Vietnam is an economy with ample education and job opportunities. Vietnamese employees are educated and skilled in manufacturing, industrial, and service industries, contributing to the country’s economic growth. This has been a contributing factor toward a large number of Vietnamese employees being hired by employers across the world.
With the recent increase in businesses worldwide, foreign employers want to attract and retain the best talent. This requires understanding payroll in Vietnam and coordinating salary structures with HR management.
In recent years, there has been a steady flow of foreign direct investment (FDI) into Vietnam. As more significant foreign companies establish businesses, employers need to understand how human resources and payroll work. For many employers, salary structures are a beginning point as it rationalizes wages and motivates staff.
This article will talk about everything you need to know about the Vietnamese payroll system.
How is Payroll Calculated in Vietnam?
For local employees working for foreign companies in Vietnam, compensation is determined through negotiations between both parties.
However, as per the labor laws, the compensation should be no lower than the minimum monthly salary.
The minimum monthly salaries in Vietnam is as per region that is as below –
The minimum wages, as mentioned above, are for Vietnamese employees that conduct basic work in normal working conditions. Employees more skilled and with higher education typically have wage rates and salaries at least 7% higher than the average wage rate.
Employees working overtime must be paid overtime pay. The overtime pay is as below:
Important Elements of Salary Structure in Vietnam
An employee's typical monthly salary package includes gross salary and mandatory insurance contributions in Vietnam. Salaries and bonuses (after deducting compulsory insurance contributions) are subject to personal income taxes (PIT) and are levied on the net salary.
Essential elements of salary structures involve –
- Cost to Company: Cost to Company (CTC) is the yearly expenditure that a company spends on an employee. Hence, it is not the gross salary that an employee gets in hand. This ideally includes
- ~Compensation for the hours worked.
- ~Overtime Pay
- ~Fringe benefits
- ~Mandatory deductions
- ~Payroll taxes
- Gross Salary: Gross Salary is the monthly or yearly salary before deductions. Ideally, these deductions are taxes or other statutory deductions such as social security contributions. The Gross salary usually includes dividends, basic pay, or other differentials.
- Net Salary: Net Salary is the employee's salary after deducting TDS, statutory deductions, or other miscellaneous deductions per company norms.
- Basic Salary: Basic salary is an employee’s basic income, which constitutes 35-50% of the total salary. The basic salary is calculated based on the employee’s designation and the industry in which they belong. This is the remuneration paid before any deduction or increase in allowances, overtime fees, or bonuses.
Salaries paid to Vietnamese staff working for foreign companies must be denominated in Vietnamese Dong. Foreign employers may base salary rates on either Vietnamese Dong or US Dollars.
How to Set Up a Payroll in Vietnam?
To set up Payroll in Vietnam, it is crucial to either set up a subsidiary if you are already an established and a registered company elsewhere or start a business afresh. It is mandatory to comply with the minimum requirements laid out by law for a smooth registration process.
Though a business bank account is not mandatory for a foreign company to run its business in Vietnam, having one can bring you numerous benefits that include
- ~Convenient payroll transactions and other payments without geographical limitations
- ~Transaction legalization for tax purposes with more than VND 20 billion
- ~Enhanced professional image.
There are two types of business bank accounts for a foreign company in Vietnam:
- ~Investment Capital Account: This type of account typically helps send and receive investment amounts
- ~Transaction Account: This account aids daily transactions in Vietnam.
Vietnam is a relatively complex process for opening a business bank account compared to opening a personal bank account.
A Step-by-step Process of Payroll Processing in Vietnam
There is 6 step process for processing payroll in Vietnam –
- Choosing the best payroll system that suits your business.
The most common payroll systems that employers in Vietnam use include manual payroll, payroll software, and outsourced payroll.
- Manual Payroll involves having an in-house payroll team that helps the employer process payroll and salaries to employees.
- A payroll software as a platform offers all payroll assistance, including time tracking. Usage of payroll software would ideally vary as per the business's product.
- Outsourced payroll ideally is a platform or an organization hired as an external resource that manages end-to-end, including bookkeeping and payroll taxes.
When choosing the ideal payroll system to conduct end-to-end payroll in Vietnam, an employer must consider business requirements, business size, growth, the complexity of labor laws, and employee benefits. If these factors are complex, outsourcing payroll would be an ideal decision.
- Determine an apt payroll policy
When looking at finalizing payroll policies in Vietnam, a few crucial areas that must be reviewed are labor laws in Vietnam, overseeing overtime, and minimum wages as stipulated by law. For example, an employer is liable to be fined when failing to report the pay scale, payroll, and work limits to the labor relations authority of the district.
Therefore, a few key aspects to keep in mind when payroll policies are framed while operating in Vietnam are –
- ~Employers must include pay dates. Pay dates can elaborate more on the pay cycle of an employee that can be bi-weekly, monthly, or quarterly.
- ~The mode of payment to employees can be through a paper check or a direct deposit.
- ~Mandatory payroll deductions and withholdings and deductions for fringe benefits (like group health insurance).
- Collection of valid employee data
The employer must collect all necessary information regarding the employees to help in the payroll process.
This includes employees' personal information such as name, address, tax filing status, and social security number to contribute to the social security funds in Vietnam.
For mandatory benefits in Vietnam, such as health insurance or retirement savings, the employer must furnish the employee with the necessary documents that serve as additional deductions.
