Salary and the important role of salary computation

Salary is established on the basis of the worth of labor power through an agreement between the business and the employer, and is regulated by economic rules such as supply and demand, value, etc.

As a bridge between employees and businesses, firms must pay special attention when calculating and paying employees’ salaries. This stage is directly tied to the administration of employee information in addition to preserving the interaction between employees and businesses. That is also why corporations constantly maintain perfect precision, avoiding any mistakes in salary computation and payment.

To prevent avoidable risks and misunderstandings, let’s discover more about salary calculation and payment processes at businesses in Vietnam with terra.

Popular forms of salary calculation and payment

Calculation of gross salary

The gross salary is the entire monthly income received by the employee, which includes the basic salary and allowances, commissions, and payments for personal income tax (PIT), insurance.

Employees must pay the following items in addition to their basic salary, according to Decision No. 595/QD-BHXH: social insurance (8%), health insurance (1.5%), unemployment insurance business (1%), and personal income tax (for people earning more than 11 million VND per month (132 million VND per year)).

Formula: Gross salary = Net salary + (Health insurance + Social insurance +Unemployment insurance) + Personal income tax (if any)

Calculation of net salary

Net salary, as contrasted to gross salary, is the actual salary that employees get from the business each month after subtracting all personal income taxes and insurance charges. Workers will not be charged any additional fees because the aforementioned deductions are covered.

Formula: Net salary = Gross salary – (Health insurance + Social insurance +Unemployment insurance) – Personal income tax (if any)

Calculation and payment of salary based on time

Time-based salary is determined based on the working time agreed upon in the labor contract between the employee and the business/owner, such as an hour, day, week, or month. Salary is believed to be computed by time. Almost all Vietnamese firms utilize time because it is suitable for a variety of jobs, including administrative work, jobs that employee productivity is difficult to regulate, part-time labor, and so on. If the employer and the employee agree to utilize this method of payment, the employee will be paid at least once every 15 days or once a month, according to employment laws.

If not indicated otherwise, based on the Labor Contract, this form of salary calculation is converted into smaller units according to the formula:

– Monthly salary = 1 month salary

Method 1:

Monthly salary = (Basic salary + Allowance) / Working day of the month * Actual number of working days

Or: Monthly salary – Salary / Standard day salary of the month * Number of days of unpaid leave

Method 2:

Monthly salary= (Basic salary + Allowance) / 26 * Actual number of working days

– Weekly salary = 1 month salary * 12(month) / 52(week)

– Daily salary = 1 month salary / Number of working days specified

– Hourly rate = Daily salary / Number of working hours per day

Calculation and payment of salary based on product

Product-based salary is determined by the number and quality of products generated by employees. This type of salary computation is suitable for factories, processing facilities, or industrial sites since it is strongly related to employee labor productivity. Calculating salary per product, in particular, is an integral part that increases work productivity and skill level of employees, contributing to a growth in the number of products.

Formula: Product-based salary = Quantity of products * Unit price of salary for a product

Calculation and payment of salary for piecework

This is a method of calculating employee salary based on job volume, quality, and completion time. This type of salary computation is suitable for projects, works, seasonal occupations, and industries with short-term or non-standard products, such as agriculture, construction, transportation, and waterways, etc.

Formula: Salary for piecework = Fixed rate * Percentage of job completion

Calculation and payment of salary based on revenue

This is a form of payment depending on the employee’s sales. This form is frequently used for sales personnel (sales), sales personnel, consultants, etc. Salary by revenue calculation will clearly and properly illustrate the amounts of revenue or profit.   As a result, businesses can lower the risks of budget shortfalls, incurred expenditures, and unforeseen issues.

Some revenue-based salary payment methods include:

– Individual sales determine salary/bonus.

– Salary/bonus determined by group sales

– Other types of company bonuses include debt, market expansion, and so forth.

Formula: Revenue-Based Salary = Monthly Fixed Salary + % of Sales

As can be seen, businesses will select the forms of compensation calculation and payment that are appropriate for them based on the volume of operations, products, and company services. However, errors and inaccuracies can still arise when completing salary calculations using the following formulae by manually (by hand, Excel file, etc.). As a result, many firms have begun to use technology to automate the steps of the payroll process in order to achieve absolute reliability in this task.

terra – Optimizing payroll for businesses

Belonging to the consulting group I-GLOCALL with nearly 20 years of experience in supporting Japanese businesses in the Vietnamese market, terra is one of the providers of payroll support services for customers with full criteria : Technology integration – Accurate – On time – Legal. 

The comprehensive human resource management solution group – terra provides the following services to help optimize the payroll process:

terra HR System – Human resource management software that assists customers in rapidly and accurately setting up and processing automatic payroll. The calculations and payroll will be customized and smoothly meet the specific demands of each organization. In addition to wage calculation, the terra HR System fully combines other activities to support the entire human resources department process, such as recruitment, training, evaluation, employee information management, and so on, at reasonable pricing.

terra Payroll – A payroll service that assists businesses with practically all aspects of salary and bonus calculation, personal income tax, insurance, and so on. terra‘s professional staff will build formulas and payroll based on the human resource management software terra HR System, providing absolute accuracy for enterprises. Furthermore, terra always accompanies advising to develop the payroll process, payroll, and how to successfully apply the service to the business operating process.

terra aims to become a partner with your organization on the path of future development with the purpose of assisting the human resources and business communities around the world.