Vietnam’s New Payroll Obligations in 2018
Vietnam has revised the minimum wage caps and social security contributions, most of which will be in effect from January 2018. Foreign and domestic firms will be required to adjust to the changes to ensure compliance with the new laws. These changes are going to impact the payroll and net take home salary for employees. Revisions have been made in minimum wages, salary caps for unemployment insurance, and social insurance for foreign workers.
Vietnam’s minimum wage rates play a significant role in payroll compliance. Currently, there are two kinds of minimum wages.
Common Minimum Wage
The first type is the common minimum wage, which is used to calculate salaries for employees in state-owned organizations and enterprises. The common minimum wage has been increased by 90,000 VND/month from 1,300,000 VND /month (US$ 57) to 1,390,000 VND /month (US$ 61), in effect from 1 July 2018.
Regional minimum salary
The second type of minimum wage is used for employees in all non-state enterprises and is based on regions as defined by the government. From 1 Jan 2018, the National Wages Council has finalized the regional minimum salary rates for 2018, as follows:
- Region I: VND 3,980,000/month;
- Region II: VND 3,530,000/ month;
- Region III: VND 3,090,000/ month;
- Region IV: VND 2,760,000/ month..
Social security scheme
There are three types of mandatory social security in Vietnam:
- Social insurance (SI;
- Health insurance (HI);
- Unemployment insurance (UI).
SI and UI contributions have been applicable for Vietnamese individuals only, while HI contributions are required for Vietnamese as well as for foreign individuals.
Changes in the social security contribution base
Companies in Vietnam mostly offer a low gross salary to ensure that SI/HI/UI contributions remain low, which has benefited both the companies and employees. However, from 1 January 2018, extra payments such as responsibility, seniority, and regional allowances will need to be included when calculating the SI/HI/UI gross salary. This will lead to a reduction in the net take-home pay for employees.
Salary used to calculate the social security contributions will include basic salary, as well as allowances and other payments as mentioned in the labor contract, including:
- Position allowances;
- Responsibility allowances;
- Hardship, hazardous and toxic allowances;
- Area allowances;
- Mobility allowances;
- Attraction allowances;
- Other allowances having similar nature as the above.
Not included in the base are certain bonuses, incentives, meal allowances, petrol, telephone, transportation, and childcare.
Changes in contribution caps
From 1 July 2018, the minimum salary cap for SI/HI contributions will increase to VND 27,800,000 per month (approximately US$ 1,220 per month) from the present VND 26,000,000 per month (approximately US$ 1,140 per month). This will increase the compulsory insurance contributions for both the employer and employee.
From 1 January 2018, all foreign/expat workers will be eligible for SI contributions. The coverage will include sickness, maternity leave, occupational diseases and accidents, retirement and death. In case of a foreign employee leaves Vietnam, a one-time claim for pension will be available.
Foreign employees will be liable for 8 percent Social Insurance, while the employer will pay 17.5 percent.
Foreign employees will be liable for 1.5 percent Health Insurance, while their employer will pay 3 percent.
From 1 January 2018, the minimum regional salary cap for UI contributions will range from VND 55,200,000 to VND 79,600,000 per month depending on each region.
- Region I: VND 79,600,000/month;
- Region II: VND 70,600,000/month;
- Region III: VND 61,800,000/month;
- Region IV: VND 55,200,000/month.