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In Vietnam, not all employees know about the concept of Gross salary and Net salary. Sometimes, because of this lack of knowledge, they are abused by employers and end up overworked, underpaid. So, what are the regulations employees need to know about Gross and Net salary in Vietnam?
As a matter of fact, the concept of gross salary is not currently regulated in legal documents. It is actually a term in the economic field used by businesses when negotiating salaries with employees.
“Gross” in English means total. Accordingly, it can be understood as the total monthly income of the employee, including basic salary and allowances, subsidies, commissions, etc., excluding the compulsory insurance contributions and personal income tax (if any).
Consequently, this is not the actual salary that the employee receives every month which is known as Net salary.
Net salary is the income of the employee after deducting all insurance costs and personal income tax, simply understood it is the amount of money that goes into the employee’s pocket.
The relationship between Gross salary and Net salary can be calculated using this formula:
NET SALARY = GROSS SALARY – (social insurance + health insurance + unemployment insurance + PIT)
Which is better: Gross salary or Net salary?
At first glance, the employee may think that the Net salary is more profitable because that is the amount they receive and can actually spend. On the other hand, when receiving a Gross salary, the employee might feel left out, lost, and confused because they won’t receive that entire amount of money every month.
However, Net salary and Gross salary are actually the same. The employee will receive the same amount of money in both scenarios. Nonetheless, when receiving a Gross salary, the employee will have the advantage of being able to calculate exactly their Net salary and know the insurance and tax payments that the company pays for the employee.
This might sound unimportant but in reality, there are many shady companies that pay less than the amount of social insurance needed to earn more profits. With the reduced amount of social insurance, the employee won’t feel the impact right now, or even in a few years. But that will strike them when they are on maternity leave or retirement and at that moment, it will be too late.
So, the employees need to equip themselves with the necessary knowledge in order to not be led and used, or abused by the employers and the business.
Instructions for calculating Net salary from Gross salary
The salary received by the employee is also known as the net salary. This salary is calculated according to the following formula:
Net salary = Gross salary – Compulsory premium payment – PIT (if any)
Inside:
– The employee’s compulsory insurance premium = 10.5% of salary.
– Personal income tax (if any): PIT = (Total Income – Exemptions – Deductions) x Tax Rate
To clarify, if Mr.A negotiates a Gross salary of 20 million VND and has one dependent family member, we can calculate his Net salary following this formula:
GROSS salary: 20,000,000 VND
Social insurance (8%): – 1,600,000 VND
Health insurance (1.5%): – 300,000 VND
Unemployment Insurance (1%): – 200,000 VND
Income before tax: 17,900,000 VND
Personal family deduction: – 11,000,000 VND
Dependent family deduction: – 4,400,000 VND
Taxable income: 2,500,000 VND
Personal income tax: – 125,000 (Mr. A receives a taxable rate of up to 5 million VND and has a tax rate of 5% – equivalent to 125,000 VND)
Net salary (Income before tax – Personal income tax): 17,775,000 VND
On the other hand, the employer will have to pay the following amount of money to the employee and the social insurance fund every month:
GROSS salary: 20,000,000 VND
Social insurance (17%): 3,400,000 VND
Insurance for Occupational Accidents – Occupational Diseases (0.5%): 100,000 VND
Health insurance (3%): 600,000 VND
Unemployment Insurance (1%): 200,000 VND
Total: 24,300,000 VND
ASL LAW is the top-tier Vietnam law firm for Employment and Labor Law. If you need any advice, please contact us for further information or collaboration.
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