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Vietnam is the world's 15th most populous country, with a population of more than 98.56 million people which is equivalent to 1.25% of the world’s total population. Despite being isolated from the global economy for the majority of the twentieth century, reforms in the 1980s opened Vietnam up to international business interest, and it has experienced dramatic growth since 2000.
Foreign direct investment (FDI) into Vietnam has increased in recent years as more foreign companies decide to establish operations in the country. Employers, on the other hand, must gain a thorough understanding of how human resources operate in the country. The government has certain regulations in place regarding payroll, so it’s important to be up-to-date on the latest information. Local employees in Vietnam have traditionally been paid monthly in Vietnamese Dong (VND).
To help you out, we’ve put together a comprehensive guide on the payroll in Vietnam for employers & employees. This guide covers everything from minimum wage to social insurance contributions and more needed for payroll processing in Vietnam. Keep reading to ensure you’re compliant with the law and that your employees are getting paid correctly.
Payroll Processing in Vietnam
To manage payroll in Vietnam, there are certain steps that an employer can follow for seamless and accurate payroll processing in Vietnam. The payroll process is divided into three phases. They are:
I Pre Payroll Phase
During this phase, the organization will need to gather documentation, confirm HR policies, and ensure that the company is ready to start paying employees while remaining responsible for compliance. The steps this phase includes are:
- Registering Business with local government
- Setting up attendance & leave policies
- Taking care of statutory payroll components like pension, bonus, gratuity, etc
- Making sure the salary components adhere to payroll laws Vietnam.
- Determining Payroll Frequency
- Gathering Employee Information and related documents
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II Payroll Calculation
This is the most important part of payroll processing in Vietnam. Depending on the pay cycle, the employer should ensure anything that could affect payroll. The payroll for each employee is calculated as per the payroll tax in Vietnam and payroll laws Vietnam. The salary is given according to the payroll cycle established by the company. It includes:
- Calculating Hours Worked
- Withholding Taxes and Other Deductions
- Computing Gross Pay
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III Post Payroll Phase
This includes issuing payments to employees for their work and payroll accounting to make sure that the accounts are balanced. Payroll reporting and compliance are also done to ensure the required deductions are made according to payroll laws Vietnam.
Calculation of Payroll in Vietnam
To calculate your payroll in Vietnam, you will first need to gather all of the necessary information. This includes your employee's gross salary, any deductions that need to be made, and the tax rate that applies to their salary.
Compensation for local employees working for foreign companies in Vietnam is negotiated between the two parties.
However, according to labor laws, the compensation should not be less than the minimum monthly wage.
The statutory minimum wage is set per zone as designated by the Government. It is according to the following table (for 2022) :
When converted to monthly or hourly rates, wages for employees paid daily or weekly must not be less than the minimum wage.
Payroll Cycle and Working Hours in Vietnam
The payroll cycle in Vietnam is monthly, with salaries paid on the last working day of the month. Part-time employees, independent contractors, and freelancers are paid according to the terms of their employment contracts. Employees in Vietnam are not permitted to work more than 8 hours per day and 48 hours per week under normal conditions, or 6 hours per day and 36 hours per week under hazardous or toxic conditions. The work week in Vietnam is Monday to Friday. Some organizations follow Monday to Saturday workweek as well.
In cases of agreed-upon overtime, the hours cannot exceed 12 hours per day and 40 hours per month. As of June 2022, the set minimum wage for employees under labor contracts ranges from VND15,600 to VND22,500 per region, representing a 6% increase.
Payroll Tax in Vietnam
Keep in mind that payroll taxes in Vietnam can vary depending on the province or city in which your business is located. As such, it is important to make sure that you are using the correct tax rate when calculating your employee's net pay.
Social Security Contributions for Payroll Tax in Vietnam
Both the employer and the employee are required to make mandatory minimum contributions. All businesses operating in Vietnam are required to pay these social security contributions for all employees employed under labor contracts with a definite term of more than three months or labor contracts with indefinite terms. The total minimum employer contribution (employment cost) to social security is 21.5%.
Contributions are calculated using the employee's monthly salary or wage. Employers register and pay monthly insurance contributions on behalf of their employees at the provincial Department of Labor, Invalids and Social Affairs (DOLISA).
In Vietnam, foreign enterprises seeking to hire local labor must provide three types of mandatory social security:
- Social Insurance - The following payroll taxes for social insurance are levied on the employee's gross salary:
- Employee - 8%
- Employer - 17.5%
- Medical insurance - The following payroll tax deductions are made from the employee's gross salary for health insurance:
- Employer – 3%
- Employee - 1.5%
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Unemployment Insurance - It is calculated based on the employee's gross salary as follows:
- Employer - 1%
- Employee - 1%
The maximum monthly salary subject to Unemployment Insurance is capped at 20 times the Minimum Monthly Wage of the Zone in which the Employer is located. The Zone 1 minimum is 4,680,000 VND, with a monthly cap of 93,600,000 VND.
Employer Contribution (Employment Cost) to Payroll Tax in Vietnam
Employee Contribution (Employee Cost) to Payroll Tax in Vietnam
Employee Income Tax in Vietnam
Vietnam's fiscal year runs from January 1 to December 31, with a graduated tax system. Residents pay tax on income from both Vietnam and elsewhere, while nonresidents pay tax only on income from Vietnam.
In monthly withholdings of tax in Vietnam, employers are required to withhold the required percentage of their employees' income and deposit the monthly amount with the state treasury by the 20th of the following month.
Employee Benefits in Vietnam
- Paid Leaves:
Paid leaves in Vietnam are a minimum of 12 days of paid leave per year, in addition to any public holidays. This increases by one day for every five years of service completed. - Sick Leaves:
Employees have the right to up to 30 days of paid sick leave per year, which can be increased to 60 days in exceptional circumstances. The Social Insurance Authority pays for sick leave 75.00% of the salary rate, based on the salary received in the month preceding the sickness absence. For sick leaves of more than 3 days, all employees must provide a medical certificate. - Maternity Leaves:
A pregnant employee is entitled to 6 months of maternity leave, which can be extended to 7 months in the case of complicated/multiple births. The Social Insurance Authority pays the maternity payment at a rate of 100.00% of the salary received in the month preceding the start of the maternity absence. - Paternity Leaves:
Fathers who pay social insurance may take 5 to 14 paid days off after the birth of their child. If only the father contributes to social security and the mother dies, the employee is entitled to paid leave until the child reaches the age of six months. - Parental Leaves:
Employees in Vietnam are entitled to up to 20 days of parental leave annually until the child reaches the age of 3 years, and then up to 15 days per year until the child reaches the age of 7 years. The Social Insurance Authority pays childcare leave at a rate of 75.00% of the employee's salary in the month preceding the start of the leave. - Marriage Leaves:
Employees are entitled to up to three days off for marriage and one day off for the marriage of a child. - 13th Month Pay:
It is customary in Vietnam to pay a 13th-month salary at the Lunar New Year or the end of the year. - Severance Payment:
Employers are required to pay severance payments to employees who have served for 12 months or more. For each year of service, statutory severance pay is calculated at 50.00% of the employee's regular monthly salary rate. - Bereavement Leaves:
Employees are entitled to three days of paid leave following the death of a family member. - Overtime Pay:
Earlier, the maximum number of overtime working hours in a month was 40 hours, according to the Labour Law 2019 which was increased to 60 hours per month in Resolution 17/2022/UBTVQH15, which became effective on April 1, 2022. The overtime pay rates are:
