefits, significantly reducing legal and financial risks associated with misclassification or non-compliance.
• Faster Onboarding: EOR providers typically onboard new contractors or employees within a few days, handling contracts, registrations, and payroll setup efficiently. RecruitGo’s EOR service allows you to hire and onboard freelancers in as little as 3 days.
• Payroll and Tax Administration: The EOR manages payroll processing, tax filings, social insurance contributions, and statutory benefits, ensuring timely and accurate payments without burdening your internal resources.
• Access to Local Expertise: EORs bring in-depth knowledge of Vietnamese employment law, market practices, and regulatory updates, helping you navigate complexities smoothly.

RecruitGo allows you to hire employees in Vietnam without the hassle of establishing a legal entity or complying with local labor regulations.  If you’re a startup, an SME or have existing remote teams in Vietnam, an EOR can streamline your HR processes so you can focus on core business activities. Hire freelancers in Vietnam with RecruitGo! Fill out the form below to know more about our Employer of Record Service in Vietnam.

FAQs About How to Hire a Contractor in Vietnam

The primary difference between a full-time employee and a contractor lies in the nature of their working relationship and legal protections. Full-time employees work under the formal labor contract overseen by the Vietnamese Labor Code. They are subject to the employer’s direct supervision, and receive regular salaries along with statutory benefits such as social insurance, paid leave, and severance pay. Employers are responsible for withholding personal income tax and social insurance contributions on behalf of employees. 

Conversely, contractors (or freelancers) are engaged through service or independent contractor agreements governed by the Civil Code rather than labor law. They operate with greater independence, managing how and when they perform their work, and are paid based on invoices for completed projects or milestones. Contractors are responsible for their own tax filings and social insurance, and they do not receive labor law protections or benefits from the hiring company.

As a preparation to hire contractors in Vietnam, you can also establish a legal entity in the country. Though optional, this facilitates smoother hiring, compliance with local labor and tax laws, and operational control. You can establish a representative office, a limited liability company (LLC), a joint company or a branch office depending on company structure.

To find qualified contractors or freelancers in Vietnam, global platforms like Upwork, Fiverr, Freelancer.com, and Guru host large pools of Vietnamese freelancers. These platforms offer features such as freelancer profiles, client reviews, skill tests, and secure payment systems to help you identify and hire reliable talent efficiently.

Misclassifying contractors as employees in Vietnam carries significant legal and financial risks. If authorities determine that individuals classified as self-employed contractors should have been treated as employees, the company may be liable for unpaid personal income tax (PIT) with penalties of up to 20% of the underpaid tax plus daily interest. More critically, the employer could face compulsory payment of both the employer’s and employee’s social insurance contributions retroactively, along with monetary penalties and interest.

Onboarding a contractor in Vietnam typically takes around 3 to 10 working days. This timeframe depends on the complexity of the process and how quickly required documents and tax registrations are completed. Clear communication, timely submission of paperwork, and leveraging specialized service providers like RecruitGo are key to ensuring a smooth and compliant onboarding experience for contractors in Vietnam.