With many multinational companies and foreign-funded enterprises pouring into the Vietnamese market, attracting and retaining high-quality foreign talents has become a key factor for corporate success. In this highly competitive talent market, formulating a salary plan for foreign employees that is both in line with local realities and internationally competitive is crucial to the sustainable development of an enterprise. A well-designed compensation package can not only attract top talents, but also improve employee satisfaction and reduce employee turnover , thereby laying a solid foundation for the company’s long-term success in the Vietnamese market. This article will delve into how to build a comprehensive and competitive salary system for foreign employees based on taking into account Vietnam’s unique economic environment, tax policies and cost of living.
Overview of Vietnam’s labor market
Currently, Vietnam has a population of nearly 100 million, of which about 55 million people form a huge labor force. This demographic structure is young and dynamic, with an average age of only about 32 years old, injecting continued vitality and innovation into the labor market.
In terms of industrial structure, Vietnam is undergoing a transformation from traditional agriculture to modern manufacturing and service industries. Manufacturing, especially the electronics, textile and food processing industries, has been a major labor absorber. In recent years, as Vietnam’s position in global supply chains has improved, high-tech manufacturing such as smartphone and computer production lines have also expanded rapidly. At the same time, the service industry, especially in areas such as tourism, finance and IT services, is becoming a new source of employment growth. This change in industrial structure not only improves the overall quality of employment, but also creates more opportunities for highly skilled talents.
For foreign employees, Vietnam’s labor market offers broad room for development. Foreign talents are mainly concentrated in the fields of management, technology and professional services. Multinational companies, foreign-funded enterprises, and rapidly developing local enterprises are actively recruiting foreign employees with international vision and professional skills. Especially in industries such as IT, finance, engineering, education and consulting, the demand for high-end foreign talents continues to grow. In addition, as the Vietnamese government vigorously promotes Industry 4.0 and digital transformation, the demand for foreign experts with relevant professional backgrounds in emerging technology fields such as artificial intelligence, big data, and cloud computing is also rising rapidly.
However, Vietnam’s labor market also faces some challenges. Although the overall labor supply is sufficient, there is a relative shortage of highly skilled personnel. This has resulted in a large pay gap between local and foreign talents in certain professional fields. On the other hand, with the improvement of local education levels and the return of overseas students, local high-skilled talents are increasing rapidly, which may affect the demand structure for foreign talents in the future.
Language is also an important factor in the Vietnamese labor market. While English is increasingly used in business settings, Vietnamese remains vital in many areas, especially when dealing with local clients or government departments. This gives talents who are proficient in both English and Vietnamese a unique advantage in the labor market.
The Vietnamese government is also constantly improving labor regulations to better protect the rights and interests of employees and create a favorable employment environment for enterprises. For example, the new Labor Law that will take effect in 2021 has more detailed provisions on working hours, overtime, social insurance, etc. These changes directly affect the operation of the labor market.
Vietnam’s labor market is in a stage of rapid development and transformation . When formulating talent strategies, companies need to fully consider the dynamic characteristics of this market and balance the use of foreign talents and cultivating local talents to adapt to Vietnam’s rapidly changing economic environment and ever-escalating trends. industrial demand.
Analysis of cost of living in Vietnam
The cost of living in Vietnam is relatively low compared to many Western countries and some developed regions in Asia. However, with the rapid economic development in recent years, the cost of living in major cities has also been gradually rising. Take Ho Chi Minh City and Hanoi, the two major cities in Vietnam, as examples. Although their cost of living is at a medium level in Southeast Asia, they are still very cost-effective for foreigners.
When it comes to housing, rent accounts for the majority of expats’ expenses. Rent in Ho Chi Minh City is generally higher than in Hanoi. The monthly rent for a modern one-bedroom apartment in the city center may be between US$500-800, while in Hanoi it is around US$400-600. Rent in high-end residential areas may be higher. A three-bedroom apartment may cost US$1,500-2,500/month in Ho Chi Minh City and US$1,200-2,000/month in Hanoi. It is worth noting that many employers provide housing allowances to foreign employees, which greatly reduces the pressure on housing expenses.
