Common Pitfalls Foreign Companies Face in Payroll Processing in Vietnam

One of the main challenges many foreign-invested companies operating in Vietnam face is payroll processing for both local staff and expatriate employees.
The rules for social insurance and personal income tax differ significantly from those in Japan, and the applicable schemes also vary between local staff and expatriates.
As a result, many companies say things like, “Monthly calculations take too long,” “We make frequent mistakes,” and “We are worried about tax audits.”
In this article, we will organize the key points where foreign-invested companies in Vietnam are particularly likely to stumble in payroll processing,
and explain why these problems tend to occur, along with the background behind them.

Five Common Pitfalls in Payroll Processing in Vietnam

The main causes of problems and rework in payroll processing at Vietnam offices can broadly be grouped into the following five categories:

Let’s take a closer look at each of these points.

1. Complex Calculation Basis for Social Insurance (BHXH, BHYT, BHTN)

In Vietnam, the contribution rates for social insurance are defined separately for employees and employers,
and the calculation methods and coverage differ greatly from those in Japan. In addition, the range of allowances included in the social insurance calculation base
can vary from company to company, which is another major practical pain point.

Common case:
An allowance that should have been excluded from the social insurance base was mistakenly included, resulting in several months of overpayments. The company then had to spend significant time and effort refunding employees and correcting its accounting records.

2. Inconsistent Attendance Data Makes It Hard to Gather the Basics for Payroll

The starting point for payroll calculation is daily attendance data.
However, in practice, the following issues often arise on site:

As a result:

The fact that attendance formats and rules are not unified across the company is the starting point for many of these issues.

3. Different Rules for Expatriates and Local Staff

In many foreign-invested companies, it is common to have a mix of expatriates from Japan and locally hired staff.
These two groups are treated very differently in terms of payroll, social insurance, and taxation, which makes the calculations more complex.

Item	Expatriates	Local Staff
Social Insurance	In some cases, they are covered by Japanese social insurance and exempt from Vietnamese social insurance	Covered by Vietnam’s social insurance schemes (BHXH, BHYT, BHTN)
Salary Structure	Japan HQ salary + Vietnam-side salary + housing allowance, etc.	Base salary + various allowances (position, meal, transportation, etc.)
Personal Income Tax (PIT)	Taxable income is determined based on the total of Japan-side and Vietnam-side payments	Tax is calculated based on Vietnam-side salary

Especially for expatriates, it is difficult to determine how much of the “Japan-side payments,” “Vietnam-side payments,” and “in-kind benefits (such as company housing)” should be included in the PIT taxable base. If the scheme is poorly designed, it can lead to significant tax risks.

4. Errors Easily Occur in Personal Income Tax (PIT) Calculations

Vietnam’s personal income tax (PIT) is progressive, with multiple tax rates applied depending on income levels.
The points where foreign-invested companies often stumble are less about misunderstanding the system itself and more about gaps in day-to-day operations.

Important:
Unregistered dependents or misclassification of allowances are points that tax auditors frequently flag. If additional tax is levied retroactively in a lump sum, it can also damage the trust relationship between the company and its employees.

5. Failing to Keep Up with Minimum Wage Revisions, Leading to Retroactive Adjustments

In Vietnam, minimum wages are set by region, and it is common for them to be revised almost every year in line with government decisions.
When the minimum wage is revised, companies should ideally review and adjust the following items:

However, if companies are slow to catch up with the revised rules or delay internal updates, the following situations can occur:

To avoid such outcomes, it is essential to have a framework in which not only HR and payroll staff but also management regularly review information on legal revisions.

Is Your Vietnam Payroll Really Under Control? A Simple Checklist

You can quickly gauge your company’s risk level by checking how many of the following items you can answer “Yes” to:

If you have many “No” answers, there may be room for improvement in both your policies and your operational processes.

Conclusion: Standardizing Operations Is Just as Important as Understanding the System

The reason payroll processing in Vietnam is difficult is not only because the system itself is complex.
In reality, issues such as the following often cause many of the mistakes and problems:

These kinds of operational issues are behind many of the errors and troubles.
To stabilize payroll processing at your Vietnam office, you need not only a correct understanding of the system, but also:
“Centralized management of data and rules” and
“A framework that allows operations to continue even when responsible personnel change”.

For Companies That Want to Stabilize Payroll and Attendance Management at Their Vietnam Offices

EST is an HR, labor, attendance, and payroll management system designed for Vietnam offices.
With a design aligned to local regulations and screens and functions tailored to the way Japanese companies operate,
it aims to reduce both on-site workload and the number of operational errors.

If you are facing challenges with payroll processing or HR and labor management at your Vietnam office, please feel free to contact us.