The opportunities and challenges in Vietnam, Malaysia and Indonesia
In our previous article, we discussed why borderless hiring would be the current and future trend, the change in the global mobile workforce, and why developed countries are switching their direction to hire ready, young, and well-educated Southeast Asians from the technology industry.
You might be excited to start building a diverse remote team and hire all your talents from mainland Southeast Asia to increase your local presence while lowering your overhead and hiring costs.
However, hiring foreign workers from another country might be more complex than imagined, especially when it comes to local compliance and paying according to their country’s currency. Not to worry and sit back to relax, we have prepared some guides you need to know before expanding!
1. Vietnam: Fastest growing star in Asia.
Over the past 20 years, Vietnam has grown at a compound annual rate of 5% in real terms, which is 1.7 times faster than the global average. Even when the pandemic disrupted the world in 2020, Vietnam’s GDP growth was 2.9% without a decline.
Regarding hiring potential, Vietnam’s working population reached nearly 100 million compared with 75 million in 2021. The entire Vietnam workforce is equivalent to 1/5 of Europe’s working population or the total workforce of France and Spain combined.
Due to its fast-growing potential, domestic and foreign companies are setting up business entities in Vietnam. The number of businesses registered in Vietnam has grown terrifically by 95% from 2014 to 2020.
Number of new businesses registered in Vietnam:
Source: New business registered (number) Vietnam, The World Bank.
One of the greatest challenges of hiring in Vietnam is paying the social insurance payment compliantly; the legislation mandates that employers pay social insurance funds for their workers that provide coverage for sickness, maternity, workplace accidents, and retirement 1.
The calculation of premiums can be very complex and varies on several factors, including the employee’s salary, length of employment, and the particular insurance plan.
Furthermore, employers must create a Labor-management book at the Labor office with employees’ information and update any changes every 6 months 2. Failure to comply with these update requirements will result in penalties.
Despite the competitiveness of starting a business in Vietnam, employers typically take 384 hours to pay taxes in Vietnam compared with 191 hours in Indonesia, 174 hours in Malaysia, and 64 hours in Singapore.
As such, companies in Vietnam spend more than 40 business days to pay taxes compared with Singapore, which time is money and crucial for foreign employers.
Here is a fun fact about hiring in Vietnam:
If a male employee’s wife gives birth to twins, he will be entitled to 10 days of paternity leave, which is twice the leave (5 days) a male employee who works in Vietnam is typically granted for one newborn baby.
2. Malaysia: 5G technology is on its way
The Malaysian government has allocated 21 billion of budget (JENDELA plan) to pave the way toward a new transition of the 5G technology world to its citizens. Hence, this is an essential pulling factor for companies looking for team members to work remotely with a strong internet connection.
The main government initiative to steer Malaysia in achieving this goal will be shutting down all 3G networks by stages and ensuring that 100% of the populated areas in Malaysia have at least access to 4G service.
On average, Malaysia’s mean internet speed has increased 46% to 135 Mbps compared to 72 in 2017, with a 28% increase in 2021 alone 3.
Despite that, Malaysia is a wonderful option for companies to set up a remote team that works from home. Lack of awareness to comply according to the employment act 1955 can put your company at risk of getting legal penalties.
For instance, in Malaysia, Public holidays vary according to the city states where your employees reside. Generally, there are 10 gazette public holidays in Malaysia that employees are compulsory to follow. In the event that the holiday falls on a rest day, the employer must offer an immediate paid holiday on the next working day.
Suppose you intend to standardize the public holidays among all your hired employees within the same country. In that case, it is advisable to indicate the city and state the employees are working for in the employment agreement to avoid future potential disputes and arguments from the employees.
Furthermore, according to the employment act of Malaysia, the number of leaves varies according to the years of length that the employee has served the company, which means miscalculating or offering the employees less than they deserve according to labor law will be an offense.
For example, employees in Malaysia are entitled to 8 to 16 days of annual leaves and 14 to 22 days of sick leaves, depending on their years of service.
