Vietnam Payroll Guide: Key Components and Payroll Process

Once you’ve hired your team in Vietnam, the next critical step is setting up a compliant payroll system. In addition to paying a monthly salary, you are legally responsible for correctly calculating and withholding your employees’ income taxes, managing contributions to three separate social insurance funds, and ensuring all mandatory benefits are provided.

Getting any of these details wrong can lead to penalties and employee disputes.

This article will walk you through the essentials of Vietnamese payroll. We’ll cover everything from the core components and tax obligations, so you can pay your team accurately and stay compliant with local regulations.

Essential Elements of Structuring Employee Payroll in Vietnam

When it comes to structuring your employee payroll in Vietnam, several key components are crucial for ensuring compliance and keeping your employees satisfied. You need to include the following components in your employee’s payroll structure:

• Gross Salary: This is the total package you offer your employees, which includes the fixed monthly pay following Vietnam’s minimum wage, allowances, and bonuses.
• Mandatory Statutory Contributions: These are deducted from your employee’s gross salary and paid to the government. It covers the Social Insurance (SI), Health Insurance (HI), and Unemployment Insurance (UI).
• Personal Income Tax (PIT): Vietnam applies a progressive tax on personal income. This means the more your employee earns, the higher their tax rate will be. Keep this in mind to avoid surprises when calculating take-home pay.
• Allowances: Certain allowances are tax-exempt or partially taxable, depending on their nature. This includes meal allowances, transportation, and housing allowances.

How to Process Taxes for Your Employees in Vietnam

Withholding of Personal Income Tax (PIT)

As an employer, you are responsible for withholding PIT on all income paid to your employees. Employees who qualify as tax residents, meaning they spend 183 days or more in Vietnam within 12 months, are taxed on their worldwide income.

Non-residents are taxed at a flat rate of 20% but only on income earned within Vietnam. For residents, PIT is calculated on a progressive scale as follows:

Before calculating tax, you need to apply the standard personal deduction of up to VND 11 million per month for each employee. For those with qualifying dependents under Vietnam’s regulations, they can claim an additional VND 4.4 million per month for each dependent. These deductions significantly reduce the taxable income and should be factored in before applying the provided PIT rates.

Depending on the size of your business, you will need to file PIT returns either monthly or quarterly. At the end of the tax year, you must also complete the annual PIT finalization for each employee, which reconciles any overpaid or underpaid taxes based on their total income and deductions for the year.

Calculating Statutory Contributions for Your Employees

Beyond income tax, you are also required to contribute to Vietnam’s social security system on behalf of your employees. These contributions fund their essential welfare, protections, and benefits. The types of contributions and their rates are:

• Social Insurance (SI): Covers retirement, maternity leave, sickness, and workplace accidents. Employers contribute 17.5%, and employees contribute 8%.
• Health Insurance (HI): Ensures access to public healthcare services. Employers contribute 3%, and employees contribute 1.5%.
• Unemployment Insurance (UI): Applies to Vietnamese employees with labor contracts of at least three months, and is meant to support workers while they are between jobs. Employers and employees both contribute 1%.

This means that the total monthly employer contribution is 21.5%, while the employee contributes 10.5%, calculated based on the employee’s salary. 

Additionally, the government does set a maximum salary cap when calculating contributions as detailed below:

• Social Insurance and Health Insurance are capped at 20 times the statutory basic salary, which is currently VND 2.34 million per month (max cap total of VND 46.8 million per month).
• Unemployment Insurance is capped at 20 times the regional minimum wage, varying by location.

Mandatory and Customary Employee Benefits in Vietnam

To hire and retain skilled workers in Vietnam, you need to offer more than just minimum wage and statutory contributions. A combination of both mandatory and customary benefits that align with market expectations is key to a successful hire. 

1. Employee Bonuses

While not legally required, bonuses are very much expected in Vietnam, especially the 13th-month salary, which is commonly given around the Lunar New Year, or Tet. Many companies also offer performance-based bonuses, and you can include your conditions in the employee’s employment agreement beforehand. 

All bonuses in Vietnam are considered taxable income and must be included in personal income tax calculations, so do keep that in mind while structuring your payroll.

2. Leave Entitlements

According to the Vietnam labor law, employees are entitled to a minimum of 12 days of paid annual leave each year once they have completed 12 months of service. For every 5 years of continued employment with the same employer, they earn one additional day of leave. Annual leaves must be paid at the employee’s full salary rate, and if it is unused, you are required to compensate them.