Daily meal costs vary based on personal habits. Eating out at local restaurants is relatively cheap, and a typical meal might only cost $2-5. However, dining at a high-end Western-style restaurant may cost $20-50 or more per person. For expats who are accustomed to cooking on their own, ingredients in local supermarkets are moderately priced, but imported food may be more expensive.
In terms of transportation, Vietnam’s public transportation system is constantly improving, but currently it is still dominated by motorcycles and taxis. Many expats choose to rent a car or buy a motorcycle to get around. The monthly rental of an ordinary motorcycle is between US$50-100, while the starting price of a taxi is about US$0.5-1, with an additional cost of about US$0.5 per kilometer. In recent years, online ride-hailing services such as Grab have become more and more popular, providing expats with convenient travel options.
Educational expenses are an important consideration for expatriates with children. International school tuition is quite expensive and can range from $10,000-25,000 per year, which is usually part of the expatriate employee’s salary distribution .
In terms of medical care, although Vietnam’s public medical system is constantly improving, many expats still prefer to use private medical facilities or international hospitals, which are relatively expensive. Therefore, comprehensive medical insurance is crucial for expatriate employees.
Entertainment and personal spending vary from person to person, but overall, Vietnam offers a diverse range of leisure options, from low-cost local entertainment to high-end international experiences.
The cost of living in Vietnam remains competitive compared to neighboring countries. For example, housing costs are much lower in Vietnam compared to Singapore or Hong Kong. However, the cost of living in major cities in Vietnam can be slightly higher compared to certain areas in some Southeast Asian countries such as Cambodia or Indonesia.
Overall , although the cost of living in Vietnam is rising, it still offers a good quality of life and good value for money for most expats. When designing salary packages, companies need to fully consider these cost-of-living factors to ensure that the salary can support employees to maintain an appropriate standard of living in Vietnam, while also taking into account cost differences between different cities.
Overview of salary levels in Vietnam
Salary levels in Vietnam have shown a steady upward trend in recent years, which is closely related to the country’s continued economic growth and increasing foreign investment. However, salary levels vary significantly across industries, roles and regions, and detailed analysis is required to fully understand the salary situation in Vietnam.
First, let’s dive into the salary ranges in different industries. In the manufacturing sector, the monthly salary of an average worker is usually between US$200 and US$400. This level has increased in the past few years but still maintains Vietnam’s competitive advantage in labor-intensive industries. Middle management salaries may range from $800-$1,500 per month, depending on company size and personal experience. It is worth noting that high-tech manufacturing industries, such as the electronics and automobile industries, have slightly higher salary levels. Engineers may earn a monthly salary between US$1,000-2,000, reflecting the high demand for technical talents in these industries.
Salary ranges in the service industry are wide, reflecting the diversity of the industry. Taking the financial services industry as an example, junior analysts may earn a monthly salary of US$800-1,500, while senior managers may earn US$3,000-6,000 or even higher. Salaries in the IT industry are growing particularly rapidly, which is closely related to global digitalization trends and Vietnam’s status as an emerging technology hub. In the IT industry, a junior developer may earn a monthly salary of $600-1,200, while an experienced senior developer may earn $2,000-4,000 or more. This rapid increase in salary levels reflects the fierce competition for IT talents in the market.
The difference is particularly stark when comparing the salaries of local and expatriate employees. This difference is not only reflected in basic salary, but also in overall compensation including various benefits. Taking middle management positions as an example, local employees may earn a monthly salary of US$1,500-3,000, while foreign employees in the same position may earn US$3,000-6,000. The gap may be even greater in top management positions, where annual salaries for foreign executives may reach $100,000 or more. This significant salary gap stems from several factors: first, foreign employees often bring scarce professional skills and valuable international experience; second, foreign employees’ salary packages often include additional benefits, such as housing allowances, international school education Subsidies, regular air tickets to return home to visit relatives, etc.; finally, higher salaries are also to compensate for the various challenges that foreign employees face when working in a foreign country, such as cultural adaptation, language barriers, etc.
