Impact of the minimum wage increase on employers

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After more than 2 years of applying Decree 90/2019/ND-CP regarding the regional minimum wage for employees working under labour contracts, recently, the Vietnamese Government promulgate Decree 38/2022/ND-CP to raise it by 6% which has come into effect on July 1, 2022.

(Unit: VND/month)

Table 1: Minimum wage per month for employees under new regulations

This growth will affect the following labour issues which the employers should be aware of:

1.         Increase the employee salary

The minimum wage is the lowest salary paid to the employees performing the simplest work in normal working conditions to ensure a minimum living standard for them and their families. Hence, the salary for each job must not be lower than the minimum wage[2]. If the employers are paying a salary lower than the regional minimum wage specified in Decree 38/2022/ND-CP to the employees from July 1, 2022, they are responsible for increasing the salary. Otherwise, it is considered an administrative violation, with the risk of being fined from VND20 million to VND75 million based on the number of employees being treated illegally[3].

In addition, Decree 38/2022/ND-CP gets rid of the regulation regarding the minimum wage for the job requiring vocational training which is at least 7% higher than the regional minimum wage as regulated in Decree 90/2019/ND-CP. However, this content has been amended and concretized in Official Letter No. 2086/BLDTBXH-TLDLDVN. Specifically, in case the employers have agreed or committed in the labour contracts, collective agreements or other legal agreements about applying this salary regime, it shall be applied continuously unless otherwise agreed upon by the two parties in accordance with the labour law. Besides, this does not force the employers to pay an extra amount for the job requiring vocational training in new labour contracts.

2.         Pay higher salary to the employees in case transferring them to another job as provided in the labour contract

In some certain situations[4], the employers are allowed to temporarily transfer the employees for another job compared to the signed labour contract. In addition, to restrict the above transfer cases, the Government also specifies the regulation on the salary for a new job which can be at least 85% of the old salary but not lower than the minimum wage[5].

Therefore, the employers need to review all the cases of job transfer to avoid the risk of being fined between VND5 million and VND50 million[6].

3.         Increase salary for the employees during the suspension time

In case the suspension is caused by an electricity or water supply issue that is not at the employer’s fault, or by a natural disaster, fire, major epidemic, hostility, relocation requested by a competent authority, or for economic reasons, both parties may negotiate the salary but must ensure that:

a) In case the suspension time is 14 working days or less: the salary shall not be lower than the minimum wage;

b) In case the suspension time is more than 14 working days: the salary for the first 14 days shall not be lower than the minimum wage[7].

Disregarding the application of the new minimum wage, in this case, the employers risk being a fine from VND5 million to VND50 million depending on the number of employees receiving salaries lower than the minimum wage during the suspension time [8].

4.         Increase the damage value that the employees have to compensate

In case an employee causes non-serious damage due to negligence with a value not exceeding 10 months of the regional minimum wage, the employees shall compensate at most 3 months' salaries and monthly deduction from their salary[9].

A higher minimum wage results in a higher maximum loss amount.  The employers should pay attention to reviewing all of their internal regulations related to compensation to confirm compliance with this new regulation.

5.         Increase the level of insurance premiums for employees

Currently, the employers and employees have to pay various types of insurance including social insurance, health insurance and unemployment insurance. The premiums for these insurances are based on the salary, salary allowances and other additional amounts followed in the labour laws and stated in the labour contracts[10]. In which, the salary is not lower than the regional minimum wage at the time of payment for the employees who do the simplest work under normal working conditions[11].

Therefore, from July 1, 2022, the employers and employees have the responsibility to pay the insurance premium higher than before if currently the insurance premium is based on the minimum wage.

By: Tam (Amy) Vu | LinkedIn

[1] The list of areas in each region is cleary specified in each decree.

[2] Labor Code 2019, Article 90

[3] Decree 12/2022/ND-CP, Article 17.3

[4] Labor Code 2019, Article 29.1

[5] Labor Code 2019, Article 29.3

[6] Decree 12/2022/ND-CP, Article 17.2

[7] Labor Code 2019, Article 99

[8] Decree 12/2022/ND-CP, Article 17.2

[9] Labor Code 2019, Article 129.1

[10] Law on Social Insurance 2014, Article 86.2; Law on Employment 2013, Article 58.2; Law on amending and supplementing a number of articles of the Law on Health Insurance 2014, Article 1.2

[11] Decision 595/QD-BHXH, Article 6.2.6

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