Basic Rules of Payroll Calculation in Vietnam

For Japanese companies operating subsidiaries in Vietnam, payroll calculation is one of the most important yet complex HR and labor management tasks.
Minimum wages by region, overtime calculation rules, social insurance (SI, HI, UI), and personal income tax (PIT) are all structured very differently from Japan.

In this article, we explain the fundamental rules of Vietnamese payroll in the order of “overall framework → individual elements → practical points”.
This is a comprehensive guide that can be used directly in practice, from those newly assigned to Vietnamese payroll to managers who want to reorganize their understanding of the system.

Overall Payroll Flow in Vietnam

Payroll calculation in Vietnam generally follows the steps below.

These elements are closely interrelated, and an error in any one of them can disrupt the entire calculation.

Basic Salary and Minimum Wage System (Region I–IV)

In Vietnam, minimum wages are set by region (Region I–IV).
Companies are not allowed to set a basic salary below the minimum wage applicable to the region where the workplace is located.

Region	Main Applicable Areas (Examples)	Characteristics
Region I	Central Ho Chi Minh City, Central Hanoi	Highest minimum wage (major urban areas)
Region II	Hai Phong, Da Nang, Binh Duong Province	Semi-urban areas with many industrial zones
Region III	Provincial cities and surrounding industrial areas	Mid-level regions
Region IV	Rural and remote areas	Lowest minimum wage

This regional classification affects not only minimum wages but also the upper limit for unemployment insurance (UI).

Types of Allowances and How They Are Treated for Tax and Insurance

A key point in Vietnamese payroll design is that the treatment of each allowance differs for social insurance (SI, HI, UI) and personal income tax (PIT).
Not all allowances are uniformly subject to tax and insurance.

Basic Rules for Determining Taxable and Insurable Allowances

In general, the following principles apply.

Common Allowances and Their Treatment (Overview)

Allowance Example	Social Insurance	PIT	Notes
Position / Responsibility Allowance	Applicable	Applicable	Treated similarly to basic salary
Meal Allowance	Conditional	Conditional	Taxable if exceeding the threshold
Commuting Allowance	Not applicable	Conditional	Generally requires actual expense reimbursement
Housing Allowance	Applicable	Applicable	Special caution required for expatriates

If allowances are poorly designed, unexpected social insurance contributions or tax burdens may arise, so careful consideration is required at the payroll design stage.

▶ Detailed explanation: Allowances in Vietnam and Their Tax & Social Insurance Treatment

Overtime, Night Work, and Holiday Work Calculation Rules

In Vietnam, overtime premium rates are clearly defined by law.

Calculation errors can lead to unpaid overtime claims or corrective orders from authorities.

▶ Related article: How to Calculate Overtime and Holiday Work Pay

Basic Structure of Social Insurance (SI, HI, UI)

In Vietnam, enrollment in the following three types of insurance is mandatory.

Contributions are divided into employee portions and employer portions, both of which are processed during payroll calculation.

▶ Detailed explanation: Eligibility and Calculation of Social Insurance in Vietnam

Steps for Calculating Personal Income Tax (PIT)

PIT is calculated through the following steps.

From July 2026, amendments to the Personal Income Tax Law are scheduled to take effect.

▶ Related article: Personal Income Tax Law Amendment (Effective July 2026)

Difference Between Net Salary and Total Company Labor Cost

In Vietnam, it is essential to clearly distinguish the following three amounts.

If the employer’s share of social insurance is not taken into account, actual labor costs may be underestimated.

Conclusion: A Comprehensive Understanding Is Essential for Vietnamese Payroll

Payroll in Vietnam involves a complex interplay of minimum wages, social insurance, taxes, and labor laws.
Rather than handling issues in isolation, it is crucial to operate with a clear understanding of the overall framework.

EST provides an integrated solution for managing these complex payroll and HR processes, enabling both headquarters in Japan and local Vietnamese offices to operate with confidence.