However, it is worth noting that as local talents continue to improve their skills and become more internationalized, the salary gap between local senior talents and foreign talents is gradually narrowing, especially in highly internationalized industries such as IT and finance. This trend reflects the improvement of Vietnam’s education level and the return of overseas students, which has injected local talents with international perspectives into the labor market.
Regarding salary growth trends and forecasts, Vietnam’s average salary growth rate in recent years has remained around 6-8%, which is higher than the inflation rate, which means an increase in actual purchasing power. Certain popular industries, such as IT and financial services, may experience higher growth rates of 10-15%. This growth trend is expected to continue in the coming years, especially in highly skilled and managerial positions. Factors driving this trend include continued economic growth, increased foreign direct investment, the transformation of the industrial structure into high value-added areas, and fierce competition in the talent market.
Salary levels in Vietnam are expected to continue an upward trend, but the growth rate may slow down. This is because companies need to strike a balance between raising wages to attract and retain talent and controlling costs to remain competitive. At the same time, with further economic development and industrial upgrading in Vietnam, wages for high-skilled positions may grow faster, while wages for low-skilled positions may grow relatively slowly. This differentiated growth pattern may lead to increased income inequality, which is an issue that policymakers need to pay attention to.
Vietnam tax system
Changes in Vietnam’s tax system will affect both local and foreign employees working in Vietnam . Let ’s take a look at Vietnam’s personal income tax, special tax policies for foreign employees, as well as the requirements and calculation methods for social insurance and medical insurance.
Vietnam’s personal income tax system. Vietnam adopts a progressive tax rate system, with tax rates ranging from 5% to 35%, depending on an individual’s annual taxable income. Specifically, the annual income does not exceed 60 million VND (approximately US$2,600), which is tax-free; the portion between 600,000 and 1.2 million VND is subject to a 5% tax rate; the portion between 1.20 million and 2.16 million VND is subject to a 10% tax rate; By analogy, until the annual income exceeds VND996 million (approximately US$43,000), the highest tax rate of 35% is levied. It is worth noting that this tax rate applies to all types of income, including wages, bonuses, allowances, etc. In addition to salary income, other income such as investment income, rental income, etc. are also subject to personal income tax, but different tax rates may apply.
Vietnam has some special tax policies for foreign employees. First of all, the criterion for determining the tax residence status of foreign employees in Vietnam is to live in Vietnam for 183 days or more within 12 months. If it is recognized as a tax resident, its global income will be taxed in Vietnam; if it is not a tax resident, it will only be taxed on the income earned in Vietnam. In addition, foreign employees can enjoy some special tax benefits. For example, certain work-related benefits, such as housing allowances, one-time relocation expenses, air tickets back home to visit relatives, etc., are tax-deductible if certain conditions are met. It is worth noting that these policies change frequently, so foreign employees need to keep up to date with the latest tax regulations.
In recent years, the Vietnamese government has made some adjustments to tax policies for foreign employees, aiming to simplify tax procedures and attract more highly skilled talents. For example, there may be additional tax incentives for foreign experts working in certain high-tech fields or special economic zones. However, these preferential policies usually have strict application conditions and time limits and require careful evaluation and application.
In terms of social insurance and medical insurance, Vietnam has also carried out major reforms in recent years, especially regarding the insurance requirements for foreign employees. From December 1, 2018, foreign employees holding a work permit, internship certificate or practice certificate must also participate in Vietnam’s social insurance scheme. This regulation will be implemented in phases: from January 1, 2022, foreign employees will need to pay pensions and death insurance; and from December 1, 2018, they will already need to pay illness, maternity and occupational injury insurance.
Specific to the proportion of social insurance contributions, employers need to contribute 17.5% of total wages for employees, including 3% for medical insurance. Employees themselves need to pay 8% of their total wages as social insurance and 1.5% as medical insurance. It is worth noting that the social insurance payment base has an upper limit, which is currently 20 times the regional minimum wage. There is no upper limit on medical insurance contributions.
For foreign employees, they may be exempt from certain social insurance contributions if they come from a country that has signed a social security agreement with Vietnam. However, as of now, Vietnam has signed very few such agreements with other countries, so most foreign employees still need to pay social insurance as required.
