There are significant changes forthcoming in Vietnam to how payrolls are to be calculated and processed, and both employees and employers need to understand the potential impacts of these.
More practically, employers need to ensure that their payroll software and other records are updated for the changes when they take effect, so that they remain compliant within the laws.
The financial impacts of these changes need to be communicated accordingly by employers, and cash flow planning also undertaken so that the impacts do not cause undue problems to employers or employees.
1. Increases to insurance payments: increases in contribution caps
Insurance contributions in Vietnam are payable on gross salaries of employees, but are subject to contribution caps, with insurance payments not required on the portion of gross salaries that exceed the caps.
The caps for Social Insurance and Health Insurance are calculated at 20 times the Minimum Basic Wage (which is also, essentially, the minimum wage for Government employees). From 1 July 2017 the Minimum Basic Wage increases to VND 1,300,000 per month, resulting in a new cap of VND 26,000,000 (VND 24,200,000 prior to this increase).
2. Reductions to unemployment insurance payments for employers
The Vietnamese Government issued Resolution 34/NQ-CP in April 2017 that seeks to reduce the Unemployment Insurance contribution from employers from 1% of employee gross salary to 0.5%. This is likely to take effect some time after the conclusion of the May 2017 National Assembly, but we do not have an exact date of implementation at this stage.
The Government announced the reason for the reduction was that the Unemployment Insurance fund was sufficiently funded and no longer needed the full contributions by employers.
3. Foreign employees subject to full insurance obligations
Effective from 1 January 2018, foreign employees will be subject to the full suite of employment insurances in Vietnam – the same insurances as Vietnamese domestic employees are currently subject to. Although this change is still being discussed and debated by Authorities and in the media, unless there is a change of heart by the Authorities, then these changes will proceed as planned and both employers and employees should budget for them.
At present, foreign employees are only subject to Health Insurance at 4.5% of gross salary (3% Employer contribution and 1.5% Employee contribution).
However, from 1 January 2018 foreign employees will be subject to Insurances totalling 32.5% of gross salary (subject to contribution caps). These are: Social Insurance of 26% (18% Employer contribution and 8% Employee contribution), Health Insurance of 4.5% of gross salary (3% Employer contribution and 1.5% Employee contribution), and Unemployment Insurance of 2% (1% Employer contribution and 1% Employee contribution, although see above regarding reductions to the Employer contribution).
Please note that the monthly caps for Insurances from 1 July 2017 are:
- VND 26,000,000 – Social Insurance and Health Insurance
- VND 75,000,000 – Unemployment Insurance (for Zone 1 employers)