In addition to annual leave, employees are also entitled to 11 paid public holidays each year. If a holiday falls on a weekend, they are given an extra day off to compensate. Several types of supplementary leaves are often offered with their employment contracts:

• Sick Leave: Requires a medical certificate issued by a qualified healthcare provider, and is paid through the Social Insurance Fund.
• Maternity Leave: Allows mothers 6 months off fully paid by the Social Insurance Fund, and can be extended up to 12 months with a combination of unpaid leave.
• Paternity Leave: Ranges from 5 to 14 working days, depending on the number of children and their circumstances of birth.

Key Considerations for Employee Payroll and Tax Management in Vietnam

Managing payroll and employee taxes in Vietnam requires careful attention to local regulations and compliance standards. A slight mistake can lead to penalties or suspension of operations:

• Incorrect Classification of Employees: Misclassifying full-time employees as contractors is a serious mistake that can lead to audits, penalties, and back payments of tax and benefits.
• Late or Incomplete Tax Filings: The Vietnamese government expects employers to file monthly reports and finalize taxes annually. Missing a due date or leaving out required information will result in late fees and extra attention from the tax office.
• Improper Tax Withholding: This is often the result of either ignoring residency status or forgetting to apply personal and dependent deductions correctly. It can lead to either underpaying or overpaying PIT, both of which require time-consuming corrections.
• Incorrect Insurance Contributions: Using the wrong salary base or including foreign employees in Unemployment Insurance (when they are not eligible) are easy mistakes to make unless you understand the rules clearly.
• Non-Compliance with Currency and Documentation Rules: This may seem minor, but it can create serious headaches. In Vietnam, salaries must be paid in Vietnamese Dong, not in foreign currency. On top of that, you are required to maintain payroll records for at least ten years. Failure to do so can expose you to legal risks down the line.
• Overlooking Statutory Benefits: Not paying for unused leave or misreporting taxable bonuses (like the 13th-month salary) are common issues that may result in disputes or penalties.

Structuring payroll in Vietnam requires a solid understanding of local laws, timelines, and expectations. If you are unsure about any part of the process, it is well worth getting support from professional service providers like RecruitGo.

Simplify Payroll and Taxation in Vietnam with RecruitGo

RecruitGo offers end-to-end payroll and tax solutions designed specifically for foreign employers interested in building a remote team in Vietnam. As your Employer of Record (EOR), we will take on the legal responsibility of employing your Vietnamese staff so you do not have to worry about navigating complex local regulations.

Here’s how we can help:

• Handling precise salary calculations, tax withholding, and statutory contributions on your behalf.
• Ensuring compliance with the Labor Code, social insurance laws, and government reporting deadlines.
• Managing employment contracts, payslips, and ongoing HR administration.
• Acting as the local employer, so your team is legally onboarded and fully supported.

Using an EOR can streamline operations, reduce risk, and help you scale faster. To learn more about how this model supports growth in Vietnam, check out our article on how using an Employer of Record in Vietnam can improve your business.

Need an expert to help you simplify your payroll structure in Vietnam? Fill in the form below to speak with our local payroll specialist and get tailored support.

Frequently asked questions

Yes, foreign employers can process payroll in Vietnam remotely, depending on their setup. Companies with a local entity can handle payroll directly or use local providers. Those without a legal presence can partner with an Employer of Record (EOR), which hires employees on their behalf, manages payroll, and ensures compliance, allowing for a full remote operation without setting up a local entity.

To hire employees directly in Vietnam, a foreign employer must register a legal entity. The exception is when partnering with an EOR, which becomes the legal employer and handles all statutory obligations on your behalf.

If your foreign company is not otherwise conducting business activities in Vietnam, using an EOR alone does not create a PE. However, if you are actively operating or generating revenue in Vietnam, PE risk may still arise regardless of the EOR arrangement. The specifics depend on the nature of the business activities and Vietnamese tax law.

The overtime rates for employees in Vietnam are as follows:

• Public Holiday Calculation: Employees working overtime on public holidays receive at least 300% of their regular wage, plus their normal holiday pay, totaling 400% in some cases
• Weekdays: 150% for daytime overtime, 200% for nighttime overtime.
• Weekends/Rest Days: 200% for daytime, 270% for nighttime.
• Public Holidays: 300% for daytime, 390% for nighttime.
• Night Work: Employees working at night receive an additional 30% of the normal wage, and if working overtime at night, an extra 20% is added to the applicable overtime rate.