FAQ

FAQ

This VCCI Employer’s Guidebook, available on this website and in hardcopy at the VCCI Office, is useful guide to understanding Vanuatu’s employment laws. It is designed for employers and explains the important laws relevant to navigating employment relations, lawfully, under the Employment Act, Labour (Work Permit) Act, Health and Safety at Work Act and the Workmen’s Compensation Act. The Acts themselves can be found on www.paclii.org although many of the
more recent amendments are not available on PacLII.

If you are struggling with certain aspects of employment law not covered by the Guidebook, then you can also contact the Department of Labour and ask to speak to a Labour Officer. VCCI can also help to explain this Employers’ Guidebook to employers, although please note that it does not provide expert legal advice.

Assistance on legal disputes on employment law can be sought from any of the various lawyers registered to operate in Vanuatu.

The Employment Act only applies to employees. However the Act does not define what an employee is. Sometimes people ask if they can “put their staff on contract” or “use contract workers” in order to avoid employment related costs such as severance payment, leave and VNPF.

Case law tells us that an employee is someone who works under a contract of service. The main alternative type of worker is an independent contractor, who works under a contract for services.

They both are "on contract". So what is the difference? The fundamental difference is that an independent contractor has his or her own business.

No - it is not that simple. Case law makes it clear that employers and employees cannot avoid their obligations by saying that the relationship is a business engaging an independent contractor if the true nature of the relationship is that of employment. See the ‘employee vs independent contract indicators’ here for some examples of factors that the court take into consideration when someone is an employee or independent contractor.

No the law doesn't require you to have written employment contracts with the following two exceptions:

  • for a fixed term exceeding 6 months
  • when the employee needs to live away from his ordinary place of residence.

The VCCI Employment Contract Builder is a free tool for employers designed to make customised contracts, compliant with Vanuatu law, based on information collected from a short online questionnaire. You can use the Employment Contract Builder here.

Yes. Even if a contract is not written there is a verbal agreement, or oral contract between you
and your employees.

A clear written contract allows both parties to know exactly what they have agreed to.

It can be hard to identify the terms of the agreement if it is not written down. If there is an employment dispute deciding what the contract terms are can lead to further disagreements.

There is no requirement for a lawyer to write an employment contract. Nor is “fancy language” required. It is better to have a contract written in plain language that you and your employee both understand to record what you have both agreed.

In Vanuatu’s law there are two main categories of employment contracts:

  • Fixed term contracts, which have a definite start and end date; and
  • Open ended contracts, which have a start date, but no set end date.

It is important to decide which type of contract you want because each has different ways of coming to an end

Vanuatu’s law does not define full time, part time and casual employees. Some benefits, such as paid leave and severance allowance are only available to employees who are in continuous employment. In practice employers in Vanuatu often refer to full time, part time and casual employees and there is a general understanding that part time and casual employees have different entitlements.

Yes there are limits to the hours of work with the exception of the following:

  • Family member employees in organisations where only family members are employed;
  • Employees working in public administration;
  • Employees working as managers or employed in a confidential capacity.

Good employers should, however, be aware that limits to hours of work exist to protect the health and wellbeing of employees. Good employers should not abuse the absence of limits.

The normal maximum hours of work are 44 hours per week.  There are also daily limits of 8 hours per day.  These limits exclude any break times.  Employees can also only be required to work 6 days per week.

These hours can be exceeded in some specific situations, including by voluntary agreement.

There are also limits on the hours women and young people can work.

Every employee who works for more than 6 consecutive hours on 1 day must be given a break of 1 hour for a meal and a tea break of 20 minutes or 2 tea breaks of 10 minutes each (section 24).

There is no requirement that these breaks be paid, although in practice most employers do not deduct the time taken by employees having short tea breaks.

Employees who are breastfeeding are also entitled to a nursing allowance. See the separate factsheet: maternity leave for more information on nursing allowances.

Employees are usually entitled to a weekly rest period of 24 consecutive hours. Although usually a Sunday, this can vary depending on the sector and individual employment agreements. Details can be found in the factsheet: work on Sundays, religious days of rest and public holidays.

Yes, apart from the exceptions referred to above that have no limits on their hours of work and domestic workers, you are required to pay overtime to employees who you require to work above the normal maximum hours of work.

In general no employee can be required to work on a Sunday or public holidays but there are some exceptions. Employees in the following types of business activities can be required to work on Sundays or public holidays:

  • transport of passengers or goods by road, sea or air;
  • public utilities and similar services;
  • hotels, guest houses, bars, restaurants, clubs etc;
  • theatres and places of public amusement;
  • health and related services;
  • newspaper and radio broadcasting;
  • animal husbandry.

Employers can also apply to a labour officer to be approved for compulsory work on Sundays or public holidays, but need to have a good reason to do so.

Part 6 of the Employment Act [Cap 160] (the Act) provides the law on hours of work and overtime payments for employees. Specific limits for women can be found in Part 8 of the Act.

Vanuatu’s law does not separately define part time or casual employees.  The limits on hours of work and the right to be paid overtime apply equally, regardless of whether one is employed on a part time, casual or full time basis.

Employees are usually entitled to a weekly rest period of 24 consecutive hours. This shall usually be taken on a Sunday (section 25).  The day of rest can be varied by agreement, or varied if there is a trade where it is usual for another day of rest to be taken (section 25). Some people in Vanuatu have their religious day of rest on a Saturday or Friday. Where possible, employers should try to ensure that the weekly rest period fits with employee preferences regarding their religious day of rest by agreeing work days when the contract is being made. The factsheet: contract provisions on hours of work & overtime contains an example contract clause on this topic.

If the nature of the business means that all the staff taking their day of rest at the same time would affect the proper working of the business then the law allows the day of rest to be allocated by roster or divided into two half days (section 25).

There are some situations where the employer can require the employee to work extra hours. These are:

  • If an emergency occurs, or an actual or threatened accident occurs, or urgent work must be done to machinery or plant, and additional hours must be worked in order to avoid serious interference with the ordinary working of the business; or
  • If the employee is engaged in a job that must be carried out continuously by using shift work.

The limit in these situations is that the working hours do not exceed, on average, 56 hours per week.

If your employees are likely to have hours that occasionally require them to work variable hours it is good practice to include this in your employment contracts.

Also, an employer can require an employee to work longer hours to make up for hours that have been lost due to holidays, accidents, power cuts, damage to plant et cetera. There are limits on this though:

  • the employer shall as soon as practicable notify a labour officer of any increase of hours of work due to making up for lost hours; and
  • hours of work which have been lost shall not be made up on more than 30 days in the year; and
  • hours shall be made up within a reasonable time; and
  • the increase in hours of work in the day shall not exceed 1 hour; and
  • the hours of work in the day shall not exceed 10; and

Grey area: the provisions of the law contradict. Normal hours of work are 8 hours per day. Limiting to a 1 hour increase would mean only 9 hours per day could be worked. To be safe an employer should seek voluntary agreement of employees for any more than 9 hours work per day.