Calculating Social Security and Medicare is relatively straightforward. Taking a foreign employee with a monthly salary of US$10,000 as an example, it is assumed that the employee needs to pay full social insurance and medical insurance. The employer needs to pay US$1,750 (10,000 * 17.5%), of which US$300 is medical insurance; the employee needs to pay US$950 (10,000 * 9.5%), of which US$800 is social insurance and US$150 is medical insurance. However, because Social Security is capped, actual contributions may be lower than this calculation.
Remuneration components of foreign employees
In Vietnam, the compensation structure for expatriate employees is usually more complex than that for local employees, involving multiple components and designed to attract and retain high-quality international talent while taking into account their special needs in working and living in a foreign country. This comprehensive compensation package typically includes a base salary, various perks, bonuses, and long-term incentive plans. Let’s dive into these components to get a complete understanding of what expatriate compensation in Vietnam consists of.
Basic salary is the core part of the salary structure, and its setting principles involve multiple factors. First, the company will consider the importance and level of responsibility of the position, usually referring to the salary levels in the international market, especially the salary standards for similar positions in the Asia-Pacific region. Secondly, an individual’s professional experience, educational background and special skills are also key factors in determining basic salary. Notably, base salaries for expatriates in Vietnam are typically higher than for local employees in equivalent positions, reflecting the need to attract international talent and compensate for the additional challenges they may face working in a foreign country. In addition, the company will consider the cost of living and inflation rate in Vietnam to ensure that the salary is competitive. Some multinational companies will use the “balance sheet method” to set basic wages, which not only ensures that employees’ living standards in Vietnam are comparable to their home countries, but also takes into account the actual conditions of the local market.
In addition to the basic salary, various allowances are an important part of the salary package of foreign employees, aiming to cover their special expenses of working and living in Vietnam. Housing allowance is the most common and often the largest allowance, with standards varying by city and job level. In major cities such as Hanoi or Ho Chi Minh City, monthly housing allowances for senior managers may be as high as $2,000-3,000, while for middle managers it may be between $1,000-2,000. Some companies choose to provide housing directly to employees rather than handing out cash stipends. Transportation allowances are also common and may include the provision of a company vehicle or a fixed monthly transportation allowance, usually ranging from $300-$800. For foreign employees with children, children’s education allowance is particularly important. International school tuition can be very high in Vietnam, so many companies will fully or partially reimburse these costs, and the annual stipend can be as high as $15,000-25,000 per child. In addition, other allowances may be included, such as a relocation allowance (usually a one-time payment to cover the initial moving costs), furniture allowance, utility allowance, etc. Some companies also offer annual flights back home to visit family, usually once or twice a year.
Bonus systems are an important tool for motivating employees and recognizing their contributions. In Vietnam, the bonus system for foreign employees is usually more generous and diverse than that for local employees. Year-end bonus is the most common form, usually based on individual performance and company performance, and the amount may be equivalent to 1-3 months’ basic salary, sometimes even higher. In addition, many companies also implement quarterly or semi-annual performance bonuses to keep employees motivated. For sales or business development positions, there may also be a performance-based commission system. Some companies have also introduced project completion awards or special contribution awards to recognize employees who have excelled in specific projects or tasks. It is worth noting that the design of bonus systems usually takes into account tax implications and tries to optimize employees’ after-tax income.
Equity incentive plans are long-term incentive tools for senior managers and employees in key positions, aiming to closely integrate employees’ personal interests with the company’s long-term development. In Vietnam, although equity incentives are not yet as common as in Western countries, they are increasingly valued, especially among multinational companies and fast-growing technology companies. Common forms of equity incentives include stock options (Stock Options), restricted stock units (RSUs) and employee stock ownership plans (ESPP). Stock options allow employees to purchase company stock at a predetermined price in the future, usually with an exercise period of 3-5 years. RSUs directly grant employees a certain number of shares, which usually unlock after a certain period of time. An ESPP allows employees to purchase company stock at a discount, usually on a semi-annual or quarterly basis. The specific design of these plans will take into account Vietnam’s laws and regulations, especially foreign exchange control and tax policies. For example, because Vietnam has strict controls on foreign exchange, companies may need special arrangements to ensure that foreign employees can exercise their equity shares.
