Vietnam’s New Minimum Wage and Social Security Caps in 2018
From the moment the new minimum wage caps took effect, all foreign and domestic firms are required to adapt to the changes in order to comply with the new laws.
Generally, the new changes are going to affect the payroll and net take home pay for employees. In fact, the revisions have been implemented in minimum wages, salary ceilings for unemployment insurance and social insurances for foreign employees.
Minimum Wage Caps
Now, there are two types of minimum wage in Vietnam which both play a significant role in its payroll compliance. There is the Common Minimum Wage which is used for calculating salaries for employees in state-owned organizations and the Regional Minimum Salary which is used for calculating salaries for non-state-owned organizations, and is based on regions as defined by the government, as explained in my previous blog post.
Social Security Scheme
So far, there are three types of mandatory social security structure In Vietnam:
• Social insurance (SI;
• Health insurance (HI);
• Unemployment insurance (UI).
While the first and the last scheme – the SI and UI, were initially applicable only for Vietnamese employees only, the second scheme – the HI, is required for both Vietnamese and foreign employees.
Benefits of the New Social Security Contribution Scheme
Most Vietnam companies offer a low gross salary to make sure that all the above-said social security schemes’ contribution will remain low. And the same has benefited both the employees and the company.
However, since January 1, the computation has changed. Since then, extra payments such as responsibility, seniority and regional allowances need to be included when calculating the SI, UI and HI gross salary. Unfortunately for employees, this leads to a reduced net take home pay.
Wages Salaries affecting the social security contributions include the following:
• Basic salary
• Position allowances;
• Responsibility allowances;
• Hardship, hazardous and toxic allowances;
• Area allowances;
• Mobility allowances;
• Attraction allowances;
• Other allowances having similar nature as the above.
Excluded in the base are certain incentives, bonuses and other allowances such as meal, petrol, telephone, transportation and childcare.
Changes in contribution ceilings
Effective on July 1, 2018, the minimum wage cap for SI/HI contribution will see an increase from VND 26,000,000 (US $1,140 more or less) a month to VND 27,800,000 (US $1,220 more or less) a month. Obviously, the same will increase the compulsory insurance contributions for both employer and employee.
Effective on January 1, 2018, all foreign workers are now eligible for SI contributions. Its coverage will include sickness, maternity leave, occupational diseases and accidents, retirement and death. In the event that a foreign employee leaves Vietnam, there is the one-time claim for pension available for them. Meanwhile, be noted that the employer is liable for 17.5 percent of the employee’s social insurance, while the employee himself / herself will pay 8 percent.
As for the HI, employers will be liable for 1.5 percent Health Insurance, while the employee will pay 3 percent.
Also, in January 1, the following UI contributions minimum regional salary cap range from the following:
• Region I: VND 79,600,000/month;
• Region II: VND 70,600,000/month;
• Region III: VND 61,800,000/month;
• Region IV: VND 55,200,000/month.