There are limits on requiring employees to work on Sundays and public holidays.

If the employer requires the employee to work more than the normal maximum hours of work then overtime must be paid.

Yes, an employer can agree with an employee that the employee works overtime. There are no limits in law as to the amount of voluntary overtime that must be agreed to.

If the employee voluntarily works more than the normal maximum hours of work then overtime must be paid.

If you want to be able to vary your employee's hours of work this will need to be stated in the employment contract. If you do not do this and regular set hours can be implied by past practice then you will be liable to pay employees for their regular set hours, even if they are not given work to do in those hours.

Women are generally not allowed to be employed at night. This is defined as between 7 pm and 6 am. There are some exceptions to this.

Women are allowed to work at night if necessitated by an emergency which is impossible to foresee and which is not of a recurring character.

Women are also allowed to work at night in the following business areas

  • processing  raw materials or materials in course of treatment which are subject to rapid deterioration;
  • responsible positions of management;
  • nursing and of caring for the sick, or other health or welfare work, including work in pharmacy;
  • theatres or other places of public amusement;
  • hotels, bars, restaurants, clubs, or similar establishments;
  • the transport of passengers by sea or air;
  • postal and telecommunication services or broadcasting.

There are limits on the types of work young people are allowed to do (sections 38 – 42 Employment Act), but there are no general limits on the hours of work for young people.

The only limit is that people under the age of 18 are generally not allowed to work night shifts in industrial businesses. A night shift is a consecutive period of work of 7 or more hours between 10 pm and 6 am.

If the employee is above the age of 16 a labour officer can, however, give written consent to his engagement in industrial night shift work.

Any time that an employee's working hours exceed 44 hours in a week excluding breaks, or 8 hours in a day excluding breaks, or 6 days in a week then overtime must be paid.

Whether you have to pay overtime if an employee works more than 8 hours in a day, but less than 44 hours in total in the week is something of a grey area. It has not been tested in court.

Some classes of employees are, excluded from overtime and have no statutory right to overtime payments. These classes of employees are:

  • Domestic workers
  • Employees working in any business in which only members of the employer's family are employed
  • Employees working in offices engaged in connection with the administration of public authority

Employees occupying positions of management or employed in a confidential capacity

  1. How much must I pay for overtime work?

The statutory rates for overtime are found in section 26(1) of the Employment Act. The following overtime rates are prescribed:

(a) for work on public holidays or Sundays: at a minimum rate equal to one-and-a-half times the normal hourly rate;

(b) for work carried out in excess of the normal weekly hours of work

(i) for the first 4 hours: at a minimum rate equal to one-and-a-quarter times the normal hourly rate;

(ii) in excess of 4 hours: at a minimum rate equal to one-and-a-half times the normal hourly rate;

(c) for work (other than work as a night watchman) carried out at night between 8 p.m. to 4 a.m. in excess of the normal weekly hours of work: a minimum rate equal to one-and-three-quarter times the normal hourly rate.’

Note: These amounts are minimums. You can agree to pay a higher rate for overtime than these rates above.

This is a grey area in the law. There is nothing in the law that permits giving time off in lieu. If time off in lieu works to the employee’s favour and is requested by the employee, then it is probably legal as section 6 permits an employment agreement to contain anything more favourable for the employee.

If you would like to provide the employee with time of in lieu, rather than overtime payments, this should be agreed in advance, and should also be included in the employment contract.

You may also want to seek approval from the Department of Labour, who can check that your contract provides time off in lieu provisions that are more favourable to your employees than receiving overtime payments.

If an employee does extra work without your prior agreement or permission then you are under no obligation to pay him or her for overtime. This permission can be implied from circumstances, or can be express.

In general no employee can be required to work on a Sunday or a public holiday but there are some exceptions:

  • businesses engaged in the transport of passengers or goods by road, sea or air, including the handling of passengers or goods at docks, quays, wharves, warehouses or airports;
  • businesses providing public utilities including provision of water or gas, generation or supply of electricity, postal and telecommunication services, sewerage and similar services;
  • hotels, guest houses, bars, restaurants, clubs and similar establishments;
  • theatres and places of public amusement;
  • establishments for the treatment and care of the sick, infirm, destitute or mentally unfit;
  • newspaper and radio broadcasting undertakings;
  • animal husbandry;

Employers can also apply to a labour officer to have other work approved for compulsory Sunday work, on the basis of proper management of the undertaking and the convenience of the public.

Yes. Employees can voluntarily agree to work on a Sunday or a public holiday. As a good employer you must be careful not to pressure an employee into feeling that he or she must agree to work or lose his or her job, however. Such pressure is ill-treatment and may give the employee the legal right to leave and sue you for damages.

If an employee has voluntarily worked on a Sunday or public holiday there is no requirement to pay a bonus or provide additional leave. However, in practice, an employer offering a bonus or other leave may act as an incentive for an employee to volunteer. This is a mutually agreed benefit. The nature of the benefit (for example, being paid more than the regular rate of pay for work on a public holiday) should be stated in the employment contract.

If an employee was required to work on a Sunday or public holiday due to the area they work in then the employee must be given an equivalent period of time off work on another day. There is no requirement that this equivalent time off work is paid.

Nor is there any legal requirement that a bonus rate (sometimes referred to as a penalty rate) be paid for work on Sundays or public holidays that falls within the employee’s normal hours of work. The law only provides a rate if the hours of work exceed the normal hours of work. This rate is 1 ½ times the normal rate of pay.

The law is silent on this matter.

If an employee’s payment is a monthly or yearly salary that is not dependent on the number of hours worked, he or she will still get paid the same, regardless of public holidays.

However if an employee’s wages are based on the number of hours worked, then there is no legal requirement that wages be paid if an employee does not work on a public holiday.

This is a grey area in the law that has not been tested in court. Some long-standing employers do choose to pay wage earning employees for public holidays that they do not work.

This matter has come to court in Vanuatu (Kelep v Sound Centre [2008] VUSC 13). The answer is that it depends on the terms of the employment contract. If part of the terms of the employment contract is that the employee will be required to work some or all Saturdays then becoming unavailable for Saturday work means that he is breaching the employment agreement. It does not matter whether this agreement is oral or in writing. Working Saturdays in the past is sufficient to establish an implied term that being available for work on Saturdays is part of the employment agreement.

In practice you cannot force an unwilling employee to work on a Saturday, and it is also undermines a cooperative working relationship. In this situation a good employer will try to keep the employee on but vary his days of work to suit his religious requirements. If it is not possible to reach an agreement as to days of work then the employer can terminate the employment relationship on the grounds that the contract is no longer being fulfilled by the employee, but this should only be done as a last resort.

