Please note: An updated version of this article can be found here: https://www.ahk-knowledgehub-vn.com/total-employment-costs
A key factor for companies looking to set up sales or sourcing operations is employing able personnel to represent them in Vietnam. We are often being asked how much it costs to hire staff. It should be noted though that gross salary tends to be only a minor part of the total employment costs. So, today we will try to establish a simplified exemplary calculation presenting a rough price tag at the end of the process. The following text refers to qualified staff employed with tasks i.e. in management, sales, sourcing, engineering or programming. For manual labor working on shop floors a different set rules and recommendations applies.
*Please note that all following calculations are and applicable for Vietnamese employees.
SALARY
Naturally, salary will be the biggest part of the costs of an employee. Employers typically negotiate gross salaries with candidates. Without knowing the market, newcomers are often a bit lost regarding appropriate remuneration. Luckily, there are several HR companies offering salary guides for Vietnam, e.g.:
As the customers of these HR companies will often be foreign enterprises, they include a premium in comparison to local employers, who often pay less. It is indeed advisable to offer competitive salaries. High-potential Vietnamese staff will strive to afford themselves some luxuries such as decent living quarters, (private) schooling for children and may be even a car. If staff feels that they are not earning enough they might resort to other means of income through non-compliance/graft, side businesses or even hopping to higher paying jobs. Paying appropriate salaries will not guarantee that employees will be deterred from showing detrimental behavior. However, it will reduce the chance of people resorting to typical “vices” (meaning: graft, side business, job hopping) that seem to be everyday headaches for many Vietnamese employers.
Although Vietnam’s economy is expanding at breakneck speed, labor costs are actually only moderately increasing. The average wages have recently risen by circa 5% p.a. Employers however should ready themselves for “brazen” demands of their staff. Especially after the first year after they have learned the ropes of their jobs, employees may ask for payment raises of up to 50%. The employer then has to decide how to handle these demands.
Overall, the employer should take care to pay equal salaries to people with similar job descriptions and/or seniority. Other than in Germany, salaries are not a well-kept secret in Vietnam. Imbalances in salary ranges could lead to dissatisfaction, contract terminations or salary negotiations.
For our calculation we utilize an amount that could be applicable for many qualified sales or engineering personnel.
Annual gross salary: EUR 18,000 (monthly: EUR 1,500)
BONUS
Paying a yearly bonus is technically voluntary but culturally mandatory in Vietnam. On average, it adds about 10 to 20% to the employee’s annual salary. The bonus will be paid before the “Tet” Lunar New Year Festival which is – depending on the lunar calendar – mostly being celebrated in January or February. It may be fixed to certain performance indicators, such as sales volume. The employer should however be aware that staff will show response if the bonus is deemed too low. Just imagine that many employees travel home to their families for the Tet holidays. There, the past year will be discussed; also in professional and financial terms. If employees do not have an adequate bonus (or wage raises or promotions) to show for they might be prompted to rethink their career choices… and to switch employers. It is therefore advisable to give employees something to present at home.
Gross bonus: EUR 2,700 (15% of salary)
Saigon Times released a nice piece on the development and importance of "Tet bonuses" here: https://english.thesaigontimes.vn/74254/the-tet-bonus-woes.html
EMPLOYER SHUI AND TRADE UNION
In Germany, employee and employer mostly contribute equally to social insurance. The Vietnamese system is however much more “employee-friendly”. The employer has to pay a whopping 21.5% (2x of the employee contribution) on top of the employee’s gross salary for SHUI. An additional 2% has to be contributed to the labor union.*
Annual employer SHUI/labor union: EUR 3,384
Thus, if an employer negotiates an annual gross salary/bonus of EUR 18,000 with her staff, she has to add roughly 34% for bonus and employer SHUI/union to calculate the total payroll.
*Because the base for SHUI/union due assessment is capped at ca. EUR 24,000 p.a. in the above-mentioned case the actual amount to pay would be roughly 16% of the gross salary.
EXTRA BENEFITS
To maximize retention rates and motivation many employers resort to granting extra benefits to their staff. The following EUR amounts are calculated on an annualized basis.
INCENTIVE TRIPS
Inviting key personnel to company headquarters in Europe is a well-received incentive. For staff, they offer an opportunity to get to know the country of origin of their employer, to do some sightseeing as well as some shopping for them and the extended family. At the same time the employer may use the occasion to create a deeper understanding of the employee for the company’s culture and management structure. The visit could also be arranged in the form of a global sales or sourcing meeting bringing together staff from around the globe. Provided that the employee uses Economy Class and does not stay more than a couple of days the following budget should be sufficient.
