The Foreign Employer's Guide to Payroll in Vietnam

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, and ensuring all mandatory benefits are provided. Each obligation comes with its own rules and its own penalties for non-compliance.

In this article, we will cover payroll processes in Vietnam as a foreign employer. We will outline key regulations, critical payroll components and processes, tax compliance, filing deadlines, and considerations for foreign employees. We also explain your options for setting up payroll without a local entity.

Payroll Regulations in Vietnam

Vietnam's employment and payroll system is governed primarily by the Labor Code (2019, effective January 2021). This sets the legal framework for employment contracts, working hours, overtime, wages, leave, and termination. Alongside it, the Law on Personal Income Tax, the Law on Social Insurance, the Law on Health Insurance, and the Law on Employment define how taxes and contributions are calculated and remitted. Together they create a payroll system that all employers need to follow. 

Regardless of where your company is located (whether locally or internationally), Vietnamese labor law governs your employment relationship with your staff. The government requires that all employment income earned in Vietnam is subject to local tax and social insurance rules. If you pay employees without a compliant local payroll structure, you expose your business to back taxes, penalties, and potential legal liability in Vietnam.

Types of employees in Vietnam

How your staff is classified determines which payroll obligations apply to them. For example, full-time employees are entitled to all statutory protections under the Labor Code. On the other hand, independent contractors are not subject to the same insurance and benefits. In general, these employees handle their own PIT and social contributions. 

Here’s how employees are classified in Vietnam:

• Full-time employees: entitled to all statutory protections under the Labor Code, including
• Part-time employees: holds the same legal rights as full-time employees under Vietnamese law. They are entitled to wages, annual leave, and social insurance participation proportional to their working hours. Employers cannot use part-time status to avoid statutory obligations.
• Independent contractors
• Foreign employees:

Vietnamese authorities will look at the substance of a working relationship beyond the contract. If you have an independent contractor working as a full-timer to escape statutory obligations, you will be required to pay back all taxes, insurance contributions, and penalties within the duration of the employment. 

Key Payroll Components in Vietnam

To properly calculate payroll in Vietnam, you need to understand its key components. Apart from each of your employees’ gross salary, you must include overtime pay (if applicable), deduct employee social contributions, and withhold personal income tax. 

Gross Salary

The gross salary is the total monthly compensation before any deductions. It must meet or exceed Vietnam's regional minimum wage, which is divided into four zones based on geographic and economic conditions:

For roles requiring vocational training or involving hazardous conditions, wages must be at least 7% above the applicable minimum wage.

Overtime Pay

Working hours in Vietnam are capped at 8 hours per day and 48 hours per week. Any work done outside the average work hours is compensated as an overtime premium. Overtime is capped at 40 hours per month and 200 hours per year  (300 hours in certain industries such as textiles, footwear, and electronics).

Overtime rates are calculated as follows:

• Weekdays: 150% of the regular hourly rate
• Weekends: 200% of the regular hourly rate
• Public holidays or paid leave days: 300% of the regular hourly rate
• Night shift work (22:00 to 06:00): an additional 30% on top of the applicable rate

Statutory Deductions and Contributions

Under Vietnamese law, both employer and employee need to contribute to three mandatory insurance funds in Vietnam, each with varying rates: 

Contributions for Social Insurance and Health Insurance are capped at VND 46,800,000 per month which is 20x the statutory basic salary (currently VND 2,340,000/month). On the other hand, Unemployment Insurance is capped at 20 times the applicable regional minimum wage.

Personal Income Tax (PIT)

Employees who qualify as Vietnamese tax residents (those who spend 183 days or more in Vietnam within a 12-month period, or who have a registered permanent address in Vietnam) are taxed on a progressive scale:

Before applying these rates, you must subtract the standard personal deductions:

• Employee insurance contributions: The employee's 10.5% share of SI, HI, and UI contributions is deducted first. 
• Personal allowance: A flat VND 15,500,000 per month is automatically granted to all tax resident employees. This was raised from VND 11,000,000 under Resolution No. 110/2025/UBTVQH15, effective January 1, 2026.
• Dependent allowance: VND 6,200,000 per month for each registered dependent (raised from VND 4,400,000 under the same resolution). Keep in mind that this deduction is not automatic. Your employees must register each dependent with the tax authority and submit supporting documents. An employee with two dependents deducts VND 12,400,000 more per month than one with none.
• Other approved deductions: Contributions to voluntary pension funds (subject to a monthly cap) and donations to approved charitable organizations are also deductible.

Non-resident employees are taxed at a flat rate of 20% on Vietnam-sourced income only, with no deductions available.

Allowances and Bonuses

Certain allowances are either fully or partially exempt from personal income tax. Common examples include:

• Meal allowances (up to VND 730,000 per month)
• Transportation allowances
• Telephone allowances
• Stationery allowances. 
• Uniform allowances in cash are exempt up to VND 5 million per year.
• Housing, utilities, and comparable benefits are non-taxable only if they do not exceed 15% of the employee's total taxable income.