When designing an overall compensation package for foreign employees, companies need to balance multiple goals: attracting and retaining talent, controlling costs, complying with laws and regulations, and being consistent with the company’s overall strategy. At the same time, personal income tax implications also need to be considered, as different components of compensation may have different tax treatments. For example, certain benefits, such as housing allowance, may be tax-advantaged if certain conditions are met. Therefore, a well-designed compensation package can not only meet the needs of employees, but also optimize the company’s cost structure and employees’ after-tax income.
Designing a competitive salary package for foreign employees requires considering many factors, including market competition, legal compliance, tax optimization, and employees’ personal needs. As Vietnam’s economy continues to develop and become more internationalized, compensation packages for foreign employees are also constantly evolving. More and more companies are adopting more flexible compensation structures, such as flexible benefit plans, which allow employees to choose different benefit packages based on their individual needs. In addition, with the rapid development of local talents, some companies are gradually narrowing the salary gap between foreign employees and local senior talents, which reflects the maturity and internationalization of Vietnam’s labor market.
Design a competitive salary plan
Designing a competitive compensation package is a key strategy to attract, retain and motivate talent, especially in a rapidly growing market like Vietnam. A well-designed compensation package not only meets the needs of employees, but also helps the company achieve its strategic goals. Let’s dive into the key factors to consider when designing such a program, compensation structure optimization strategies, and how to design a comprehensive benefits package.
When designing a compensation package, the primary considerations are a series of key factors that directly impact the competitiveness and effectiveness of the package. Skill scarcity is one of the most important factors. In Vietnam, professional talents in certain fields are in short supply, such as senior technical personnel, management talents with international experience, etc. For these scarce talents, companies usually need to provide compensation above the market average. For example, in the IT industry, an experienced software architect’s salary may be 50% or more higher than that of an average developer.
The experience level of your employees is another key consideration. Generally, the more experienced employees, the higher their pay levels. This reflects not only their accumulated knowledge and skills, but also their potential contribution to the company. In Vietnam, professionals with more than 5 years of relevant experience may earn 100% or more more than those who have just entered the industry.
The importance and complexity of the responsibilities are also important factors in determining salary levels. Employees who take on more responsibility, manage larger teams, or are responsible for key projects typically enjoy higher compensation. For example, a sales director responsible for the entire Southeast Asian market may earn 2-3 times that of an average sales manager.
In addition, employees’ educational background, special skills (such as language skills, professional certifications, etc.), and reputation in the industry will also affect salary levels. In Vietnam, candidates with a degree from an internationally renowned university or an MBA can usually command higher salaries.
On the basis of considering these factors, the company needs to formulate a salary structure optimization strategy, in which the ratio of fixed salary to variable salary is a key decision point. Fixed remuneration includes basic salary and fixed allowances to provide employees with stable income security. Variable pay includes performance bonuses, commissions and other parts linked to individual or company performance.
In Vietnam, fixed salary has traditionally accounted for a higher proportion of total salary, usually around 70-80%. However, in recent years, especially in some highly competitive industries such as technology and finance, the proportion of variable pay has been increasing. A typical salary structure might be 60% fixed salary and 40% variable salary. This structure can not only provide employees with basic income security, but also motivate them to pursue higher performance.
This ratio may vary for employees at different levels and functions. For example, senior managers may receive a higher proportion of variable pay, reaching 50-60% of total compensation, to better align their personal interests with company performance. For some entry-level or support positions, the proportion of fixed salary may be higher to provide a more stable income.
When designing variable pay, companies need to choose performance metrics carefully. These metrics should be measurable, aligned with company strategy, and something employees can directly influence. Common metrics include sales, profit margins, customer satisfaction, project completion, etc. Some companies have also introduced the concept of a balanced scorecard, which comprehensively considers indicators from multiple dimensions such as finance, customers, internal processes, and learning and growth.
In addition to the basic salary structure, comprehensive welfare package design is also the key to attracting and retaining talents. In Vietnam, a competitive welfare package usually includes the following aspects:
The first is statutory benefits such as social insurance, medical insurance and unemployment insurance. While these are the minimum standards required by law, many companies choose to provide employees with coverage that is higher than the legal standards. For example, some companies will purchase additional commercial medical insurance for their employees to provide more comprehensive medical coverage.