Remuneration is not defined in the Act. In Part 5 of the Act remuneration is used to refer to wages, salaries and other monetary compensation, such as housing allowances, commission based payments and overtime payments. It also includes non-monetary compensation, such as providing a house or a car.

Wage is usually used to refer to payments to employees that are calculated based on the number of hours worked.

Salary is usually used to refer to payments to employees that are not directly related to the number of hours worked, but are an agreed payment per year or month.

These definitions are not technical legal definitions, but reflect how most employers in Vanuatu use these words.

The minimum wage that you can legally give to employees is currently set at 220vt per hour in Vanuatu.

The law requires employers to pay employees at regular intervals. It also limits:

  • the places where you can make payments;
  • the minimum amount of payment ;
  • the types of deductions you can make from payments;
  • the amounts of deductions you can make from payments.

Employers are also required to make payments into the Vanuatu National Provident Fund (VNPF) and are required to keep records of payment.

Disputes over pay are common in Vanuatu. It is important that employers are well organised around paying their employees; this include both waged and salaried employees.

Clear records should be kept on pay and pay rates as these are used to determine for example rates for maternity leave, severance pay and other payments. Examples of these include payslips and employer’s pay records. A set of tools which you may find useful when establishing and keeping records of payments can be found here.

Part 5 of the Employment Act [Cap 160] provides the law on how to pay employees. Minimum wages information is found in Orders made under the Minimum Wages and Minimum Wages Board Act [Cap 182].

The other main payment that employers must make is contributions to the Vanuatu National Provident Fund (VNPF). These contributions are required under the Vanuatu National Provident Fund Act [Cap 189]. All employers are also required to register with the VNPF and obtain an employer registration number.  All employees in Vanuatu earning a minimum monthly salary of VT 3,000 are required to contribute to the VNPF and therefore should apply to obtain a VNPF membership number. There are a very few exceptions to this.

The total contribution rate to VNPF is 8%. Employees have 4% of their salary deducted by their employer and paid into the VNPF. The employer also contributes an amount which is equal to 4% of the employee’s salary to the VNPF.

Remuneration is not defined in the Act. In Part 5 of the Act remuneration is used to refer to wages, salaries and other monetary compensation, such as housing allowances, commission based payments and overtime payments. It also includes non-monetary compensation, such as providing a house or a car.

Wage is usually used to refer to payments to employees that are calculated based on the number of hours worked.

Salary is usually used to refer to payments to employees that are not directly related to the number of hours worked, but are an agreed payment per year or month.

These definitions are not technical legal definitions, but reflect how most employers in Vanuatu use these words.

The relevant laws on payment of wages/salaries/remuneration have not been updated to accommodate modern forms of financial transactions. At the time the law was written the possibility of paying by direct deposit into the employee’s bank account was not taken into consideration. As a direct deposit is effectively paying legal tender, it is acceptable providing that the deposit is being made into the employee’s personal bank account, at the employee’s request and benefit.

Employers are also not permitted to pay using a personal cheque, although a labour officer can provide written permission for payments to be made using bank cheque.

It is possible to pay part of the remuneration in kind in the form of allowances if written approval of a labour officer is provided in advance (section 16(2)). In kind allowances cannot, however, include alcohol or other drugs (section 16(3)).

The maximum period between payments is every 15 days, for employees whose payment is calculated by the hour or the day (waged employees).  If waged employees also receive allowances that are not based on the number of hours worked, these allowances can be paid monthly.

For employees whose payment is not based on the number of hours or days worked (salaried employees) payments can be made monthly.

Pay periods must be regular. It is possible to delay the time of payment up to 8 days after the pay period has ended.

Payments in cash are to be paid at or near the place of work, unless another arrangement is more convenient for the employee. Such payments are not, however, allowed to be made in taverns, retail shops or other places of amusement, unless the employee is employed in such a place.

Employers must keep a record of payments made, which should be signed by each employee or marked by her thumbprint, each time payment is received. Whilst the law does not specify what must be in this record, it should show the amount of payment and shows how this amount was calculated. Wages or pay records books can be purchased from stationery stores to help with this. There is also an example employer pay record on the VCCI website here.

This record must be kept for at least 3 years by the employer.

If the employee requests it, then he must be given a statement which states the name of the employer and the employee, shows the amount of payment and shows how this amount was calculated. There is no legally required form for this statement.

An example payslip is available on the VCCI website here. It is a good idea to keep records of the amount of annual leave that has accumulated. The example payslip in the tools section therefore includes information on accumulated annual leave, even though this is not legally required.

There is no legal requirement that you give your employee cash advances on their salary if requested. You can, however, voluntarily choose to do this. If you are providing a cash advance it is a good idea to get details in writing in order to protect yourself from any claims that you have not paid wages properly. An example salary advance agreement is included in the tools section of the VCCI website.

You can make deductions of up to 1/3 of the employee’s remuneration in any pay period to recover the following costs:

  • salary advances
  • the actual cost to the employer of materials or tools supplied to the employee for use outside of work
  • the cost of articles other than materials or tools purchased on credit by the employer for the employee, if the employee made a written request to the employer to purchase these articles
  • the fair value of rations or accommodation provided, if this amount has been approved by a labour officer
  • the cost of food provided by the employer and prepared or eaten at the place of work, if this food has been supplied at the written request of the employee

You may also deduct trade union membership fees and pay them directly to the trade union on the employee’s request. You are not required to comply with the employee’s request to deduct union fees and organise their payment to a trade union, however. Even though you are not required to comply with your employees’ requests to deduct trade union fees and paying them to the trade union, a good employer should be conscious of its duty to try to maintain harmonious working relationships. If deducting union fees and paying them to the union does not create an undue administrative burden a good employer should try to comply with employees’ requests in this area.

You are not allowed to automatically deduct amounts to recover losses due to negligent or bad work or damage to your property or materials without the written approval of a labour officer.

Yes they can sue.  A statement to the effect that payment is in full and final settlement of all claims, whether made during the period of the contract or after the contract is not legally binding. Note that acceptance of payment without complaint is not an implied acceptance that the amount paid is correct. Also note that there is a time limitation on claiming unpaid remuneration. Employees can generally only claim for unpaid remuneration within 3 years of the time that payment should have been made, however, there are numerous court cases making exceptions to this.

Minimum wages information is found in Orders made under the Minimum Wages and Minimum Wages Board Act [Cap 182]. As of August 2020, the most recent wage order is No. 116 of 2019, setting the minimum hourly rate at 220vt per hour.

The current amount of the minimum wage is 220 vatu per hour. This is the rate that must be paid for regular hours of work of up to 44 hours per week, or 8 hours per day. If the regular hours are exceeded, overtime must be paid in accordance with the law.

