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Decoding Southeast Asia’s Labor Laws: A Learning from The Lets Talk SEA Business Podcast Episode 3
Safira Adnin
July 31, 2024

Southeast Asia has experienced remarkable economic growth, attracting employers from across the globe. The Asian Development Bank (ADB) forecasted Southeast Asia’s economic growth at 4.6% in 2024 and 4.7% in 2025, driven by a solid improvement in both domestic and external demand. However, behind these promising business prospects lies complex regulations, particularly labor laws, which require careful understanding.

Each Southeast Asian country has its unique regulations shaped by the legal system, economic conditions, and cultural nuances. By grasping the intricacies of these labor laws, you can develop effective strategies to foster a fair and harmonious workplace, mitigate legal risks, and ensure the smooth operation of your business.

Our podcast, Decoding Southeast Asia’s Labor Laws, offers insights into the region’s complex regulatory environment. Through an interview with legal expert Raj Joshua Josh, we delve into the nuances of Southeast Asian labor laws. We also explore how employers can effectively manage talent, including salary negotiation and termination. Josh is the managing partner of Tang Thomas LLC and a Nominated Member of the Parliament of Singapore.

Key Highlights from the Podcast

This podcast highlights several critical issues, such as the legal framework in Southeast Asia, the complexities of cross-border employment, and the necessity of complying with regulations concerning minimum wage, termination processes, and medical leave entitlements.

Overview of Labor Laws in Southeast Asia

The podcast begins with a discussion of Southeast Asia’s diverse legal systems. Josh explains that the region presents a fascinating juxtaposition of common law and civil law jurisdictions. Countries like Singapore, Brunei, Malaysia, and Myanmar follow the common law system. In contrast, nations such as Vietnam, Indonesia, and the Philippines adhere to the civil law system.

The key distinction between these two systems lies in their sources of law. Common law is shaped by judicial decisions and precedents, meaning judges refer to previous case decisions to guide their judgments. Civil law, on the other hand, is rooted in comprehensive written codes, with judges applying these codes directly to the facts of a case.

To give a deeper understanding of labor laws in Southeast Asia, Josh uses Singapore as an example. He points out that the country’s legal framework is generally pro-business and provides workers with more protections.

He also highlights Singapore as a prime example of a country with strong labor laws, attributing the efficient operations of the Tripartite Alliance for Fair Employment Practices (TAFEP) and labor tribunals as key factors contributing to effective enforcement.

He adds that the enforcement landscape in Southeast Asia is more nuanced. Larger countries with more complex judicial systems often have varying degrees of effectiveness. Consequently, while the existence of labor laws is common, the ability to effectively enforce workers’ rights can differ substantially based on the structure and efficiency of each country’s legal system.

Challenges of Cross-Border Employment

Furthermore, the speakers talk about the applicability of labor laws in cross-border employment situations. For example, if a Malaysian employee is working in Singapore, whose labor laws would apply? Josh acknowledges that there is no definitive answer to this question, as it fundamentally hinges on the issue of extraterritorial jurisdiction of labor laws.

Elaborating on the matter, Josh explains that generally, if you establish a subsidiary in a particular jurisdiction, you are bound by the laws of that country. Conversely, if you engage in offshoring, you are more likely to be governed by the laws of your home country. However, he emphasized that regardless of the applicable law, both the employer and the employee must agree to the employment contract.

However, if you are still uncertain about which approach to take, Josh recommends aligning your strategy based on your business objectives in a particular country. If your goal is to provide services or sell products within the country, establishing a subsidiary or branch in a certain country is the best option. This enables better compliance with local regulations and smoother business operations.

On the other hand, if your goal is simply to offshore operations to another country, hiring freelancers might be a more cost-effective solution, as it doesn’t require a significant physical presence. It is important to note that many Southeast Asian countries lack specific laws for contract workers or freelancers. Therefore, Josh emphasizes that while you may choose to follow the applicable laws of certain countries, you must verify whether these laws cover contract workers and freelancers.

Critical Legal Considerations for Employers

Another critical topic addressed in the podcast is the issue of salary, leave entitlements, termination procedures, and contractual nuances. Regarding salary matters, Josh highlights that the fundamental requirement for employers is to adhere to the minimum wage.

He also notes that each Southeast Asian country has its unique approach to setting minimum wages. For instance, Singapore employs a progressive “plus” wage model, Indonesia has regionally-determined minimum wages, and Malaysia has a nationwide minimum wage. To ensure compliance, he recommended employers carefully review the specific wage laws in the relevant jurisdiction.

