The Fundamentals of Designing a Competitive Salary Structure

Business leaders across Vietnam must understand the components of direct pay structure to balance competitive compensation with sustainable cost management. The challenge extends beyond basic salary adjustments, as multiple factors affecting pay structure include regional wage variations, market competition, and regulatory requirements.

Basic salary

The basic salary component represents the fixed portion of an employee’s compensation package in Vietnam, serving as the foundation for calculating additional benefits and statutory contributions. This base amount typically constitutes 35% to 50% of total compensation and must align with Vietnam’s regional minimum wage requirements.

Vietnam implements a four-tier regional minimum wage system based on socio-economic development levels across different areas. As of July 2024, the mandatory minimum wages are:

In which:

• Region I covers major urban areas including Hanoi, Ho Chi Minh City, and key industrial zones in Dong Nai, Binh Duong, and Hai Phong. 
• Region II encompasses provincial cities and the developing areas of major municipalities. 
• Region III includes district capitals and developing industrial zones.
• Region IV applies to remaining localities.

Basic salary levels determine:

• Statutory social insurance contributions
• Overtime payment calculations
• Severance pay computations
• Annual leave compensation

Allowances

Vietnamese labor law recognizes several standard allowances as key components of employee compensation packages. These payments supplement the basic salary and serve specific purposes within the compensation structure.

• Performance bonuses: Operate on fixed or variable models. Fixed bonuses typically range from one to three months of basic salary, paid annually. Variable bonuses link directly to individual or company performance metrics, with payment schedules defined in company policies or labor contracts.
• 13th month bonus: While not mandated by law, represents standard market practice in Vietnam. Companies typically disburse this payment, equivalent to one month’s basic salary, upon completion of an employee’s first year of service. Payment timing varies by company policy, with options for full disbursement or installment payments.
• Tet bonus: Payments coincide with Vietnam’s Lunar New Year celebration. This bonus amount varies based on:
  • Company financial performance
  • Individual employee performance
  • Length of service
  • Position level

Mandatory contributions

Vietnamese labor law establishes specific social security contribution requirements for both employers and employees. These payments form a fundamental part of Vietnam’s employee compensation framework and require careful attention to maintain regulatory compliance.

• Social insurance: The social insurance program requires a total contribution of 25.5% of an employee’s gross salary, split between employer and employee portions. Employers contribute 17.5%, while employees contribute 8%. This program provides comprehensive coverage including sickness benefits, maternity benefits, workplace accident insurance, occupational disease coverage, retirement pension, and survivor benefits.
• Health insurance: Health insurance follows a defined contribution structure in Vietnam’s social security system. Employers must contribute 3% of gross salary, while employees contribute 1.5%. These contributions ensure employees receive essential healthcare coverage, including medical examinations, treatment benefits, and necessary healthcare services at authorized facilities.

Both social insurance and health insurance calculations use the employee’s gross salary as their basis, with a maximum salary cap of 20 times the common minimum wage. Monthly payments must reach relevant authorities by the last working day of each month to maintain good standing with regulatory bodies.

Gross and net salary

Gross salary represents an employee’s total earnings before any deductions. In Vietnam’s compensation framework, this amount serves as the basis for calculating both statutory contributions and take-home pay. Net salary, the amount employees receive after all deductions, follows a straightforward calculation:

Net Salary = Gross Salary – (Social Insurance + Health Insurance + Personal Income Tax)

Cost to company (CTC)

Cost to company calculations help businesses understand their total employee investment. The CTC formula combines all direct and indirect compensation elements:

CTC = Basic Salary + Allowances + Employer Contributions + Bonuses

This calculation ensures management can accurately assess workforce costs and make informed budgeting decisions.

Payroll considerations

The implementation of salary structures requires systematic payroll management to ensure accurate compensation delivery and statutory compliance. Two critical aspects demand particular attention from employers:

• Payroll schedule: Monthly salary disbursement in Vietnam typically occurs between the 25th and the final day of each month. This standard practice allows companies to process statutory contributions and maintain consistent cash flow management.
• Taxation: Vietnam employs a progressive personal income tax system with rates ranging from 5% to 35%. The tax structure applies to different income brackets:
  • 5% for income up to VND 5 million
  • 10% for VND 5-10 million
  • 15% for VND 10-18 million
  • Higher rates apply to additional brackets

Organizations increasingly partner with specialized payroll service providers to ensure accuracy in these calculations while maintaining focus on core business operations. This approach helps companies navigate Vietnam’s complex regulatory environment while minimizing compliance risks.

A well-designed salary structure addresses both Vietnam’s regulatory requirements and market demands through precise attention to regional wage requirements, mandatory contributions, and payroll components. This systematic approach ensures companies maintain compliance while supporting their business objectives.

Talentnet’s compensation specialists provide salary structure consulting that combines proven international methodologies with local market expertise. For guidance on implementing or reviewing your company’s salary structure, contact our advisory team.