These exemptions can meaningfully reduce an employee's tax burden, so it's worth structuring compensation thoughtfully from the start.

Payroll Compliance and Reporting

On top of calculating payroll for your employees, you need to meet a recurring schedule of filings and reports to multiple government agencies. Meeting these deadlines are crucial to maintaining a good standing with the Vietnamese government and avoiding penalties. For example, overdue insurance contributions can accrue a 0.03% daily interest.

PIT Declaration and Payment

As an employer, you are responsible for withholding PIT from each employee's salary every month and remitting it to the tax authority on their behalf. How often you file depends on your company's annual revenue from the previous year:

• Businesses ≥VND 50 billion: must declare and remit withheld PIT monthly every 20th of the month following the reporting month. 
• Businesses ≤VND 50 billion: quarterly filing due by the last day of the month following each quarter: 

Most foreign employers entering Vietnam for the first time will fall under the quarterly filing threshold until their operations grow.

Annual PIT Finalization

Regardless of whether you file monthly or quarterly during the year, all employers must complete annual PIT finalization for employees by March 31 of the following year. This process reconciles each employee's total income, deductions, and tax withheld across the year against their actual tax liability. If too much was withheld, the employee is entitled to a refund. If too little was withheld, the difference must be paid.

Employees with a single source of employment income can authorize their employer to complete the finalization on their behalf. Individuals with income from multiple employers must file directly with the tax authority, with a personal deadline of April 30.

For foreign employees who are leaving Vietnam permanently, the PIT finalization deadline is within 45 days of departure.

Social Insurance Contribution Reporting

Monthly social insurance contributions are due by the end of the following month. Both the employer and employee portions must be remitted together to the Vietnam Social Security (VSS) authority. 

Late payments have a 0.03% daily penalty interest on the overdue amount. In serious cases of non-compliance, authorities can pursue administrative sanctions or, in cases of deliberate evasion, criminal liability.

New companies must register employees for social insurance within 30 days of signing their first labor contract.

Labor Use Reports

Companies must submit biannual labor use reports to the provincial Department of Labor, Invalids and Social Affairs (DOLISA). These reports document the total number of employees, their employment types, nationalities, and any changes to the workforce during the reporting period. The reporting periods cover January to June (submitted by July 15) and July to December (submitted by January 15 of the following year).

Internal Labor Regulations

Companies employing ten or more people must draft and register their internal labor regulations with the provincial labor authority. These regulations must address working hours, rest periods, workplace conduct, safety standards, and disciplinary procedures. Registration must be completed within ten days of the regulations taking effect. Unregistered regulations cannot be legally enforced against employees.

Considerations for Foreign Employees in Vietnam

Hiring foreign nationals in Vietnam introduces a separate layer of compliance. Here's what you need to know.

• Work permits: Foreign employees generally need a valid work permit issued by the Ministry of Labor, Invalids and Social Affairs (MOLISA). Before applying for the work permit, you must advertise the position to Vietnamese candidates for at least 30 days prior to recruiting the foreign employee. Exceptions apply for certain categories such as intra-company transferees, board members, and specialists.
• Social and health insurance: Foreign employees with Vietnamese labor contracts of at least 12 months and a valid work permit or practice certificate are required to contribute to Social Insurance and Health Insurance. They are exempt from Unemployment Insurance, and also exempt from SI and HI contributions if their home country has a bilateral social security agreement with Vietnam.
• Personal Income Tax: Foreign employees who are considered tax residents are taxed on their worldwide income under the same progressive brackets as Vietnamese employees. Those who do not meet this threshold are taxed at the flat 20% non-resident rate on Vietnam-sourced income only.
• Non-taxable benefits for foreign employees: Certain benefits for foreign workers are non-taxable. This includes the one round-trip airfare per year to their home country and school fees for their children studying in Vietnam (from kindergarten through high school).
• Tax identification: Employees use Personal Identification Numbers (PINs) for PIT filings in Vietnam, rather than a separate Tax Identification Number.

Working with an Employer of Record to Manage Payroll

Instead of setting up a legal entity in Vietnam (which can take 2-4 months), you can partner with an Employer of Record (EOR) like RecruitGo to act as the legal employer of your staff. We will handle:

• Employment contracts under Vietnamese law
• Payroll processing and salary payments in VND
• Monthly PIT withholding and filing
• Social Insurance, Health Insurance, and Unemployment Insurance registrations and contributions
• Annual PIT finalization
• Payslip generation and record-keeping
• Labor use reports and other compliance submissions

You can onboard your first employee in Vietnam within days and scale up or down without the overhead of a local corporate structure.

This model also reduces your exposure to permanent establishment (PE) risk. PE risk is the concern that employing staff in Vietnam without an entity could inadvertently create a taxable presence in the country. Because your employees are employed by RecruitGo's licensed local entity, your business does not establish a PE through the employment relationship.

If you're considering expanding into Vietnam or hiring your first employee in-country, RecruitGo's Employer of Record service is the most direct route to doing it compliantly.