Price tag: EUR 2,000
TRAVEL ALLOWANCES
Most jobs demand some form of travel. In the big Vietnamese cities, we recommend using taxi cards or the ride hailing service “Grab” (which can issue VAT invoices). Longer distances to neighboring provinces will mostly be traveled by car. For the occasional trip, booking a driver and a private car is advisable. These options are neat and tidy to settle because the employer will receive proper invoices for them. For more frequent travel, the employee may ask for a travel allowance in order to steer her own car or motorbike to destinations. For the employer, this may be cheaper than procuring driving services. However, allowances are hard to fix as employees sometimes travel more, sometimes less within a month. They also might be misappropriated ending in non-compliance. Also, travel allowances are subject to SHUI and PIT. For our sample calculation we fix these at the following annual amount including employee SHUI/PIT for a car.
Price tag: EUR 1,800
TEAM BUILDING
Once a year, every reputable Vietnamese employer is offering a team building event to staff. For smaller companies and the management team of larger enterprises these activities will typically encompass a whole weekend. They often take place at one of Vietnam’s famous beaches or other scenic destinations and thus involve flights as well as hotel stays. The team building events are mostly “just for fun” without any strategic discussions or workshops. Staff expects entertainment with lots of relaxation, games, culinary highlights, and party. They are – in their core – a way to improve bonds within the team.
This video from Bosch illustrates quite well what team building might look like in Vietnam.
Many Vietnamese companies also offer lavish year-end parties which might show up in the calculation of Total Employment Costs. Here an example from another German investor, AudienceServ:
These events may come costly for the employer with a price tag as high as...
Price tag: EUR 1,000
TRAINING
As a Confucian country education is held in high esteem in Vietnam. It is therefore no surprise that staff often expects certain training measures from their employers. These may be organized internally or externally. There is an increasing number of providers of further education for professionals. Many employ international specialists offering workshops on specific topics. Following costs may be reserved annually.
Price tag: EUR 1,000
CELL PHONE
For employees often working outside of the office or with a lot of contact to external partners (such as customers or suppliers) the provision of a company cell phone is advisable. Firstly, such staff simply expects this from the employer. Secondly, it is rather widespread for Vietnamese employees to use private phones for business communication. The employers should therefore prevent staff from excessive use of (uncontrollable) private technical equipment for business purposes by supplying company phones. As phones are considered important status symbols their use will convey a certain message to external partners. Therefore, upscale models should be procured. Under the premise that the employer will provide a new phone for EUR 1,000 every other year and a standard phone plan the following price tag may be applied.
Price tag: EUR 1,360
SUPPLEMENTARY HEALTH INSURANCE
While Vietnam’s health care system is quite well developed considering its economic development stage, its public health insurance scheme leaves much to be desired. Many services at hospitals have to be paid out of pocket by patients apart from social insurance. Employees are therefore thankful if their employer grants them supplementary health insurance.
Price tag: EUR 480
HEALTH CHECK-UP (MANDATORY)
Employers must offer a yearly health check-up to their staff. This benefit is surprisingly popular in Vietnam. Most employees will (happily) take advantage of it.
Price tag: EUR 200
SUMMARY
The point we would like to make is that salary negotiations in Vietnam do not end with fixing the gross salary and that total payroll should not be the basis to calculate the total employment costs of an employee to her employer. The calculation should be:
Gross salary + bonus + employer SHUI/union = total payroll
Total payroll + benefits = total employment costs
In fact, gross salary can make up as little as 56% of the total employment costs.
Overview: Exemplary make-up of total employment costs
A simplified calculation for total employment costs can be downloaded here:
Of course, the above-mentioned benefits include all sorts of options available. Some of our customers are indeed offering the whole set of them. However – usually – employers will not resort to utilizing all. The most common benefits include the health check-up (mandated by law), supplementary health insurance and team building. Other options might be reserved to key personnel.
Furthermore, some benefits are only feasible in certain company constellations. For instance, in an office with only two or three persons a company trip will probably be replaced by a nice dinner and Karaoke. Also, for staff that only works in the office or from home travel allowances might be redundant.
Finally, the benefits and prices noted here are clearly positioned in the upper echelon of possibilities. There are cheaper options available in Vietnam. However, to show appreciation or gratitude and to improve the company’s status the employer should not shy away from spending. Adding 10 to 20% of benefits to payroll costs may be advisable for qualified staff. For key personnel, this figure can be as high as 35% to arrive at total employment costs.
Again, as noted above, it should be noted that the above numbers and calculations are simplified and generalized. For questions you may turn to us and/or to payroll/staffing companies.
Further reading:
Navigos Group - Annual report on benefit trends based on their job platform “vietnamworks” accessible here: https://drive.google.com/file/d/1IN_Q295GRKzMgEExpO0jCurMBmOUJncv/view
GTAI - Overview Payroll in Vietnam (German only): https://www.gtai.de/gtai-de/trade/wirtschaftsumfeld/lohn-und-lohnnebenkosten/vietnam/lohn-und-lohnnebenkosten-vietnam-23662