Vietnam Set to Increase Minimum Wages from December 31, 2013

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HANOI – The government last week passed a new decree that will increase minimum wages throughout Vietnam as of December 31, 2013, which will be effective for enterprises, co-operatives, household businesses, foreign companies and international organizations operating in the country.

Replacing Decree 103/2012/ND-CP, the new Decree 182 will implement increases of up to VND2.7 million (US$130) in Vietnam’s four different geographic regions categorized on the basis of living standards. Region I, for instance, includes the urban and some suburban districts of Ho Chi Minh City (HCMC), Hanoi, and Hai Phong, as well as the cities of Bien Hoa, Binh Duong, and Vung Tau. Region II covers rural Ha Noi and HCMC plus urban Can Tho and Da Nang. Region III covers provincial cities and the districts of Bac Ninh, Bac Giang, Hai Duong, and Vinh Phuc. Region IV covers the remaining localities.

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According to the decree, the regional minimum wage levels provide a basis for monthly salary negotiation between employers and untrained laborers. On average, minimum wages will rise 15 percent, resulting in the following amounts in each region:

The Decree encourages enterprises to pay their employees beyond the region-based minimum wages, and specifies that they must provide skilled workers who have vocational or higher level training with a wage that is at least 7 percent more than the regional minimum wage.

“The rise in minimum wage is great for workers, although not all are affected – namely employees receiving well above the minimum wage,” says Tran Hanh Hieu, Business Advisory Associate at Dezan Shira’s Vietnam office. “The wage increase instead affects companies, resulting in greater payments for social insurance and subsequently hiking expenses. Companies will have to consider technological alternatives to decrease these input expenses while improving labor productivity.”

The Decree comes just as other Southeast Asian nations, such as Indonesia, Thailand, and Malaysia, recently raised their minimum wages to quell dissatisfaction with the widening wealth gap and to strengthen the purchasing power of their citizens. Still, many fear that increasing wages will hurt Southeast Asia’s competitiveness as a growing manufacturing hub, citing that increased prices will lead investors to establish their operations elsewhere.

“Rise in wages ultimately results in increased prices for the consumers in the West,” continues Hieu. “The danger is in adjusting minimum wages without considering its local impact on inflation or its global impact on prices. Still, the issue is contentious because there are social and political aspects to consider.”

The last rise in minimum wages occurred in January this year when it was increased by approximately 17 percent.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

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