There are four exceptions to the standard minimum wage rate:

  • seasonal copra cutters shall be paid a minimum of 13.5 per cent of the price fixed by the Vanuatu Commodities Marketing Board for hot air or sun-dried copra (Minimum Wage Order 3(1));
  • seasonal cocoa cutters shall be paid a minimum of 6 per cent of the price fixed by the Vanuatu Commodities Marketing Board for 1st grade cocoa (Minimum Wage Order 3(2));
  • students engaged during school holidays shall be paid a minimum of 250 vatu per day (Minimum Wage Order 4(1)(a));

children who are employed in accordance with the relevant sections of the Employment Act shall be paid a minimum of 250 vatu per day (Minimum Wage Order 4(1)(b)).

The rate of the minimum wage includes the employees’ VNPF contribution, but excludes the employer’s VNPF contribution.

There is no official monthly minimum wage. If you want to pay your employee a monthly salary that is based on the minimum wage you must make sure that if you divide the monthly salary by the usual hours of work per month this amount is still equal to or higher than the hourly minimum wage.

An employee must have worked for you in order to be entitled to claim leave depends on the type of leave:

  • Annual leave must be given to employees who have been in continuous employment with you for more than 3 months, although annual leave is earned every month for the first year.
  • Sick leave can be claimed by employees who have worked for you full time for more than 3 months.
  • Maternity leave must be given to all pregnant employees, regardless of the amount of time they have worked for you, and whether they are full or part time.
  • Part time and casual employees do not have to be given paid annual leave or sick leave, but are entitled to maternity leave.

  • Annual leave is based on how many years the employee has worked for you for 3 months. The amount of paid annual leave for most employees (leave for agricultural employees varies) are:
    • 15 days (1 – 6 years)
    • 21 days ( 7 – 19 years)
    • 36 days (20 – 24 years)
    • 48 days (25 – 29 years)
    • 72 days ( 30 + years).
  • Sick leave, paid up to 21 days per year.
  • Maternity leave, paid up to 12 weeks per pregnancy.

Statutory leave amounts are minimum amounts of leave. Employers can voluntarily choose to give more leave if they want to. If additional leave is given by the employer then the employment contract should clearly state the conditions under which leave in excess of the Employment Act can be taken and the rate of pay while on such leave.

The amount of payment that must be given to the employee whilst he or she is on leave is:

  • Annual leave or sick leave, the employee’s full salary or wage.
  • Maternity leave, 66% of the employee’s usual salary or wage.

You are not required to give any leave in addition to annual leave, sick leave or maternity leave by law. Employers can choose to provide other types of leave. Other types of leave provided by some employers include:

  • Compassionate leave. Some employers give compassionate leave in the event of the death of a close family member. This can be paid or unpaid leave. Sometimes employers treat compassionate leave as part of annual leave and deduct it from an employee’s annual leave entitlement.
  • Unpaid leave. Unpaid leave is commonly given where employees have used up all their paid leave entitlement or are not eligible for paid leave but have a genuine reason for wanting to be absent from work, such as sporting or study commitments.

Written contracts of employment should clearly state the employee’s leave entitlements and any conditions for being granted leave, particularly if you are offering to provide other types of leave.

Sections 29 – 32 of the Employment Act [Cap 160] provide the law on annual leave entitlements for employees.

Annual leave must be given to employees who have been in continuous employment for more than 3 months. In calculating continuous employment periods of absence due to accident at work, illness caused by work, maternity leave of periods up to 12 weeks, and other leave due to illness for periods of up to 3 months count as part of the period of continuous employment.

There is a grey area in the law regarding the definition of “Continuous employment”. It has been defined by the court (Daniel v Nguyen Huu Hong [2004] VUSC 40) as working more than 22 days a month. This means employees who work less days per month do not have to be given paid annual leave. The other option for defining continuous employment comes from section 54(2)(a), which defines continuous employment for the purposes of determining eligibility for severance allowance. Section 54(2)(a) requires the employee to work 4 or more days per week in order to be in continuous employment.

In practice many employers interpret continuous employment to mean workings 4 or more days per week and do not “count” the number of days per month an employee works.

The amount of leave that can be claimed increases with the employee’s length of service with you (section 29). Rates are:

  • 1 – 6 years of employment: 1.25 days per month or 15 days per year
  • 7 – 19 years of employment: 1.75 days per month or 21 days per year
  • 20 – 24 years of employment, for all employees except for agricultural workers: 3 days per month 36 days per year
  • 25 – 29 years of employment, for all employees except agricultural workers: 4 days per month or 48 days per year
  • 30 + years of employment, for all employees except agricultural workers: 6 days per month or 72 days per year for employees
  • Agricultural workers who work for more than 20 years get 21 days per year.

NB This is the minimum amount of annual leave. Employers can choose to give more annual leave if they want to.

There is a tool on the VCCI website help you with your leave records accessible here.

The amount of payment that must be given to the employee whilst he or she is on annual leave is the employee’s usual salary or wage. The payment whilst on annual leave does not have to include any bonuses, overtime payments, or reimbursement of expenses.

If the employee’s wage varies depending on the number of hours worked then the amount of payment must be at least equal to the average daily pay.

In practice VNPF contributions are paid on remuneration given to employees whilst they are on annual leave.

The employer sets the date at which the employee will take annual leave, although as far as possible the employee’s requests should be taken into account when leave dates are set (section 30(3)). This means that under law you are not obliged to give the employee annual leave if he or she requests leave with very short notice. As a good employer you should however, have a cooperative relationship with staff. Accommodating reasonable employee requests wherever possible helps to build this cooperative relationship.

GREY AREA: Under the law, leave is to be taken in either 1 or 2 periods each year (section 30(1)). In practice many people do not fully comply with this, because employees request to be allowed to take one or two days off at various points throughout the year. If this flexibility is working in favour of the employee this is acceptable (section 6).

GREY AREA: There is nothing in the law that permits you to give your employee a payment in lieu of providing annual leave. The only time that this might possibly be legal is if the employee requests it, so it is an advantage to the employee (section 6). However, taking annual leave is important for the physical and mental health of employees and good employers should ensure that annual leave is regularly used by their employees.

You do not have to allow an employee to take annual leave before he or she has worked a full year. However, annual leave starts to accumulate as soon as an employee starts to work. If an employee leaves before working a full year then he or she may be entitled to be paid for unused annual leave (see below).  A good employer should maintain a cooperative working relationship with employees. Once an employee has worked for 6 months and earns the right to be paid for unused annual leave if he or she resigns a good employer would allow reasonable leave requests.

The employer must pay out all unused annual leave on termination (section 32). Annual leave accumulates indefinitely and is paid at the pay rate on which the employee leaves your company.

Although employees do not lose their annual leave, the textbox above illustrates why it is in your best interest as an employer to ensure employees are regularly using their leave. Doing this avoids large payouts at the end of the employment relationship. It also helps to ensure the health of your employees, and healthy employees are more productive employees.