When it comes to annual leave and medical leave, countries in the region also have varying regulations. Some countries, like Singapore, have established minimum standards for annual and medical leave. Conversely, other countries, such as Indonesia, do not regulate minimum or maximum medical leave.

What about public holidays? Since each country has its specific public holidays, Josh explains that employees are generally entitled to the public holidays designated by the laws of the country where they are employed. Additionally, employees who work on public holidays are often entitled to overtime pay or other forms of compensation.

Moving on to the topic of termination of employment, Josh says that several Southeast Asian countries have established minimum terms for termination, which can vary based on the duration of employment or the contract. In Vietnam, for example, the minimum notice period is three days but can extend up to 60 days.

In Singapore, which follows a common law system, termination procedures are relatively straightforward, especially when the terms are clearly outlined in the employment contract, such as a 30-day notice period.

In contrast, Indonesia has more complex regulations. If both parties agree to end the employment relationship, there is generally no dispute. However, if the employer initiates the termination, they are required to notify the relevant government authority, such as the Ministry of Manpower, and provide a valid reason for the termination. Employees have the right to challenge such terminations and can seek recourse through the labor court.

Digitalization and Flexible Work Arrangements

The podcast also highlights the dynamic nature of labor laws that changing rapidly, not only in Southeast Asia but also globally. Josh notes that governments and lawmakers are actively adapting to evolving work trends such as remote work and flexible arrangements. This reflects a broader trend of legal systems adapting to the changing nature of work.

Furthermore, the speaker delved into the legal implications of remote work and the shift towards a more flexible work environment post-pandemic. As we know, the pandemic has accelerated the adoption of remote work, driven by advancements in technology. This has created a new paradigm where employees can work from anywhere, no longer tethered to a work office.

Nevertheless, there is a growing divide between employee expectations and employer preferences regarding post-pandemic work arrangements. While some employers may prioritize in-office work, employees may seek to maintain remote or hybrid work models.

In such a case, Josh acknowledges the essentials of labor law. He explained that employee rights are typically rooted in employment contracts and labor laws. For instance, if an employee accepts a position with a remote work arrangement explicitly stated in the contract, he has the right to refuse to work on-site.

Josh also points out that employers may have to revise their contracts to align with the changing expectations of their employees. For example, they could introduce clauses enabling remote work or flexible work arrangements.

Navigating Legal Changes and Compliance

In this podcast, Josh also reminds us that even recent amendments to labor laws often require updates in a short time. In this situation, navigating legal changes and ensuring compliance become a challenge for every business.

Adapting to Rapid Changes in Labor Laws

Given the rapid changes in labor laws, Josh suggests that it is essential for employers to seek legal advice. This can help ensure compliance with the latest regulations and mitigate potential risks. In addition, many labor laws are quite technical and have many nuances, making them challenging to navigate without professional assistance.

While legal counsel may seem costly upfront, it is often significantly less than the potential costs associated with disputes that escalate to litigation.

Practical Tips for Business Leaders

As highlighted in the podcast, as an employer, it’s crucial to draft employment contracts accurately and in compliance with labor laws. Josh emphasizes that creating a sound employment contract from the outset is always more cost-effective and efficient, as it can significantly reduce legal risks. To begin, understanding the diverse legal systems and cultural nuances of each country is paramount. Additionally, it’s essential to adhere to local regulations regarding minimum wage, working hours, leave entitlements, and termination procedures.

Furthermore, enlisting the services of local legal experts and forming partnerships with reputable law firms can provide invaluable guidance and help you navigate the complexities of local legal systems.

Conclusion

In conclusion, this podcast offers invaluable insights for employers, business owners, and startup founders looking to expand their businesses into Southeast Asia. It provides an overview of the diverse labor regulations across the region, the challenges of cross-border employment, and crucial considerations for drafting employment contracts, including salary determination, termination procedures, and employee rights. To delve deeper into this topic, listen to the full podcast “Decoding Southeast Asia’s Labor Laws” on the Glints TalentHub YouTube channel.

Partner with Glints for Compliant Southeast Asia Expansion

Glints TalentHub is a one-stop solution for companies looking to recruit, manage, and develop talent in Southeast Asia. We have a proven track record of building teams twice as fast and saving up to 70% in costs.

If you plan to expand your business into Southeast Asia, partner with us! We will ensure to recruit and manage top talent across the region while ensuring full compliance with local labor laws, so you can focus on growing your business. Contact us through the link for more information.

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