In calculating overtime pay in Vietnam, one of the most common mistakes made by HR and payroll practitioners is misunderstanding the “scope of wages included in the overtime calculation base.”
Even if a company believes it is paying overtime correctly, an incorrect calculation base may still be judged as unpaid overtime.
Overtime Pay Is Calculated Based on “Normal Wages”
Under Vietnamese labor law, overtime pay must be calculated based on normal wages.
Normal wages are not limited to base salary alone, but refer to all wages paid as consideration for work performed.
Wages That Should Be Included in the Calculation Base (Principle)
In principle, the following types of wages must be included in the overtime pay calculation base.
| Item | Reason |
|---|---|
| Base salary | The core compensation for labor |
| Position / responsibility allowance | Paid monthly on a fixed basis according to role or position |
| Job-related / skill allowance | Directly related to job duties |
| Allowances paid monthly at a fixed amount | Substantively regarded as part of wages |
The key point is that judgment is based not on the allowance name, but on the actual substance of the payment.
Wages That May Be Excluded from the Calculation Base (Conditional)
On the other hand, the following items are generally considered excludable from the overtime calculation base.
| Item | Reason |
|---|---|
| Meal allowance | Strong welfare-related nature |
| Commuting allowance | Reimbursement of actual expenses |
| Performance-based bonus | Not paid on a fixed monthly basis |
| Annual bonus (Tet bonus, etc.) | Paid irregularly |
However, if allowances such as meal allowances are paid at a fixed amount every month, they may be required to be included in the calculation base depending on their substance.
Common Practical Mistakes
- Calculating overtime pay based only on base salary
- Excluding items solely because they are labeled as “allowances”
- Assuming that non-insurable wages are automatically excluded from overtime calculations
The calculation base for social insurance and overtime pay does not necessarily coincide.
Practical Judgment Points (Quick Checklist)
The more “yes” answers you have to the following questions, the more likely the item should be included in the overtime calculation base.
- Is it paid monthly at a fixed amount?
- Is it paid regardless of attendance or absence?
- Is it linked to job duties or position?
- Is it clearly stated as wages in the labor contract?
Risks Caused by Calculation Errors
Incorrect overtime calculation bases can lead to the following risks.
- Corrective guidance and retroactive payments during labor inspections
- Claims for unpaid overtime upon employee resignation
- Prolonged labor disputes
Disputes arising at the time of resignation often involve retroactive claims covering past periods, requiring special attention.
The overtime calculation base is closely related to overall payroll and allowance design.
It is essential to correctly understand the system and ensure consistency across the entire wage structure.
Summary
In Vietnam, the most important aspect of overtime pay calculation is not the premium rate itself, but “what the premium rate is applied to.”
Overtime pay should not be calculated based solely on base salary. It must be calculated based on normal wages, which include wages paid monthly on a fixed basis as compensation for work.
On the other hand, welfare-related or irregular payments such as commuting allowances, meal allowances, and bonuses (Tet bonus, etc.) are generally excluded from the calculation base.
However, it is important not to judge based solely on the name of an allowance. Treatment may change depending on the actual payment substance (fixed nature and compensation-for-work character). Incorrect judgment may result in a finding of unpaid overtime even if overtime pay has been made.
In Vietnam, the overtime calculation base is also closely linked to the calculation of social insurance
contributions and personal income tax (PIT).
Taking a comprehensive view of the entire payroll system and ensuring
a consistent and well-structured wage design and operation
is essential to minimizing labor-related risks.
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