If the employer terminates the employee for any reason before he or she has worked for 3 months then he or she is entitled to a payment of 1.25 days salary per month worked. Even if the employee was on a probationary period he or she is entitled to be paid this allowance in lieu of unused annual leave.

If the employee resigns then he or she must have worked for at least 3 months before being entitled to the payment for unused annual leave.

No Content

There are no laws that require you to keep leave records. However good employers should keep records of leave because records:

  • help you to make sure that you are providing leave in accordance with the law;
  • help you to control costs and manage human resources by ensuring that annual leave is not accumulating;
  • reduce disputes as to what is owed when employment is terminated; and
  • allow you to check that employees are not abusing leave provisions by taking too much leave.

A simple form for recording annual leave is included in the tools section of the website.

Section 34 of the Employment Act [Cap 160] provides the law on annual leave entitlements for employees.

Sick leave must be given to employees who have been in continuous employment for more than 3 months.

The Act does not define what continuous employment means for the purposes of sick leave. As a result the definition used in respect of defining continuous employment for annual leave is probably used. In practice many employers interpret continuous employment to mean workings 4 or more days per week and do not “count” the number of days per month an employee works.

The amount of leave that can be claimed is 21 working days per year.

NB This is the minimum amount of sick leave. Employers can voluntarily choose to give more sick leave if they want to. If additional sick leave is given by the employer then the employment contract should clearly state the conditions under which additional sick leave can be taken and whether additional sick leave is paid or unpaid.

The amount of payment that must be given to the employee whilst he or she is on sick leave is the employee’s usual salary or wage.

Under the Act employees based in Port Vila and Luganville must provide a medical certificate if they are sick for more than 2 days. Employees based elsewhere must provide a medical certificate if they are sick for more than 4 days.

Some employers are concerned that the law allows employees to take a certain amount of uncertified sick leave. It is possible to put a clause in your contract requiring all sick leave to be supported by a medical certificate (see Part 2: Employment Contracts of the VCCI Guidebook). The employer will then become responsible for medical certificate costs.

GREY AREA: It is not clear in law whether the medical certificate must be from a doctor, or whether medical certificate from a local clinic is acceptable. The Employment Act does not contain a definitions section. It can be observed that the Public Health Act does define a medical practitioner as a licensed doctor. If you require a medical certificate from a doctor (or from a particular doctor) then it is suggested that you specify this in your employment contract.

The law requires employees to inform employers as soon as practicable if they are going to be absent due to sickness.

It is recommended that employers include a clause in all employment contracts about the exact procedures employees should use to notify employers if they are going to be absent due to sickness as this reduces opportunities for unexplained absences.

The employer may require an employee who is absent from work on grounds of illness to be examined by a doctor of the employers choice. Employers can also require employees who have provided medical certificates to undergo a second examination with a doctor of the employer’s choice. If an employer requires an employee to have a medical examination then the employer must bear the cost of this medical examination.

Unused sick leave does not accumulate. It should not be viewed as a holiday entitlement, but is only provided when there is a medical reason for being absent from work.

Sick leave is only to be used if a person is sick. As such “unused sick leave” cannot be claimed as a payment when an employee leaves.

The Employment Act does require employers to provide safe working conditions and some first aid material (Part 9). It also requires employers to provide sanitary facilities, including drinking water (section 13). Employers are also required to have workers insurance under the Workmen’s Compensation Act. Part 7 of the Employers’ Guidebook provides further details on your duties to provide a healthy and safe workplace.

Employers should also remember that it is in their best interests to encourage their employees to be healthy. This might include simple measures such as posters about hand-washing in bathrooms and food safety posters in staff tea rooms. It might also include passing on government health messages. Some employers also encourage employees to be physically fit and active. Whilst these measures go beyond the narrow employment relationship, a decent employer should encourage a healthy happy workplace.

There are no laws that require you to keep leave records. However good employers should keep records of leave because records:

  • help you to make sure that you are providing leave in accordance with the law;
  • help you to manage human resources by identifying staff who are frequently absent due to sickness; and
  • allow you to check that employees are not abusing leave provisions by taking too much leave.

A simple form for recording sick leave is included in the tools section of the website.

Sections 36 – 37 of the Employment Act [Cap 160] provide the law on annual leave entitlements for employees.

Unlike annual leave and sick leave, which require employees to have worked for a certain amount of time before being eligible to claim leave, there is no minimum time an employee must have worked for you before she is entitled to claim maternity leave.

Maternity leave is also available to all employees regardless of whether they are part time, full time or casual, but regular, staff. Whilst there is no case law on this point, this interpretation is in accordance with the plain meaning of the words in the Act. We know from past experience that when this issue has been referred to the Labour Office the Labour Office will require maternity leave to be paid regardless of how long the employee has been in employment.

There is no entitlement for men to take paternity leave. Nor does maternity leave apply to women who adopt babies.

The amount of maternity leave is 12 weeks. The law says that up to 6 weeks must be taken before the woman gives birth and 6 weeks must be taken after the woman gives birth.

This wording means that it is compulsory for a woman to take leave.

However, if the employee wants to work up to the date where she gives birth then she can do so providing she produces a medical certificate which certifies she is safely able to work during the 6 weeks prior to giving birth.

The period of leave can be extended by up to 3 weeks if a doctor certifies that the woman is unfit to return to work after giving birth.

In practice many employers choose to allow the woman to decide when the 12 weeks will be taken, as some women prefer to work up to their date of birth and take most leave after the child is born.

Grey area: Some women want to return to work soon after giving birth. Whilst this is not permitted in law, section 6 permits any arrangement that is more favourable to the employee.  If the employee wants to return to work this may be covered by section 6.

NB This is the minimum amount of maternity leave. Employers can choose to give more maternity leave if they want to.

The amount of payment that must be given to the employee whilst he or she is on maternity leave is 66% of the employee’s usual salary or wage.

The law is not clear on what should happen if the employee’s wage varies depending on the number of hours worked. In this situation the approach taken to calculating annual leave rates should be applied and the amount of payment should be based on the average daily pay over the past 12 months.

In practice VNPF contributions are paid on remuneration given to employees whilst they are on maternity leave.

An employee must produce a medical certificate showing her estimated date of giving birth.

Employees who are nursing are entitled to take 1 hour twice a day until the child is 2 years old to nurse. This time must be paid.

There is no requirement in law that the employee proves she is nursing via a medical certificate, although an employer could require this in an employment contract.

If employees are paid a salary, rather than an hourly wage, employers should be particularly conscious to ensure that workloads are reduced appropriately to take into account the nursing allowance.

The law prevents employers from terminating a woman whilst she is absent on maternity leave.

There is no provision in the Act preventing an employer from terminating a woman’s employment prior to her commencing maternity leave. Good employers should, however, be aware that terminating a woman’s employment whilst she is pregnant is against the spirit of the Act. As such a good employer should only terminate a pregnant woman’s employment if there is a work performance related reason to do so.

