Payrolls in Vietnam are complicated processes, and are areas where mistakes can easily become the norm unless Vietnamese businesses are careful, consciously monitoring and reviewing their processes, procedures and calculations.
At Domicile Corporate Services, we undertake compliance and payroll reviews for companies in Vietnam, and commonly identify errors and mistakes for management to correct and amend. Below are our nine most common errors we see in Vietnamese payrolls when undertaking payroll compliance reviews:
9 Common Payroll Errors for Vietnamese Companies
1. Probation periods longer than permitted
Probation in Vietnam is generally restricted to 30 days for most jobs, and 60 days for roles requiring university degrees. Any probation period longer than these periods is likely invalid, and will usually result in employees to be deemed to have entered into an ongoing employment contract. Given that probation periods can have a reduction in salary of up to 15% from the ongoing salaries, this can also have an unexpected financial effect to the employer.
2. Payroll records not matching with accounting records
Human resource teams processing payrolls are usually responsible for final payroll calculations, including calculating Personal Income Taxes payroll insurances that need to be remitted to the authorities. However, accounting teams need to record these figures into the financial records of the company, and usually remit the taxes and insurances. The issue is that the two teams commonly have different values for these recorded in their records due to last minute changes or different interpretations. Companies need to have a process to reconcile and correct these differences between the human resource and the accounting teams, to avoid ongoing errors and resultant penalties.
3. Tax on benefits not included in the payroll calculations
Certain benefits provided by companies can have personal income tax implications, and these are to be included in the payroll process. For example, Vietnamese visas for foreign staff paid by their employer are subject to Personal Income Tax and the taxes on these benefits need to be included in the payroll calculations and remitted to the authorities.
4. Net salaries versus Gross salaries
Vietnamese labour laws are structured around gross salaries being the default approach for employers. Taxes are withhold from the employees gross salary, and insurances are applied to the employer and employee based upon the gross salary. Where employers agree to apply net salary contracts for staff, calculations become significantly more difficult. Further, although personal taxes are being paid by the employer, any tax refunds will usually be returned direct to the employee despite the employer having borne these as costs.
5. No Work Permits for foreign staff
Labour laws do not permit labour contracts to be entered into with foreign individuals unless they have a Work Permit (or a Work Permit Exemption Certificate). Engaging and contracting with foreign staff without a Work Permit can result in payments being non-tax deductible, along with risks of deportation for employees and Labour Law sanctions for employers.
6. “Insurance” salary concept
Historically, many companies in Vietnam creatively recorded very low base salaries (commonly referred to as the “Insurance salary”), paying the balance of the agreed salary to staff as bonuses and allowances. This process resulted in low Personal Income Taxes and payroll insurances being calculated. However, current laws make this approach generally ineffective and simply exposes employers to penalties and additional taxes. The law essentially states that all payments received by employees are taxable and subject to insurances, unless specifically excluded – and although there are some exclusions, available exclusions are often insignificant.
7. Failure to update tax/insurance rates – the “Excel trap”
Personal Income Tax rates, minimum salaries, payroll insurance caps and insurance rates can all change up to twice per year. As the vast majority of Vietnamese businesses use Excel to process their payroll, payroll staff are often unaware that they need to manually update the formulas within their Excel payroll templates – and it is not uncommon to see many years of changes having been ignored when undertaking monthly payroll calculations.
8. Payments and bonuses that are not included in contracts or internal policies
Unless labour contracts or internal policies detail and permit additional payments for staff, the payments can become non-tax deductible for Corporate Income Tax purposes, causing trouble for employers.
9. Failure to document or complete Tax Finalisations and Annual Payment (withholding) Summaries for staff
Employers are able to complete tax finalisations for their staff where the staff do not have employment income from other employers during the year. This does require employers to have signed declarations retained on file permitting them to do the finalisations. In addition, for those employees that they do not hold signed declarations for, they will need to issue annual payment (withholding) summaries to their staff so that staff can finalise their own taxes.
Domicile Corporate Services is a professional provider of payroll services for Vietnamese companies, taking an international approach to compliance and payroll processes. We provide full payroll outsourcing for small and large organisations through our offices in Ho Chi Minh City, Hanoi and Danang, along with payroll compliance reviews of existing operations.
Matthew Lourey is Managing Partner at Domicile Corporate Services, and has resided in Vietnam for over 13 years. With more than 40 staff across 3 offices, Domicile offers a uniquely international approach to compliance services, focussing on foreign invested companies and local companies with international ambitions.