Therefore, most of the companies in Malaysia will give the maximum amount of annual and sick leaves to their employees even during their first year of service to stay in compliance with the law.
Besides that, companies that recruit more than 10 Malaysian employees must also report and register with the Human Resource Development Corporation (HRDC). The monthly levy fee varies according to the company’s headcount.
One potential risk for foreign employers to breach the local laws in Malaysia will be replacing or terminating a local Malaysian employee to hire a foreign employee as a replacement, particularly when remote hiring is involved.
As we know, companies who hire from anywhere to set up a distributed team might find replacements from other countries, and commonly, termination might happen if the employee fails to meet the company’s expectations.
However, under Section 60M of the employment act, any employer who terminates the local employee in such instance 4. may be considered an offense with a penalty of up to RM 50,000.
Here is a fun fact about hiring in Malaysia: All employers must grant paid maternity leaves for female employees for up to 90 consecutive days, and all maternity leaves only apply to each employee’s first 5-surviving children.
3. Indonesia: Highest nominal GDP in SEA
Indonesia is the largest country in Southeast Asia, with the longest distance of about 5,100 km from east to west; it is also the most populous country in SEA, with 270 million people.
One of the most attractive factors for tech companies to hire from Indonesia is its surging growth of 10 places in the World Digital Competitiveness Ranking from 2018 to 2022. Indonesia is also ranked as the 16th largest economy in the world by nominal GDP and number 1 in SEA.
Nevertheless, employers need to know a few things before hiring Indonesian employees. There are 3 time zones in Indonesia, which is Western Standard Time (WIB) for cities like Jakarta and Bandung, Central Standard Time (WITA) for cities like Sulawesi and Bali Island, and Indonesia Eastern Standard Time (WIT) for cities like Maluku and Papua.
If you are hiring remote employees from Indonesia, understanding time zone differences is essential, especially if you want to set up a synchronous working mode culture.
Under article 77 of the manpower law 2003 in Indonesia, employers are not allowed to let employees work more than 40 hours a week even though employers are allowed to let the employees work 6 working days per week, which the working hours are shorter compared with other SEA countries.
Employers are prohibited from demanding employees to work more than 3 hours a day, or 14 hours per week. They are also obligated to pay overtime hours.
A permanent employee’s maximum probationary period allowed by legislation is 3 months, while such a clause does not cover contractual workers. Hence, foreign hiring companies may need to note that extending the employees’ probation to more than 3 months is unlawful 5..
Here is a fun fact about hiring in Indonesia: Tunjangan Hari Raya (THR) payment is a mandatory religious holiday bonus that all employers must pay before the religious holiday. Employees may file a report to the Ministry of Manpower if the employer fails to do so.
How can you hire and pay remote teams compliantly?
Engage a legal employer (EOR solution provider) with more than 13 years of experience handling cross-border hiring and salary payment.
With an EOR solution provider as your legal employer, you will NEVER need to go through the hassle of:
- Calculating and getting wrong in different complex social insurance premiums and income taxes
- Liaising and updating with the local labor office
- Studying the latest regulations and the country’s labor laws
- Drafting the employment contract according to the country’s regulations
- Misunderstanding the employee’s culture, such as religious holidays and religious bonus requirements
Most importantly, to enjoy paying your remote employees a cost-effective and attractive salary rate on time according to their country’s currency.
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1. 2023 Global Hiring Trends in Asia
2. The Top HR Challenges in Southeast Asia 2023
3. Recruitment Trends Moving Forward 2023
- Vietnam: Doing Business 2020, Challenges and Solutions. The World Bank.
- Vietnam labor law. Vietnam briefing from Dezan Shira and Associates.
- State of the Internet Reports. Akamai.
- MEF supports action against employers that terminate local employees on securing approval for foreign workers. March 2023. The Edge markets.
- Probation period and annual leave under the Indonesia Manpower Law. Kiki Setiawan and partners counsellors at law.