Women who return from maternity leave must be placed in the same position, or given a higher position. It is not possible to demote a woman whilst she is on maternity leave.

There are no laws that require you to keep leave records. However good employers should keep records of leave because records:

  • help you to make sure that you are providing leave in accordance with the law; and
  • allow you to check that employees are not abusing leave provisions by taking too much leave.

A simple form for recording maternity leave is included the tools section of the VCCI website.

Methods of termination largely depend on the type of contract and also the reasons for termination. There are also rules regarding the payment of severance and other benefits to employees leaving your employ that you must follow.

There are five main areas of law to understand in relation to termination.

  • Termination of open ended contracts by notice
  • Termination of fixed term contracts by expiry or notice
  • Termination by the employer due to serious misconduct by the employee
  • Payments on termination
  • Severance payments

You do not need to give the employee a reason for termination but you must give notice of termination (verbally or preferably in writing).

For employees employed by you for under three years, termination notice is a minimum of one pay period or fourteen days before the end of the month of notice.

For employees who have worked for more three years you must give three months notice.

You may pay employees wages in lieu of notice.

A fixed term contract has a stated expiry date. The employee's contract comes to an end on the date stated. As the employer you need to pay all outstanding wages and any other payments on this final date of contract.

If an employee continues to work beyond the fixed date without any amendments to the original contract, then the contract becomes an open ended contract and the process of terminating an open ended contract will then apply.

Serious misconduct is taken to mean conduct that is generally beyond simple performance problems. Examples of serious misconduct may include stealing, fraud and wilful disobedience of a valid instruction.

Serious misconduct is not membership of a union or making a complaint in good faith about an employer.  Serious misconduct is not necessarily sufficient grounds for instant dismissal. Instead you must follow correct procedures before dismissal.

You must pay employees for all the work they have done up to their date of termination plus any unused annual leave entitlements.

If an employee owes you money (for example advance leave or salary) then you are entitled to make a reduction of up to 1/3 of their total final remuneration for this.  As a good employer, all calculations for final payment of employees should be in writing.

Unless your employee is terminated for serious misconduct you do have to pay severance if you terminate employment, the employee has worked for you for 12 months or more and works for at least four days a week.

Severance is also payable to employees who resign voluntarily after six years of employment with you.

No you do not have to inform a labour officer before giving an employee notice however if you think that there may be a dispute over the termination or you are terminating a large number of staff, then it is strongly recommended you involve a labour officerAs with all staff management, but especially termination, we recommend you keep full and thorough records of all termination decisions.

At the moment Vanuatu’s law allows termination at willor termination for no particular reason. You do not need to give the employee reasons for terminating a contract by notice (Kelep v Sound Centre [2008] VUSC 13 [para 34]).

Case law suggests that it is better to not state any reason related to performance in case you are then considered to have unjustifiably dismissed an employee by not giving them an opportunity to reply to allegations of poor performance (Nin v Torres and Banks Provincial Council [2011] VUSC 22).  It is not good practice to arbitrarily terminate employees without following good process and employers who do so  may reasonably expect to have such decisions disputed by the terminated employees.

Unless something different is stated in the employment contract, the length of notice varies depending on how long the employee has been working for, and the length of their pay interval.

For employees who have worked for less than 3 years notice depends on the pay interval:

  • Employees who are paid at any interval which is less than a fortnight are entitled to a notice period that is equal to their pay period
  • Employees who are paid at intervals of a fortnight or longer must be given notice of at least 14 days before the end of the month in which notice is given

For employees who have worked for more than 3 years the Act provides that notice shall be not less than 3 months

Note: The law also provides a probation period, or trial period, of 3 months at the beginning of all open ended contracts. Either party can terminate the contract at any time during this probation period without giving notice.

The law says notice can be given orally or in writing and can be given at any time. However, it is good practice for the employer to give notice in writing, and also write down calculations of the payments that will be given on termination.

It is particularly important to write down the payment calculations if you are giving the employee a payment in lieu of notice, otherwise you might become liable for damages for instantly dismissing the employee without cause and without following procedures for instant termination for serious misconduct that are laid out in section 50.

Ill-treatment of the employee by the employer: Unless the contract permits it, the main situation where an employee can leave without giving notice is where an employer ill treats an employee or commits some other serious breach of the terms and conditions of the contract of employment. In common law this situation is known as a constructive dismissal. In this situation the employee can leave immediately and claim payment for the notice period that the employer would have had to give if the employer had actually dismissed the employee. He or she may also be able to sue you for breach of contract for other amounts.

Sickness of the employee: If an employee leaves without notice because he or she has become too ill to work, the contract has probably become frustrated, which means it can no longer be performed due to an external event, so comes to an end. In this situation the employee is not liable to pay damages for breaching the contract, but nor is the employer liable to pay to end the contract. It would be reasonable for an employer to expect the employee to provide medical certifications showing that it is impossible for the employee to continue working.

It should be noted that a severance allowance needs to be paid when the contract comes to an end due to sickness which has been certified by a doctor, if the employee is otherwise eligible for it.

Other: If the employee leaves without giving notice and there is no reason relating to your misconduct as an employer or frustration then the Act says that you can deduct the sum the employee would have earned during the notice period from any payments on termination.

If part of the employment arrangement a last day of work is specified, then this contract is a fixed term contract. At the end of that fixed term the contract comes to an end, unless parties take steps to carry on the employment relationship.

There is nothing specific you have to do. You do not need to remind your employee that the contract is ending. Instead, on or about the last day of work you need to pay the employee for any outstanding entitlements.

When a fixed term contract comes to an end an employer may continue to pay the employee to work and the employee may continue to come to work. In this situation the ongoing employment relationship has no set end date, so becomes an open ended contract which can be terminated by notice.  If a contract rolls over in this manner then any severance pay is calculated at the end date of the employment, not the end date of the fixed term contract. It is calculated from the very first day of working. It is also, of course, possible to end a fixed term contract, pay out all severance allowance, and then reemploy the employee on new terms and conditions.

Unknowingly allowing the contract to expire may suggest better staff contract administration needs to take place.  It is better employment practice for an employer and an employee to discuss what they want to do as a fixed term contract nears its end. They may agree to renew the same contract, or make a new contract under different terms.  Often fixed term contracts will contain a clause about how the contract can be renewed.

Fixed term contracts come to an end at last day specified in the contract. This means that, in the absence of a specific clause in the employment contract permitting termination by notice, it is not possible for either party to end this contract early. If there is a notice clause in the contract then the length of notice and procedure for giving notice stated in that clause must be followed. It is recommended that employers consider including such a clause in fixed term contracts.

In the absence of a notice clause in the contract the only way an employer could terminate an employee who is employed under a fixed term contract early would be if he or she has committed an act or acts amounting to serious misconduct.

