Issue 011224 – Regulations on probation under Labor law

Dear Valued Clients,

The regulations on probation are important legal provisions that businesses and employers must take into consideration. These rules serve to establish a transparent legal framework that safeguards the rights of both employers and employees during the initial evaluation phase. Such provisions not only ensure fairness in the recruitment process but also mitigate potential legal risks arising from the early termination of employment contracts. Probation regulations create a balance between the rights and obligations of the parties involved, while also encouraging compliance and professionalism in the recruitment and personnel management process.

For a more comprehensive understanding of this issue under the applicable laws, clients may refer to our detailed article.

1. The concept of probation

The term “probation” under current legal regulations is not specifically defined but is generally outlined from Articles 24 to 27 of the 2019 Labor Code. It can be understood that a probationary employee is an individual undergoing a probation period, with the probation contents specified in the labor contract, or a probationary employee under a probation contract.

A probation contract is an agreement between the employer and the employee regarding the trial work, rights, and obligations of the parties during the probation period.

2. Form of Agreement on probation content [1]:

Under Labor law regulations, labor contracts are typically concluded in written form or through electronic means in the form of data messages as prescribed by electronic transaction laws (having the same legal effect as written labor contracts).

Oral agreements may be used by employers and employees to conclude labor contracts with a term of less than one month, except in the following cases:

• Labor contracts with employees under 15 years old must be concluded in writing;
• Labor contracts with domestic workers must be concluded in writing;
• Labor contracts for seasonal work or specific tasks with a term of less than one month, where a group of employees aged 18 or older authorizes one employee in the group to conclude the contract. In this case, the labor contract must be in writing.

The employer and the employee may agree on probationary terms through:

(a)       Including probationary terms in the labor contract

With this approach, the employee may propose a labor contract containing a provision on probation. In accordance with the aforementioned regulations on labor contract forms, the parties opting to include probationary terms in the labor contract must conclude the contract in writing or via electronic means.

(b)       Entering into an independent probation contract

With this approach, the employer and the employee first conclude an independent probation contract. Subsequently, upon fulfilling the conditions specified in the probation contract, the employer and the employee sign a new labor contract after the probation period under the initial probation contract.

Parties opting to conclude an independent probation contract may choose the form of the contract at their discretion.

3. Contents of a probation contract [2]:

Name and address of the employer, and full name and title of the person entering into the contract on the employer’s side;

(i)         Full name, date of birth, gender, place of residence, serial number of the citizen identity card, people’s identity card or passport of the person entering into the contract on the employee’s side;

(ii)        Job(s) and workplace;

(iii)       Working time and rest time;

(iv)       Job- or title-based wage, form of wage payment, time of wage payment, wage-based allowances and other additional payments;

(v)        Labor safety equipment for the employee.

Note: Due to the short-term nature of labor contracts with a term of less than one month, probation contracts do not apply to such cases. Employees entering into labor contracts with a term of less than one month will commence official work immediately upon the conclusion of the contract and will be entitled to receive 100% of the salary for the job they perform as stipulated in the labor contract.

4. Probation period [3]:

The probation period shall be agreed upon by the two parties based on the nature and complexity of the job(s). However, it shall be applied only once for each job, and is prescribed as follows:

For enterprise managers defined in the Law on Enterprises and Law on Management and Use of State Capital Invested in Production and Business at Enterprises: not exceeding 180 days

For holders of job titles requiring professional and technical qualifications of collegial or higher degree: not exceeding 60 days;

For holders of job titles requiring professional and technical qualifications of intermediate degree, or for technical workers and operation employees: not exceeding 30 days

For other jobs: not exceeding 06 working days.

5. Wages during probation period [4]:

The employee’s salary during the probation period is subject to mutual agreement between the parties but must be at least 85% of the salary for the job. The probation salary is also considered taxable income for personal income tax purposes.

Accordingly, in the following cases, a 10% tax deduction must be applied to the income before payment to the individual:

• Individuals who have signed a probation contract;
• Individuals with probation agreements included in a labor contract of less than three (03) months, where the total income paid is from two million (2,000,000) VND or more per payment.

