Practice Area Articles
January 16, 2023
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KEY DEVELOPMENTS FOR 2023
Focus on labor compliance
In May of 2022, the Ministry of Labour and Vocational Training ("MLVT") issued a notification on the implementation of a labour inspection self-declaration via an automation system, which requires companies to make a self-declaration on labour compliance twice each year. The first declaration being due at the end of June and the second self-declaration being due at the end of December. The declaration is made through the MLVT’s website and the company’s MLVT account.
With the new online self-declaration system, it will be very easy for the MLVT to determine whether a company has complied with its labor obligations, and if not, assess fines. The self-declaration form, which is generated through the MLVT’s website, requires companies to confirm and upload evidence of compliance. If there is no compliance for the matter, the self-declaration form sets out the applicable fine for most areas of non-compliance. As such, we are anticipating more proactive enforcement by the MLVT in 2023.
Companies should ensure that they are complying with the self-declaration requirement and should carefully review the form to understand what fines will apply for any areas of non-compliance.
National social security fund pension contributions
Starting from October 1, 2022, Cambodian regulations on the implementation of the pension system of the National Social Security Fund ("NSSF") came into effect and employers and employees began making NSSF pension contributions. In years 1–5, total compulsory pension contributions will amount to 4% of an employee’s wage, half of which would be paid by the employer and half of which would be deducted from an employee’s salary. As to the cap on employee wages subject to the NSSF contribution, the contribution wage is capped at KHR 1.2 million (USD 300).
While the current amount that employers will be required to pay is relatively small (KHR 24,000 / USD 6), the percentage that the employer will have to pay will increase to 10.75% over a 10 year period. Further, it is conceivable that the contribution wage will be increased in the future.
Employers should ensure that they are paying and withholding the appropriate amount of deductions and should consider the total cost of NSSF payments in their budgets.
Expansion of the scope of the arbitration council
On 5 October 2021, the government amended the Labour Law (see Law on the Amendment Article 123, Article 138, Article 162, Article 300, Article 343, Article 350, Article 363 and Article 367 of the Labour Law dated 5 October 2021) by clarifying that an employee having an individual dispute can file a complaint at the Arbitration Council, which is an arbitration body for resolving labor disputes. Previously, employees with an individual dispute could not access the Arbitration Council, and as such, only had recourse to the courts. However, due to cost and transparency issues in the courts, many employees were dissuaded from filing claims.
As employees will now have access to a transparent method of dispute resolution, we anticipate that significantly more employees will be filing claims against employers, in particular with regards to termination for cause.
Employers should take care when terminating employees and ensure that they are fully compliant with the law and if they terminate an employee for cause, such as for poor performance. The employer also should ensure that they can document the reason for the termination.
KEY DEVELOPMENTS FOR 2022
Introduction of pension scheme
In order to promote equity and the welfare of the Cambodian people, the Cambodian Government implemented various benefit schemes under the Law on Social Security Schemes, dated 2 November 2019. While these include schemes for health care, occupational risk insurance, unemployment insurance, and pensions, only the schemes for health care and occupational risk insurance have been implemented. On 4 March 2021, the Government issued the Sub-Decree on the Social Security Scheme of Pension Money for Persons Who are Under the Provisions of the Labor Law, which provided additional details on how the pension scheme will be implemented.
The cost to employers is likely to increase as a result of the implementation of these schemes. Employers should therefore continue to monitor developments in this area of the law to understand their compliance obligations.
Lifting the suspension regarding seniority payments
As a result of the COVID-19 pandemic, the Cambodian Government suspended the employers' obligation to pay seniority payments (including back payments), with some exceptions for the textile, garment and footwear sectors, to employees with undetermined duration contracts, pursuant to the Notification on the Postponement of the Payment of Back Pay Seniority Indemnity Before 2019 and the New Seniority Indemnity in 2020, dated 2 June 2020. With the Cambodian Government beginning to re-open the economy, the Government may cease the postponement of such payments.
Employers should expect salary costs to rise once the impact of the COVID-19 pandemic eases and the suspension on the employers’ obligation to pay seniority pay is lifted. Employers should continue to monitor developments in this area of the law to understand their compliance obligations, and should take into account seniority pay when considering total employment costs.
KEY DEVELOPMENTS FOR 2021
Pension scheme to be implemented
Under the Law on Social Security Schemes and its delegated legislation, there are three social security schemes available to the private sector—occupational risk, health, and pensions. However, only the first two schemes have been implemented in Cambodia. The Cambodian Government has been working on implementing the pension scheme, which is expected to be launched in the near future. According to the draft Sub-Decree on Social Security Scheme Pension for Persons Defined by Provisions of Labour Law including Airline and Maritime Personnel and Household Servants, the pension contribution rate is four percent, of which half is contributed by the employer and the other half is deducted from the employee's salary.
KEY DEVELOPMENTS FOR 2020
Increase to Minimum Wage
The Ministry of Labour and Vocational Training ("MLVT") has recently increased the minimum wage for workers in the textile, garment and footwear sector. From 1 January 2020, employees are entitled to at least 185 USD per month during their probationary period and thereafter, at least 187–190 USD per month.
Implementation of Seniority Back Payments Regime Postponed
In order to relieve the pressures on employers as a result of the COVID-19 pandemic, the MLVT has recently issued a notification to postpone the implementation of a seniority indemnity back payments regime. Under this regime, employers would typically be obliged to make an enhanced payment to certain employees, equating to seven and a half days of average wages and other benefits (not including bonuses) calculated over a six-month period (although employees in the non-textile, garment and footwear sectors are entitled to an enhanced payment of three days' average wages and other benefits (not including bonuses) calculated over a six-month period and employees in the garment, textile and footwear sector are entitled to 15 days' average wages and other benefits (not including bonuses) calculated over a six-month period, not exceeding six months' average net wages). In calculating daily average wages, employers must treat one month as 26 working days. Any such payments would ordinarily be made between the 1st and 7th of January and July each year. However, as a result of the recent notification from the MLVT, no such seniority back payments are payable in the ordinary course of business until 2021 (although, if an employer dismisses an employee for reasons other than serious misconduct, the employer will be obliged to pay any seniority back payment or seniority payments required under Cambodian law).
Limitations on Fixed Term Contracts
The MLVT recently enacted an instruction which provides that the duration of an initial fixed-term contract ("FTC") for a local or foreign employee should not exceed two years. The contract may be renewed, provided that the total duration of any such renewals does not exceed an additional two years. If the FTC does exceed these limits, it will automatically be deemed an 'undefined duration contract' (or 'indefinite term contract'). If an employee reaches the maximum duration for a FTC (which is potentially up to four years) and the employer is keen to continue engaging the employee on a fixed-term basis, the employer should provide for a one-month break between the expiration of the existing FTC and the start of any new FTC.
Engagement of Foreign Workers
A new regime has recently come into force which allows employers to submit Khmer-language translations of employment contracts with foreign employees to the MLVT when applying for work permits. Both FTC and undefined duration contracts will now be accepted by the MLVT. Previously, employers were only permitted to submit a FTC contract in the form of an MLVT template when applying for a work permit. Under the new regime, an employer must submit an updated agreement to the MLVT if the contract expires or is amended.