In this situation the contract is probably frustrated, which means it can no longer be performed due to an external event, so comes to an end. In this situation the employee is not liable to pay damages for breaching the contract, but nor is the employer liable to pay to end the contract. It would be reasonable for an employer to expect the employee to provide medical certifications showing that it is impossible for the employee to continue working.

It should be noted that severance allowance needs to be paid when the contract comes to an end due to sickness which has been certified by a doctor, if the employee is otherwise eligible for it.

The Employment Act does not define what serious misconduct means.  In law there is no fixed standard for what will be a significant enough bad behavior to justify termination for serious misconduct.

The breach must be serious – although less serious breaches, if repeated, can also add up to serious misconduct.

Serious misconduct would cover behaviours such as theft, harassment of other staff members and misuse of company property. Serious misconduct can also relate to ongoing poor performance issues.  It is a recommended that you obtain a second opinion, for example from a labour officer, on how to deal with ongoing problems with poor performance or misconduct.

Section 50(2) of Vanuatu’s Employment Act says the following will not be considered serious misconduct:

  • trade union membership or participation in trade union activities outside working hours, or with the employer's consent, during the working hours;
  • seeking office as, or acting in the capacity of, an employees' representative;
  • the making in good faith of a complaint or taking part in any proceedings against an employer.

Bad behaviour outside of work hours may also provide the employer grounds for termination for serious misconduct. This is because one of the employee’s implied duties is to maintain reasonable behaviour.

In determining whether out of work misbehaviour is grounds for dismissal you need to consider whether the nature of your business means that the nature of the conviction, and the nature of the conduct on which the conviction is founded, provide sufficient reason for you acting as a reasonable employer, to say that the employee is to be terminated.

Common examples of bad behaviour outside of work hours include convictions for theft, drug use, drunk driving offence, sexual offences and assaults.

The Employment Act says that you must:

  1. give the employee an adequate opportunity to answer any charges made against him and
  2. act within a reasonable time after you become aware of the serious misconduct.

You can only dismiss an employee for serious misconduct if you cannot in good faith be expected to take any other course. This means you have to consider what other courses of actions you could take, for example providing additional training, demoting the employee or suspending an employee from work. As the law on other courses of action employers are allowed to take is not clear it is a good idea to include a clause in your employment contract allowing you to take any of these steps in response to incidents of serious misconduct.

There is no requirement that you must always give employees warning letters before terminating them. If the misconduct is performance related and is ongoing, warning letters are probably required as a course of action that could and should be taken before termination. If, however, there is a single serious incident (such as a theft or assault) then termination without an initial warning would probably be acceptable.

As part of the implied duty of mutual trust, confidence and co-operation you must also be careful not to terminate your employee in such a way as to unduly humiliate them.

Suspension on pay gives you, as an employer an incentive to sort out the matter quickly. The law is silent on whether you can suspend a person without pay, and if you wanted to be able to do this as a step in dealing with incidents of serious misconduct it good idea to have clause in contract. For a good employer who is dealing with issues in a timely manner suspension on pay will not be a major expense.

The law does not require any documentation to be kept, but in practice it is a good idea to keep everything in writing in case a dispute occurs. For less serious misbehaviours which accumulate it is recommended that you write a warning letter, or series of warning letters, outlining consequences if behaviours does not improve.

If you provide the employee with additional training or instruction in order to improve performance you should also record this. As a good employer you should be undertaking regular performance appraisals and keeping employee records including records of additional training following warnings and other performance appraisal records.

If you think serious misconduct is sufficient grounds for termination you should write a letter to the employee outlining the allegations of serious misconduct and setting a time for a meeting to discuss allegations. Any evidence of misconduct should be explained. Records of this meeting should be kept.  Any termination should take the form of a formal termination letter which clearly states the reasons for termination, the procedures followed and how payments on termination have been calculated.  It is also a good idea to copy the letter to a labour officer.

If a staff member is terminated for serious misconduct, but procedures are not properly followed, then severance allowance is payable and you may also be liable for a payment of up to 6 times the usual amount of severance allowance (section 56(4)). The Court can also order additional damages payments if it finds that the employer has acted so unfairly as to be in breach of the implied duty of mutual trust, confidence and co-operation.

This is an employment grievance situation. It is a good idea to involve a labour officer as soon as possible in any grievance situation to put forward your side of any situation.

If your employee is engaged on an open ended contract, or is engaged on a fixed term contract which contains a notice clause, then you can terminate by giving notice.

Whilst the above statement is probably correct, a recent court decision (Nin v Torres and Banks Provincial Council [2011] VUSC 22) suggests that you need to be careful about how you word your letter of termination by notice. In Nin some employees were dismissed by being given pay in lieu of 3 month’s notice. However, the dismissal letter referred to poor staff appraisal reports. The court held that even though notice had been correctly given and the employees dismissed under section 49, because the employees were not given an opportunity to discuss poor appraisal reports the dismissal was unjustified. The court therefore awarded an additional payment of 4 times the regular amount of severance allowance to these employees.

Termination of your employees is a complex area. The law is often not 100% clear and interpretations of the law can change following court decisions. This information is intended to give general guidance rather than legal advice. As termination of employment is the main reason why disputes between employers and employees arise, if you are terminating staff and are not sure of procedures we strongly recommend seeking advice from a labour officer, a more experienced employer or a lawyer.

If termination of employment is carried out correctly there are four categories of payments on termination in Vanuatu:

  1. Payment for all work done
  2. Unused annual leave
  3. Repatriation
  4. Severance allowance

If termination is carried out incorrectly employers may also be liable for damages payments. Damages payments are not covered in this factsheet.

Whether payments to employees are required on termination depends on the method of termination. More details on this are available in the Employers’ Guidebook available here.

You must pay an employee for all work undertaken under your employment agreement. Section 16(8) of the Employment Act also requires you to pay all outstanding remuneration and allowances, including unused annual leave, as soon as employment ceases.

Generally you can only deduct up to 1/3 of the employee’s total remuneration for costs you incurred by giving your employee salary advances or purchasing other things for him. However, if you wish to recover money due to loss or damage suffered due to wilful misconduct or negligence of the employee you can do this if you have prior written approval of a labour officer.

This is discussed in more detail in the annual leave section above and in the Employers’ Guidebook but there are two key conditions that must be met for eligibility for payments for unused annual leave:

  1. An employee must be in continuous employment, which has been defined to mean working for more than 22 days per month.
  2. If an employee resigns she must have worked for at least 3 months in order to be eligible for annual leave.

Unused annual leave accumulates indefinitely. You will need to go back through your leave records to determine how many days of annual leave have not been taken each year (or part year) by the departing employee.

You also need to identify the pay rate that the employee was receiving per day when the employment relationship came to an end.  It is this pay rate that is used to calculate unused annual leave. If the employee's daily rate varies, then you need to identify the average daily rate, based over a year’s wages.

