What Level of Payroll Risk do you have in Vietnam?

By Scott Thomson, Chief Operating Officer, Links International


We increasingly speak with Hong Kong and Singapore based HR teams who are responsible for HR and payroll compliance in Vietnam but who have little idea of what their HR and payroll risks in Vietnam are. For a lot of clients, their HR operations in Vietnam are a ‘black box‘ with limited visibility due to language or resource constraints. Common questions include:

  • What are the common HR and payroll risks in Vietnam?
  • Should I be losing sleep over the HR ‘black box’ in Vietnam?
  • How do I avoid our business being on the front page of the newspaper?

While the great news is that Vietnam is booming, like a number of emerging economies in Asia, growth can also result in increasing levels of fraud and corruption. According to Transparency International’s Corruptions Percentage Index, Vietnam was ranked 31 out of 100 countries with zero being the most corrupt and 100 being the least corrupt. Given the largest single financial transaction most Vietnam MNCs and corporates make each month is usually the payment of their payroll to employees, it is critical offshore HR teams manage their Vietnam payroll governance and compliance effectively.

When payroll risk arises – Here are 3 of the most common areas of non-compliance we see in Vietnam:

Disclaimer – Before reading on it’s important we note that as a company, Vietnam is one of our favourite locations to operate and the below cases should not be used in any way to infer that everyone in Vietnam is corrupt! The purpose of the article is to highlight where payroll risk commonly arises in Vietnam.

1. Use of two sets of employment agreements

Similar to other countries in Asia, employees and employers in Vietnam are required to pay Government mandatory contributions in respect of the salary paid to an employee. Generally speaking, the employee’s contribution is deducted from the employee’s salary and the employer’s share of the Government mandatory contribution is paid on top of the salary. In order to reduce the cash cost of these Government mandatory contributions to both the employee and the employer, some businesses will use 2 sets of employment agreements to reduce the amount of Government mandatory contributions that are borne by both the employer and the employee.

For example:

  • The first set of the employment agreements will represent the actual agreed salary to be paid to the employee; and
  • The second set of employment agreements will reflect a artificially reduced salary and be submitted to the relevant government body and used for calculating a reduced amount of Government mandatory contribution.

Often employees will be happy to agree to (or even suggest!) this practice despite it not being compliant with Vietnam labour law. However, it’s important for the HR team to be aware that in addition to being being non-compliant, from a practical perspective, in the event of a dispute between the employee and the employer, the employee can threaten to disclose the practice of using 2 sets of employment agreements to the relevant Government body – providing good leverage for the employee as the liability lies with the HR team / employer!

While Vietnam employment agreements are required to be written in Vietnamese it is strongly recommended that employment agreements are in both English and Vietnamese as a good way of ensuring clarity and avoid confusion between parties.

2. Breaking down salaries into allowances

Another common method of increasing an employee’s take home salary is to provide allowances to an employee in lieu of salary. Generally speaking, certain allowances are not subject to Government mandatory contributions or have favourable tax treatment which results in a higher take home salary for an employee. The payment of genuine allowances in line with labour law is of course compliant with labour law, however, HR teams need to be wary of excessive levels of allowances or artificial allowances that do not reflect commercial reality and therefore are not compliant with Vietnam labour law.

Similar to the use of 2 employment agreements, in the event that an HR team knowingly or unknowingly agrees to the payment of excessive allowances, the HR team puts itself at risk as the liability lies with the HR team / employer!


3. Employers being told they need to pay Government mandatory contributions in excess of statutory requirements

A less common instance that payroll risk can arise is where a member of the local HR team takes advantage of the offshore HR team’s lack of knowledge of Vietnam labour law and intentionally exaggerates the minimum level of Government mandatory contribution that the employer is required to make resulting in the employer paying excessive Government mandatory contributions in respect of the employee. Based on our experience, this situation is relatively uncommon but does occur from time to time in Vietnam as well as other jurisdictions including China.

Similar to the management of any regional payroll, to mitigate this risk it is important that regional HR teams have a high level understanding of contributions that are required to be made under Vietnam labour law and use standard sense checks when reviewing Vietnam payroll, eg, ask questions when reviewing Vietnam payroll calculations if there a large variances etc.

At a high level, the amount of Government mandatory , medical and other contributions required depends on a number of factors (including salary levels, the type of labour contract entered into, etc.), but, as a general rule, an employer is required to contribute approximately an additional 20 – 25% on top of a local employee’s gross salary in mandatory contributions. Accordingly, Government mandatory contributions in excess of this should be red flagged for review. Check our article on ‘How to employ and payroll staff in Vietnam‘ for more details.

Implications of Non-Compliance – Who Stands to Lose the Most?

In the case of HR and payroll non-compliance in Vietnam, regional HR teams responsible for HR in Vietnam are the ones who stand to lose the most. Furthermore, from a practical perspective, given the employee friendly nature of Vietnam labour law  it can also be difficult to addresses fraudulent behaviour by local employees even in cases of alleged fraud.

The alternative that a large number of foreign companies and MNCs use to mitigate HR and payroll risks is to use a good payroll company in Vietnam to calculate their Vietnam payroll obligations. Payroll outsourcing in Vietnam is commonly seen by regional HR teams as an effective way of mitigating and outsourcing payroll risk without having to develop and maintain a Vietnam payroll skillset.


Are you interested in outsourcing your payroll in Vietnam? Get a free, no-obligations quote by enquiring now.payroll-cta-banner.jpg