As Vietnam continues to attract foreign investment, more and more companies are establishing operations in the country. For these companies, understanding the local payroll system is important in order to ensure compliance and avoid any potential legal issues.
This article describes the important elements of payroll calculation in Vietnam and what companies need to know.
Elements to consider for payroll calculation in Vietnam
In Vietnam, salaries are calculated and dispersed between the 25th and the 5th of each month. Once the compensation is determined, the company needs to calculate any deductions that should be made from the employee’s pay. These deductions include taxes, social insurance contributions, and other mandatory deductions.
The important elements involved in the payroll calculation in Vietnam are:
According to the Labor Code of Vietnam, employees who work extra hours are entitled to overtime pay based on their current hourly wages as per the following:
- Employees are paid 150% of their regular hourly wage for overtime hours on regular days
- Employees in Vietnam are paid at least 200% of their regular hourly wage for overtime hours worked on weekends
- For overtime hours worked on holidays and paid leave days, employees are paid 300% of their regular hourly wage
The minimum monthly salary in Vietnam varies as per the region. Payroll providers consider all deductions, contributions, bonuses, allowances, etc.
According to different regions, the minimum monthly salary in Vietnam is as follows:
|Region I: Urban/suburban district of Hanoi, Ho Chi Minh, Hai Phong City, Dong Nai, Binh Duong, Ba Ria – Vung Tau Province||VND 4,680,000 (USD 202)|
|Region II: Rural Hanoi and Ho Chi Minh City, Urban Can Tho, Da Nang, and Hai Phong||VND 4,160,000 (USD 179)|
|Region III: Provincial cities and districts of Ban Ninh, Bac Giang, Hai Duong, and Binh Phuoc provinces||VND 3,640,000 (the USD 157)|
|Region IV: Remaining||VND 3,250,000 (USD 140)|
Personal income tax (PIT)
In Vietnam, individuals who earn income, including wages, salaries, business profits, and other sources, must pay personal income tax (PIT). This includes Vietnamese citizens and foreigners who earn income in Vietnam.
In Vietnam, the tax rate for personal income tax (PIT) is progressive and ranges from 5% to 35%, depending on the amount of income earned.
Below is a table describing the individual income tax rates in Vietnam:
|Bracket||Annual taxable income (VND)||Rate (%)|
|1||0 to 60 million||5|
|2||60 to 120 million||10|
|3||120 to 216 million||15|
|4||216 to 384 million||20|
|5||384 to 624 million||25|
|6||624 to 960 million||30|
|7||Over 960 million||35|
Calculation of PIT:
PIT amount = Assessable income(1) x Tax rate
(1) Assessable income = Taxable income – Deductions(2)
(2) The prescribed deductions include:
- Family deduction: VND 11 million/month (US$ 470) for the taxpayer and VND 4.4 million/person/month (US$ 188) for a dependent.
- Deductions for insurance premiums, and voluntary retirement funds.
- Deductions for charitable, humanitarian, and academic donations
Social security deductions in Vietnam
As of January 1, 2022, the rate of social insurance contributions in Vietnam for foreign employees has increased. The new rate requires foreign employees to pay 8% and employers to contribute 17.5% to the social insurance fund, which is in line with the same rate as that for Vietnamese employees.
This includes benefits for sickness, maternity, occupational diseases, accidents, retirement, and death.
Paid annual leaves
According to Vietnam’s labor laws, employees are entitled to the following number of paid annual leave days:
- 12 days of paid annual leave after 1 year of continuous service.
- An employee’s annual leave shall be increased by 1 day for every 5 years of service with the same employer.
Paid sick leaves
Employees in Vietnam are entitled to take sick leaves which are calculated as per the employee’s contribution to the social insurance fund. The employee gets their sick leave payments from the National Social Insurance department assuming they have a valid certificate from a doctor or a licensed practitioner.
The employer doesn’t have to pay for the sick leaves but the employee must apply for these leaves and seek approval from the employer.
The maximum allowance for sick leave is as follows:
- 30 days per year for employees who have contributed to the social insurance fund for less than 15 years
- 40 days per year for employees who have contributed for 15-30 years, and
- 60 days per year for employees who have contributed for more than 30 years.
Female employees in Vietnam are entitled to 6 months of maternity leaves. Employees who give birth to twins or more infants are entitled to an additional leave of 1 month for each of the second and following infants, while their employers can extend their leave with discretion.
13th month’s pay
The 13th month’s pay is intended to be a bonus for employees and is not required by law. However, it is a common practice in Vietnam, and many companies choose to offer the 13th-month pay in order to increase employee retention.
Reasons to outsource payroll in Vietnam
Companies usually outsource the payroll function to be able to focus more on strategy-making and business growth. A few reasons to outsource payroll in Vietnam are:
Compliance and regulations
It is essential to keep up with the current market trends as labor regulations related to payroll calculation evolve as the economy grows. To make sure you remain compliant with the labor regulations in Vietnam, consider outsourcing the payroll for your business if necessary.
Invest more time in business-generating activities
With the removal of payroll responsibilities, your company will now have extra time and resources to focus on the core business functions that can generate revenue and business growth.
Technology and Automation
Outsourcing payroll services can provide your company access to the latest automation and technology to process payroll and other related tasks which saves time and improves accuracy.
Outsourcing payroll can help the business mitigate the risk of errors or non-compliance, as the payroll outsourcing company is responsible for ensuring that all payroll-related tasks are completed accurately and on time.
Payroll calculation in Vietnam in 5 steps with Emerhub
The payroll calculation in Vietnam becomes challenging for foreign employers as the business needs to be compliant with local laws. As a result, most companies outsource their payroll calculation to third parties.
Emerhub manages the payroll on behalf of your organization. Here is our five steps process:
- Submit the required documents of your employees along with their salary information
- We register your employees with the labor department for health and social insurance as mandated by local law
- Emerhub calculates salaries, overtime, benefits, and employment taxes for your employees
- We handle the submission of personal income tax (PIT) declarations each quarter and take care of settlements on an annual basis
- Our services also include the submission of your company’s Labor Use Report biannually
How can Emerhub help with the payroll calculation in Vietnam?
Emerhub ensures that your employees in Vietnam are paid on time and in compliance with the local laws along with all the entitled benefits. We have a 10+ year history of delivering success in emerging markets. We manage employee salary calculations and tax filing, making payroll management in Vietnam a streamlined operation.
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