A new Prakas has changed the way Cambodian employers must pay indemnity to their employees - what do you need to know?

In addition to Prakas No. 442, an additional Prakas was announced by Cambodia’s Ministry of Labour and Vocational Training (MLVT) on 21 September 2018, this one concerning the payment of senior indemnity to employees (article 89 of the Labour Law). Prakas No. 443 essentially replaces an existing ‘indemnity for dismissal’ applicable to employees on contracts of undetermined duration (UDC) with a new system of payment. Under the new Prakas, from January 2019, UDC workers must be given an ongoing ‘Seniority Payment’ - delivered in two installments throughout the year.

Important details of Prakas No. 443 are as follows:

  • The seniority payment amounts to 15 days per year of base salary/wage, plus additional fringe benefits.
  • The first half of the seniority payment must be paid in June and the second half in December.
  • New employees are entitled to half of the indemnity payment (7.5 days) in the applicable period, providing they have worked between one to six months. Employees who have worked for more than six months are entitled to the full year seniority payment entitlement equivalent to 15 days.
  • Employees are entitled to seniority back payments for time worked prior to 2019 - up to a maximum of 6 months’ base wages. Back pay is no longer required when an employee leaves their employment.
  • The law is applicable to all enterprises, establishments, and other persons covered - meaning both domestic and expatriate employees are covered.

Employees on fixed term (rather than undetermined) contracts are not covered by the law - and are therefore not entitled to seniority payments. Article 73 of the Labour Law does however entitle these workers to a severance payment in accordance with their collective bargaining agreement (constituting at least 5% of wages received during their employment).

Back Payments

The back payment of wages due through the seniority law obviously relates to the duration of an employee’s time with their employer.

For example, an employee who has worked for an employer (in an enterprise/establishment other than the textile, garment and footwear sector) for 2 years prior to 2019 would be due 30 days of seniority payment (2 sets of 15 days), plus 15 days for the current year. Split over the two payment periods, that would amount to 22.5 days in June and 22.5 days in December - or 45 days per year until the back-pay is cleared. Once back pay is settled, the employee would continue to receive 15 days per year.

Worth noting, an interpretation of Prakas 443 sets out a slightly different system of indemnity back pay for employees in Cambodia’s textile, garment and footwear industry. In this instance, those employees are entitled to 30 days of seniority back pay - as opposed to the 15 days entitlement in other industries.

To learn more about solutions for Cambodia’s payroll, tax, and benefits system, check out activpayroll’s dedicated global payroll resources.

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