What Severance Pay Rules Must Employers Follow in Laos?

Which Employees Qualify for Severance Pay?

• Employees on indefinite or fixed-term contracts who are terminated by the employer without serious misconduct generally qualify for severance.
• Employees dismissed for economic reasons, restructuring, or redundancy are usually entitled to severance if legal procedures are followed.
• Employees who resign due to the employer's serious breach of contract or unsafe working conditions may be treated as eligible for severance.
• Employees on probation or very short-term casual arrangements may not qualify, depending on contract terms and actual duration of service.
• Employees lawfully dismissed for serious misconduct, such as theft or violence, typically lose the right to severance.
• Foreign employees working legally in Laos under local employment contracts are usually covered by the same severance rules as Lao nationals.

What Are the Legal Timelines for Paying Severance?

In Laos, the Labour Law expects you to settle all final payments, including any severance owed, promptly at the end of the employment relationship. In practice, employers should aim to pay severance on the employee's last working day or within a few days of termination once final salary, unused leave, and deductions are confirmed. Where terminations involve approval or consultation with labour authorities, you should still prepare funds so payment can be made immediately after the decision is finalized. To stay safe, build a standard internal rule that severance is paid no later than the normal payroll date following termination. Document the payment date and method in a signed settlement statement to reduce future disputes.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Laos, you risk administrative sanctions, back-pay orders, and potential civil liability. Labour inspectors can review your terminations, and employees can file complaints with the labour administration or courts, which may order you to pay outstanding severance plus interest and, in some cases, additional compensation.

• You may be ordered to pay the unpaid severance plus statutory interest.
• Labour authorities can impose administrative fines or corrective orders.
• Non-compliance can delay approvals for future workforce changes or permits.
• Disputes can escalate into lawsuits, adding legal fees and management time.
• Repeated violations can damage your reputation with regulators and staff.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as the service described at https://www.playroll.com/employer-of-record can change how severance liability is managed in Laos, but it does not remove the underlying legal obligations. In an EOR model, the EOR is usually the legal employer on paper and is responsible for calculating and paying severance in line with Lao Labour Law. However, your company, as the client, typically bears the economic cost and may be contractually required to fund any severance and related termination expenses. If the EOR mishandles a termination, authorities or courts may still look to your business as the real decision-maker, especially if instructions came from your team. You should therefore ensure your EOR has strong local expertise, clear termination workflows, and transparent indemnity clauses covering severance and penalties.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance in Laos means juggling statutory rules, contract terms, and practical realities like notice, documentation, and timing. Playroll helps your company translate Lao Labour Law into clear, step-by-step processes so your managers know exactly when severance is due, how to calculate it, and what approvals are needed. With localized templates for contracts, termination letters, and settlement agreements, you reduce the risk of missing a key requirement that could trigger a dispute.

When you hire in Laos through Playroll's global employment infrastructure, our team and partners handle the heavy lifting on compliance, including severance calculations and final-pay audits. You stay in control of performance and business decisions, while we ensure that every termination is documented, costed, and executed in line with local law. That way, you protect your brand, your budget, and your employees, without needing in-house Lao employment law expertise.