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The National Salary Council has issued a recommendation that Vietnam’s Minimum Regional Wage should be increased for 2017 by an average 7.3% (see table below for specifics).

In early October 2016, draft Circulars have been issued supporting the National Salary Council’s recommendation. Although it is still awaiting final approval from the National Assembly, history shows that this proposal will likely pass and we suggest that enterprises should take this proposed increase into account for their budget planning for the upcoming 2017 year.

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This will see the Minimum Regional Wage increase by an average of 7.3% from 1 January 2017

It is essential to distinguish “Minimum Regional Wage” from “Minimum Basic Wage”; terms that are often confused. Minimum Basic Wage is used by Government organisations as a the foundation for payroll calculations, allowances and other salary matters, and is also used as a threshold upon which the maximum payment for Social Insurance and Health Insurance is calculated.

In contrast, the Minimum Regional Wage forms the basis for salary calculations and negotiations between commercial employers & employees, which is evidenced in labour contracts. It is also used as a threshold upon which the maximum payment for Unemployment Insurance is calculated. Minimum Regional Wages are applied at different rates using “zones” that are to align for areas with different economic and living standards.


PROPOSED INCREASE TO MINIMUM REGIONAL WAGE

Although not yet finalised, the increase in the Minimum Regional Wage should be understood and planned for by management for their 2017 budget planning for salaries, along with updating payroll calculations in terms of Unemployment Insurance contributed by employers and employees.

In specific, such proposed changes are illustrated as following:

Table: Increase in Minimum Regional Wages from 1 January 2017Unit: VND/month

Zone Old Level New Proposed Level Difference % Increase
Zone 1 3,500,000 3,750,000 250,000 7.14%
Zone 2 3,100,000 3,320,000 220,000 7.1%
Zone 3 2,700,000 2,90,000 200,000 7.4%
Zone 4 2,400,000 2,580,000 180,000 7.5%

• The increase ranges are from VND 180,000 to VND 250,000 with average rate of increase of 7.3%;

• Zones are designated by the Government. For example, Zone 1 cover areas including urban areas in Hanoi, Ho Chi Minh City and Hai Phong, along with certain industrial areas of Binh Duong and Dong Nai


UNEMPLOYMENT INSURANCE CHANGES

Unemployment Insurance (“UI”) is mandatory for all employees at all companies and applies to all contracts (definite and indefinite), including seasonal contracts, that are greater than 3 consecutive months.

Unemployment Insurance is calculated as:

• Employee contribution: 1% of Gross salary

• Employer contribution: 1% of Gross salary

The maximum UI is now capped at 20 times the Minimum Regional Wage for the Zone. Therefore, from 1 January 2017 if an employee in Zone 1 earns greater than 20 x 3,750,000 VND, their UI is capped at 750,000 (1% x 75,000,000) for both the employer and employee contribution.

The use of UI system has changed for individuals from when it was first implemented. Where an employee who becomes unemployed wishes to claim UI from the authorities, the benefit paid is calculated at 60% of their average salary for the previous 6 months of paid employment. Nonetheless, the benefit is capped at 5 times the Minimum Regional Wage relevant to the Zone of the employer (i.e. 18,750,000 VND for Zone 1).

Where an unemployed individual enters into new employment agreement, the unused unemployment benefits/rights will carry over for future use.


RECOMMENDATIONS & DISCUSSION

Given these proposed annual changes in Minimum Regional Wage, it is important that companies incorporate these into their budgeting process, and review and recheck to ascertain that the stated salaries in labour contracts remain in accordance with the changes and their Zone. Payroll calculations will need to be updated in line with new changes, to properly reflect the maximum caps for Unemployment Insurance contribution calculations.




For further information contact:

Matthew Lourey, Partner

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Phan Thi Thu Thuy, Manager

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