On June 30, 2024, the Vietnamese Government issued Decree 73/2024/ND-CP and Decree 74/2024/ND-CP, increasing the basic salary for state workers by 30% and the minimum regional wage by 6%. Both measures are effective since July 1, 2024.
In this article, we will provide you with a simplified overview of:
- Key changes in salaries
- Impact on the calculation of social contributions
- Proposed courses of action
Key changes in salaries
In Vietnam, the regional minimum wage represents the lowest permissible wage level, serving as the foundation for businesses to negotiate and remunerate their labour force. This minimum wage is defined as the statutory minimum amount of remuneration that an employer is obliged to pay to employees in exchange for work performed under the terms of an employment contract, as stipulated in the Labour Code. For the purpose of this legislation, employers encompass a broad range of entities, including enterprises, regulatory bodies, organizations, cooperatives, family households, and individuals who employ others pursuant to agreements.
With regards to salaries paid on a weekly or daily basis, or those calculated based on the quantity of products manufactured or tasks completed, it is imperative that these salaries, when converted to a monthly or hourly rate, do not fall below the prescribed monthly or hourly minimum wage. Decree 74 provides explicit guidelines for converting weekly/daily salaries into monthly/hourly salaries, ensuring consistency and compliance with the statutory minimum wage requirements.
Vietnam’s monthly minimum wage differs across four different regions, depending on the cost of living.
- Region 1 includes among others urban and main rural districts of Ha Noi, Ho Chi Minh, Hai Phong and Binh Duong.
- Region 2 includes among others rural districts of Hanoi not mentioned in Region 1, Hue City, Hoi An City, Da Lat City, urban and rural districts of Da Nang City.
- Region 3 includes among others Sapa Town, rural districts of Ninh Binh, Thanh Hoa, Hai Duong and Bac Giang.
- Region 4 includes the remaining subregions.
The basic salary for state workers, including cadres, civil servants, public employees and individuals working under labor contracts for state agencies and the armed forces, is known as the statutory pay rate. Although Decree 73/2024/ND-CP governs only the pay rate for state officials, state employees and armed forces’ personnel, this is the base for calculating statutory social and health insurance contributions.
Impact on the calculation of social contributions
The changes in minimum wage and statutory pay rate will impact immediately the calculation of social contributions, including Social Insurance (SI), Heath Insurance (HI), trade union fees and Unemployment Insurance (UI), which is based on the salary of employees.
The maximum salary for compulsory SI and HI is 20 times the statutory pay rate whereas the maximum salary for UI is 20 times the regional wage. Trade union fees contributed to by an employee are capped at 10% of the statutory pay rate. Earnings above this cap are not included in social contribution calculations.
| From July 1, 2023 to June 30, 2024 | From July 1, 2024 | |
| Maximum salary for compulsory Social Insurance per month | VND 36,000,000 | VND 46,800,000 |
| Maximum salary for compulsory Health Insurance per month | VND 36,000,000 | VND 46,800,000 |
| Maximum Trade Union Fees contributed to by an employee per month | VND 180,000 | VND 234,000 |
| Maximum salary for Unemployment Insurance per month – Region 1 | VND 93,600,000 | VND 99,200,000 |
| Maximum salary for Unemployment Insurance per month – Region 2 | VND 83,200,000 | VND 88,200,000 |
| Maximum salary for Unemployment Insurance per month – Region 3 | VND 72,800,000 | VND 77,200,000 |
Consequently, the adjustments to the statutory pay rate and minimum regional wage also serve as a reminder to businesses to consider the financial implications of these changes. Notably, when employees enter into a labour contract with a net salary rather than a gross salary, the costs associated with Social, Health, and Unemployment Insurance (SHUI) will be borne solely by the company, without affecting the employee’s take-home pay. As a result, the increase in SHUI contributions will invariably lead to a corresponding rise in employee benefits, which businesses must factor into their overall compensation and benefits strategies.
Proposed courses of action
In light of the changes to the minimum wage and statutory pay rate, which came into effect on July 1, 2024, it is imperative that companies take swift action to ensure seamless adaptation to these revised requirements. Specifically, we recommend that businesses:
- Implement a thorough update of their payroll software and internal calculation methodologies to reflect the changes to the statutory pay rate and minimum regional wage, thereby ensuring accurate calculation of the maximum caps for Social Insurance and associated payments.
- Conduct a meticulous review of all existing labour contracts to verify that stated salaries continue to conform to the amended rates and their corresponding geographic zones, thereby mitigating the risk of errors or discrepancies.
- Carefully evaluate the cost implications of providing a gross salary versus a net salary, adopting an approach that optimizes cost efficiencies while ensuring the continued well-being of employees
If you require further guidance or support with regard to employment and payroll matters, please do not hesitate to contact us. Our experienced team is here to provide expert advice and assistance, ensuring that your organization remains compliant with the latest regulatory requirements and best practices.