There is a calculator tool on the website to assist with these calculations accessible here.

Generally every employee whose ordinary place of residence is more than 50 kilometres away from his place of employment and who has been brought to the place of employment by the employer or his agent shall have the right to be repatriated to his ordinary residence when his contract ends by:

  • Expiry
  • Notice and the employee has worked more than 1 year
  • Termination due to misconduct by the employer
  • Termination due to employees incapacity due to sickness or accident

If the employee’s contract is terminated by notice by either party and has worked less than 1 year then the employee only gets partial coverage of repatriation expenses.

The employee loses the right to repatriation if:

  • He does not claim repatriation within 6 months of finishing work
  • He is terminated by his employer for a serious breach of contract
  • He indicates that he does not wish to exercise the right to repatriation
  • He has been settled, at his own request or with his consent, at or near the place of his employment
  • The contract is ended for a reason other than sickness or accident of the employee and the labour officer is satisfied that the remuneration paid made allowance for the cost of repatriation and that arrangements such as a deferred pay system have been made,  to ensure that the employee has the funds necessary for the payment of such costs

If the employee is eligible for repatriation and the employee’s spouse and dependent minor children have been brought to the place of work by the employer then they are also entitled to repatriation allowance.

There are three main things an employer must pay:

  • Travel costs with the mode of transport being determined by local usage, the employee’s position and safety and reasonable comfort
  • Subsistence during travel

Subsistence in any time between the ending of the contract and repatriation travel commencing (section 62(1)(b)), unless delays to repatriation travel commencing have been unreasonably caused by the employee or have been caused by unforeseeable circumstances.

For an employee to be eligible for a severance payment she must have been in continuous employment with the employer for 12 months, and her contract must come to an end in one of the following ways:

  • the employer terminates her employment
  • the employee retires or is retired by the employer on or after reaching the age of 60 years
  • the employee resigns after working for 6 years
  • the employee is unable to continue work due to illness or injury and this is certified by a registered medical practitioner.

To be in continuous employment an employee must work for 4 or more days per week. There are no minimum hours that the employee must work. The law is silent on whether unpaid absences from work for reasons such as study leave or secondment to a different employer count towards a period of continuous employment. If this is a situation you are likely to encounter you should include provisions in your employment contract to clarity this.

There is no obligation to pay severance allowance if the employee is terminated for serious misconduct.

There is also no obligation to pay severance allowance to employees who are recruited from outside of Vanuatu and are not ordinarily resident in Vanuatu. The Court of Appeal has held that an expatriate who was initially recruited outside of Vanuatu but then has gone on to renew successive contracts and has become ordinarily resident in Vanuatu will be entitled to severance allowance (Air Vanuatu (Operations) Ltd v Molloy [2004] VUCA 17).

This is a grey area in the law and court cases have resulted in conflicting outcomes.

It is likely that expiry of a contract counts as a termination by the employer, in which case severance allowance is payable, but this point is not settled.

If a business comes to an end and the employee is offered and accepts employment under the same or more favourable conditions then the new employer assumes liability for severance allowance from the time that the employee started with the original employer.

  • A business is sold as an ongoing concern and the new owner offers employment.
  • A partnership is dissolved and either a new partnership is formed or a member of the dissolved partnership offers employment.
  • A company is dissolved and restructured and the employee is offered employment in the new company.
  • An employer dies and the personal representative of the deceased offers.

It is possible for the original employer to terminate the employment of staff on open ended contracts by giving notice. If any employees engaged on fixed term contracts have notice clauses in their contracts they can also be terminated by notice. The original employer is liable to pay severance allowance owed at the time of termination. The new employer can then enter a new employment contract. Other arrangements, such as a reduction in sale price to allow for severance allowance obligations, are, of course, possible.

It is recommended that, as part of any sale or transfer of business, obligations in respect of severance allowance for any employees being transferred is clarified.

Severance allowance is calculated at the rate of 1 month’s remuneration per full year worked. For any partial years worked a pro rata payment (1/12 x 1 month salary x number of months worked) is payable. The salary is based on what is paid at the time of termination.

Where payment varies depending on the amount of work done, or includes a commission component payment shall be based on the average payment received over the 12 months immediately preceding termination.

GREY AREA: Case law has said that remuneration only includes money paid as salary or wages. It does not include allowances such as housing allowance or travel allowance (Banque Indosuez Vanuatu Ltd v Ferrieux [1990] VUCA 3). However, some cases do include allowances such as housing allowance as remuneration for the purposes of calculating severance allowance (See, for example, Benard v Republic of Vanuatu [2012] VUSC ).  Separating different components of total payment into wage or salary remuneration and other allowances and stating in employment contracts that severance allowance is calculated on the basis of wage or salary remuneration may help to clarify this.

Deductions that can be taken from the severance allowance are found in section 57.

Where an employee retires, or is retired, on reaching the age of 60 the employer may deduct:

  • half the amount of any gratuity due at the age of 60 years from any pension fund other than VNPF
  • any gratuity granted at the age of 60 years by the employer
  • 5 times the amount of any annual pension granted at the age of 60 years from any pension fund other than VNPF
  • 10 times the amount of any annual pension granted at the age of 60 years by the employer

Pension fund is defined to mean any provident or pension fund or similar scheme other than the Vanuatu National Provident Fund which is specifically approved by the Commissioner.

Where  employment ends in a situation other than retirement, the employer may deduct:

  • any gratuity granted by the employer;
  • any contribution made to any pension fund other than VNPF

GREY AREA: It is not clear if gratuities such as Christmas bonuses can be deducted from severance allowance. It may be possible to deduct gratuities such as Christmas bonuses if they are clearly stated, in writing, to be considered advance payments on severance allowance due at the end of the contract. It would clearly be possible to manage severance allowance by saving gratuities such as Christmas bonuses for the employee and paying them all out at the end of the contract.

A contract that pays severance allowance monthly along with salary may be allowed to replace severance allowance obligations if it clearly provides a more favourable benefit to the employee than the employee would be entitled to under the severance allowance provisions of the Employment Act. The wording of the employment contract would need to be very clear.

Yo may be able to pay gratuities throughout the contract, or structure your contract so that you pay a severance allowance directly to the employee monthly. These methods of managing severance allowance are uncertain, however.

There are some other practical measures you can take. These include:

  • Keeping a savings account for severance liabilities, and depositing an amount to cover future severance liabilities into it each month, so that you have money saved.
  • Getting a pension plan other than VNPF approved by the Commissioner of Labour, and paying into this every month, so that you can deduct most, or all, of this amount from severance allowance payable at the end of the contract.

These management strategies may be of limited use if the law on severance changes.

Some employers use fixed term contracts and pay out severance at the end of each contract, then reemploy the employee on a new contract so that the amount of severance allowance does not build up. This is something of a grey area and has not been fully tested in court.

wpChatIcon