Thus, if the employer and the employee have signed a probation contract or included probation terms in a labor contract of less than three months, and the total salary paid to the employee is two million VND or more, the employer is permitted to deduct 10% personal income tax.

However, employees may temporarily avoid tax deductions if they meet all the following conditions:

• The total income paid per payment is two million VND or more;
• The individual is a resident who has signed a probation contract or a labor contract of less than three months for probation purposes;
• The individual has only one source of taxable income (those working at multiple places cannot make such a commitment);
• The estimated total taxable income, after family deductions, does not reach the taxable threshold;
• The individual must have registered for tax and obtained a tax identification number at the time of making the commitment.

If the above conditions are satisfied, the employee may complete the personal income tax commitment form using Form 08/CK-TNCN, issued under Circular 80/2021/TT-BTC guiding the implementation of certain provisions of the Law on Tax Administration and Decree 126/2020/ND-CP detailing certain provisions of the Law on Tax Administration.

Regarding employees who resign during the probation period:

Under the Labor Code, either party may terminate a probation contract or a labor contract during the probation period without prior notice and without compensation. Furthermore, within 14 working days from the termination of the employment relationship, the employer and the employee are obligated to settle all payments related to the rights of each party, except for certain cases where the timeline may be extended but cannot exceed 30 days.

Therefore, regardless of whether the employee resigns during the probation period, the employer is responsible for paying wages for the days the employee has worked, as agreed upon, but not less than 85% of the salary for the job.

6. Social insurance payment during the probation period:

(a)       For employees under an independent probation contract:

Pursuant to the 2014 Law on Social Insurance, compulsory social insurance applies only to labor contracts with a term of at least one month and does not extend to probation contracts. Therefore, employees working under a probation contract are not subject to compulsory social insurance. Consequently, the probation period for employees in this case will not be included in the duration of social insurance contributions.

(b)       For employees on probation under terms specified in a labor contract:

Article 2 of the 2014 Law on Social Insurance stipulates individuals working under labor contracts with a term of at least one month are subject to compulsory social insurance. Accordingly, if the labor contract signed between the employee and the employer includes probation terms, the employee will fall within the scope of compulsory social insurance. In such cases, the probation period will be included in the duration of social insurance contributions, and the employer is obligated to pay social insurance for the employee.

7. Expiration of probation period [5]:

Under the provisions of the Labor Code, the employer is obligated to inform the employee of the probation results upon the conclusion of the probation period. Although Decree No. 05/2015/ND-CP previously required the employer to notify the employee of the results of their probationary work at least three days prior to the end of the probation period, this decree is no longer in effect. The current Labor Code and Decree No. 145/2020/ND-CP, which provides guidance on labor conditions and labor relations, do not specify the exact timing or method by which the employer must notify the employee of the probation results. Therefore, it can be interpreted that the employer may communicate the results to the employee via written notice, verbal communication, or other means without any time restrictions.

Following the employer’s notification, the outcomes will depend on the probation results:

(a) If the probation meets the requirements:

The employer will either continue to implement the labor contract already concluded (if the probation terms are included in the labor contract) or enter into a new labor contract with the employee (if a probation contract was initially concluded between the parties).

(b) If the probation does not meet the requirements:

The parties will terminate the labor contract with probation terms or the probation contract.

Note: During the probation period, both the employer and the employee have the right to terminate the probation contract or the labor contract with probation terms without prior notice and without compensation.

As usual, we hope you find this Legal Article helpful and look forward to working with you in the upcoming time.

Kind regards,

ENT Law LLC

The full version of this Legal Update can be found here.

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[1] Clause 1 Article 24 of the Labor Code 2019

[2] Clause 2 Article 24 of the Labor Code 2019

[3] Article 15 of the Labor Code 2019

[4] Article 26 of the Labor Code 2019

[5] Article 27 of the Labor Code 2019