The setting of a direct deposit account: If the employee opts for direct deposit to receive a salary, it is then mandatory to set up a direct deposit via the payroll service provider or the business's bank directly.
Information that an employee must collect includes
- ~The employee's bank name
- ~Account type (savings or checking)
- ~The account number
As an employer, you must update these details to the bank or the payroll software as a next step.
- Ensuring a record of employees' work hours is maintained.
Though there are no provisions for employers to record employees' working hours, it is common in Vietnam to set up a time tracking system. This ensures an accurate calculation of overtime compensation and keeps a record of hours worked by each employee.
Several time tracking platforms have been developed and used by employers in Vietnam to keep track of employees' working hours and leaves.
- Collection and verification of timesheets
When processing payroll, it is essential to verify the number of hours worked and leaves taken by employees to avoid unnecessary delays in the payroll process.
If your company also has independent contractors and freelancers on your payroll, you must approve the hours recorded by them.
After verifying the authenticity of the hours invested by the employee and the time cards are checked, you can run the payroll and issue salaries to the employees.
- Updating payroll records
This step is critical as it is mandatory to keep a record of the taxes, social security, and Medicare taxes withheld from the employees' wages. You must show these records to the tax authorities in Vietnam.
The payroll contributions in Vietnam are contributed by both - the employer and the employee. Contributions by the employer and employee are as below –
The employer contributions are as below –
The contributions are a part of an employee’s gross salary.
The employee contributions are as below –
The payroll cycle in Vietnam is monthly for full-time employees and is paid on the last working day or as agreed within the employment contract.
Part-time employees, independent contractors, and freelancers are paid their salaries as agreed within the employment contract.
Vietnam Payroll Options for Companies
If a business has several employees, it is key to have a payroll system to compensate them correctly for their work. A few options for timely completion of payroll could be –
- ~In-house payroll: In-house Payroll is when a company establishes its process for completing payroll and keeping records. Most medium and large companies either have an HR representative or an in-house payroll department to process payroll for employees internally. In such cases, all information is processed manually, with no automated services or programs.
- ~Professional accountant: An accountant has the experience and the knowledge to help manage the finances of a company while offering business advice and guidance when needed. Accountants can run the payroll on the company's behalf, manage employees' insurance and other benefits, and file taxes on behalf of the business while keeping you compliant with local laws.
- ~Payroll provider: Payroll providers such as Multiplier offer services to help other companies manage their payroll. Depending on the business requirements, professionals from Multiplier can help monitor your scheduled payroll and employees' time off, report new hires, and file taxes on your company's behalf. We ensure our payroll services provide peace of mind by offering 100% accurate protections if your documents or taxes are filed inaccurately.
Entitlement and Termination Terms
In Vietnam, employees are entitled to the following benefits:
Paid Time Off
- ~Annual Leave & Public Holidays: Annual paid leave includes 12 business days, and there are 11 public holidays
- ~Sick Leave: Sick leave varies between 30 days to 60 days, depending on the nature of the work
- ~Maternity leave: Expectant mothers are entitled to 6 months of maternity leave
Termination Terms in Vietnam
Employees and employers are free to terminate an employment contract on mutual agreement. It is not mandatory in such cases to give a notice period.
Severance Payment: Employers must pay severance payments to employees with 12 months or more of service.
Vietnam Payroll Processing Company
Setting the payroll for the first time in Vietnam can be a daunting experience. Hence a checklist can help you start the process without any hassle and with minimum errors.
- ~The first step is essential in deciding whether you would like to outsource payroll or have an in-house team.
While processing payroll in-house can give more control and is inexpensive, outsourcing to a reliable payroll service provider can help eliminate unnecessary compliance troubles.
- ~Employee information includes employee's name, residential address, national ID, date of joining, employment type (full-time, part-time, or an independent contractor), salary, benefits, bonuses (if any), leave entitlements, etc.
- ~Choosing a payroll schedule is crucial. This process involves considering what works best for your business and employee requirements. Standard payroll period methods include monthly, semimonthly, biweekly, and weekly. Most companies in Vietnam follow a monthly payroll schedule; however, other payroll cycles depend on the company's business requirements.
- ~A key area to consider is to decide on the mode of salary payment. You can make payment of salaries in a paper check, direct deposit, or bank transfer.
Mode of salary payments is majorly factored in by businesses depending on the number of employees at any point in time, as each mode of payment has a different credit cycle.
- ~Calculating payroll withholdings is crucial. This helps in avoiding compliance issues with the tax authorities of Vietnam.
Payroll withholdings include deducting the right amount of taxes from employees' paychecks each year, including state and national taxes. Other withholdings include social security contributions and insurance premiums.
How Can Multiplier Help With Global Payroll?
Much like setting up your HR or payroll team and payroll software, learning and setting up a team in Vietnam is extremely daunting. Thus, partnering with a reputable industry player like Multiplier will help you process payroll and processes that fit your needs while making payroll systems intuitive.
A significant adage of working with us is not worrying about taxes, tax law, and employee taxation changes in Vietnam. Our dedicated team and qualified professionals in Vietnam ensure the implementation of best payroll practices and monitor these subjects regularly. They ensure you compliantly hire and process payroll in Vietnam, ensuring you don't have to spend time sifting through tax laws.