Application Of Financial Sanctions In Labor: Quick But Challenging

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Application Of Financial Sanctions In Labor: Quick But Challenging

Sanctions on monetary fines or deducting the employee’s salary (“the Employee”) (also known as financial sanctions in the field of labor) are no longer new to many enterprises nowadays, especially in a large workforce enterprise. Enterprises favor financial sanctions because of the speed and convenience in handling violations of labor discipline. However, is it not challenging to apply financial sanctions in labor quickly?

  • Firstly, about monetary fines

Sanctions on monetary fine means that the enterprise forces the Employee to pay a certain amount of money to the enterprise when the Employee violates the labor regulations, the company’s criteria, or infringes the “standards” enterprise culture. This sanction currently exists and “morphs” with many different forms besides the two commonly used forms of fines, including the Employee directly paying fines or indirectly being deducted salary by enterprises. And regardless of form, this sanction always affects the Employees when their income is reduced.

The monetary fine is strictly prohibited from the legal perspective, including the Labor Code 2012 and the Labor Code 2019 (“LC 2019”). It is not prescribed as a substitute for any form of sanction of labor discipline.  Therefore, it could be concluded that a monetary fine is a form of unorthodox labor discipline applied by a part of enterprises arbitrarily. In that case, enterprises shall risk being sanctioned for administrative violations in the field of labor with a fine ranging from VND 20,000,000 to VND 30,000,000 if detected or inspected by a competent authority.  In addition, enterprises are forced to take remedial measures such as returning the collected fines or paying total deducted salaries to the Employees.

From the above arguments, the author recommends that enterprises remove the monetary fines from the forms of labor discipline for the Employees in managing and sanctioning because this sanction is contrary to the law.

  • Secondly, about deducting the Employee’s salary

During the “life cycle” of an employee at an enterprise, it is not difficult to come across a case where the Employee is obliged to pay a certain amount of money to the enterprise. Some common cases such as the Employee receive cash from the company to serve the purpose of work or collect money from customers/partners for the enterprise, but they lost that money; the Employees buy/import goods from the enterprise but have not yet paid; the Employee loses or damages property, causes damage to the enterprise and incurs liability for damages arises; or other cases that cause debts (hereinafter referred to as “Debts”). However, the Employees are often unable to pay all and one-time Debts to the enterprise. As a result, the enterprise is required to deduct from the Employee’s salary to compensate for the loss by the Employee. The deduction salary once or many times and the deduction rate are not the same for each enterprise case. The deduction of salary would be considered based on many related factors such as whether the debt is significant, whether the salary of the Employee is high, whether the Employee’s working time is long or only in the next few days the labor contract will be terminated. So, in the above cases, is the enterprise’s deduction of the monthly/multi-month salary of the Employees by current legal regulations?

The salary deduction is understood as the fact that the enterprise actively deducts a part of the Employee’s salary to compensate for the amounts that the Employee is responsible for paying or material damage caused by the Employees.

According to the law, enterprises are only allowed to deduct the salary of the Employees in some instances to compensate for damage caused by the Employees like: damaging tools, equipment, assets of enterprises or assigned to manage by enterprises or the Employee commits actions of causing non-serious damage due to negligence. And, the actual damage value due to the above acts does not exceed 10 (ten) months of the regional minimum salary announced by the Government applied at the workplace. At that time, the Employee must compensate the enterprise for the actual damage, but not exceeding 03 (three) months’ salary, and gradually deducted from the salary. The maximum amount an enterprise may deduct from an employee’s monthly salary is no more than 30% of the actual salary received after deductions for payment of compulsory social insurance, health insurance, unemployment insurance, and individual income tax.

Besides, in the principle of payment, enterprises must pay salaries directly, in total, on time and must not limit or interfere with the Employees’ right to self-determination of salary expenditure. Therefore, from a legal perspective, the enterprise is not entitled to replace the Employee to “decide” on the use of salary to deduct equivalent to the debt and fine that the Employee has not completed with the enterprise, except in some cases the law allows the deduction of salary as mentioned above.

When getting evidence (the content side) to deduct employees’ salaries, enterprises need to organize compensation for damage. The order and procedures for handling compensation for damage are detailed in Articles 71 and Article 72, Decree No. 145/2020/ND-CP, a summary of some of the basic contents that need to be followed are:

  • The Employee must make a written report when having behavior that leads to the handling of compensation for damage;
  • The enterprise must notify the mandatory participants in the meeting to handle damage compensation, includes the violating employee, the representative of the internal representative organizations of employees, the price appraiser (if any), and representative of the enterprise about the time and place of the meeting, the full name of the violating employee and the violation behavior at least 5 days before the scheduled date of the meeting;
  • The content of the meeting must be recorded in minutes, approved before the end of the meeting, and signed by the meeting participants.
  • The disciplinary decision of damage compensation must be issued within the statute of limitations for handling.
  • The statute of limitations for handling compensation is 06 months from the date the Employee commits a violation.

Despite the above conditions, many enterprises have ignored the meeting to handle compensation for damage and directly deducted from the Employee’s salary when causing any material damage to the enterprise. This comes from many objective and subjective factors, including that enterprises do not get a correct and timely view of the salary deduction sanction.

Any case of salary deduction that does not fully meet the conditions (in the content side) and form as mentioned above will be considered as illegal salary deduction and an equivalent form of administrative sanction for enterprises that violate are:

  • From VND 10,000,000 to VND 20,000,000 for violations from 01 person to 10 employees;
  • From VND 20,000,000 to VND 40,000,000 with violations from 11 to 50 employees;
  • From VND 40,000,000 to VND 60,000,000 for violations from 51 to 100 employees;
  • From VND 60,000,000 to VND 80,000,000 with violations from 101 to 300 employees;
  • From VND 80,000,000 to VND 100,000,000 for violations from 301 employees or more.

In addition to this fine, the enterprise is also required to take remedial measures to pay the full salary plus the interest on the underpaid salary to the Employee calculated at the highest interest rate on demand deposits of State-owned commercial banks announced at the time of sanction.

In short, the legal consequences of the application of illegal financial sanctions are heavy, affecting the financial, time, and reputation of the enterprise. Moreover, when an enterprise encounters many errors in labor-management activities, agencies, inspection unions, and interdisciplinary examination unions will not hesitate to “pay attention ” to your enterprise. So, does your enterprise want this to happen? The answer is entirely up to your enterprise.