Followed by various allowances, such as meal allowances, transportation allowances, communication allowances, etc. These allowances can help employees reduce their daily living costs and increase their actual income. Some companies also offer flexible benefit plans that allow employees to choose benefits within a certain budget to meet their personal needs.
Work-life balance is also an increasingly important part of the benefits package. This may include flexible working hours, remote working options, paid annual leave (often more than the statutory minimum), sick leave, maternity/paternity leave, etc. Some progressive companies even offer “unlimited vacation” policies, allowing employees to take their own vacations as long as they complete their work tasks.
Career development and training opportunities are also an important part of the benefits package. This may include internal training courses, external training funding, opportunities to attend industry conferences, mentor programs, etc. Some companies also provide financial aid to improve academic qualifications, such as MBA tuition subsidies.
For foreign employees or senior managers, the welfare package may also include housing subsidies, children’s education subsidies, annual air tickets back home to visit relatives, etc. Some companies also offer employee stock options or profit-sharing plans that allow employees to share in the company’s growth gains. This not only improves employees’ income, but also enhances their sense of belonging and loyalty to the company.
When designing comprehensive benefits packages, companies need to take into account the different needs of employees of different ages and life stages. For example, younger employees may value career development opportunities and work-life balance more, while employees with families may be more concerned about health insurance and children’s education benefits.
In addition, companies also need to consider the cost-effectiveness of the benefits package. Benefits that may seem expensive, such as comprehensive health insurance or an employee assistance program, may provide a net benefit to the company in the long term by improving employee health and job satisfaction, reducing turnover, and increasing productivity.
Legal Compliance
When doing business and hiring employees in Vietnam, ensuring legal compliance is crucial, especially when it comes to payroll management and foreign employee employment. Vietnam’s labor law stipulates a series of specific requirements regarding remuneration, and there are also special regulations for the employment of foreign employees. Let’s take a closer look at these legal requirements and what businesses need to be aware of in practice.
Vietnam’s labor law has detailed regulations on salary management. These regulations are designed to protect the rights and interests of employees and ensure a fair and reasonable salary system. First of all, Vietnam implements a national minimum wage standard, which varies according to the cost of living in different regions. For example, in 2023, the monthly minimum wage in Category 1 areas (such as urban areas in Hanoi and Ho Chi Minh City) is VND 4.7 million (approximately US$200). Enterprises must ensure that employees’ basic wages are not lower than this standard. It’s worth noting that this standard is typically adjusted annually to account for inflation and changes in the cost of living.
In addition, Vietnamese labor law stipulates that employers must make salary adjustments at least once a year to reflect employees’ work performance and the company’s operating conditions. While the law does not specify a specific pay increase, the requirement is intended to ensure that employees’ compensation can grow over time. For overtime work, the law clearly stipulates the calculation standards for overtime pay: overtime on weekdays is 150% of normal wages, overtime on weekends is 200%, and overtime on statutory holidays is 300%. Employers must strictly comply with these regulations or risk fines or even legal action.
Vietnam’s labor law also stipulates a 13-wage system, which means employees are entitled to at least one month’s extra salary before the Tet holiday. Although this is not mandatory, it has become a common practice for many businesses in Vietnam. In addition to basic wages and overtime pay, the law also requires employers to contribute to social security, health insurance and unemployment insurance for their employees. The contribution rates for these insurances are fixed, with employers and employees paying different proportions.
For foreign employees, Vietnamese law has some special requirements and considerations. First, hiring a foreign employee requires a work permit, unless the employee falls into an exempt category under the law (e.g. owner of a company, board member, etc.). The application process for a work permit involves multiple government departments and usually takes 2-3 months. The company needs to prove that it cannot find suitable Vietnamese citizens for the position before it can apply for a work permit for foreign employees.
Labor contracts for foreign employees must be in writing and must strictly comply with the provisions of Vietnamese labor laws. The contract must clearly stipulate the work content, work location, wages, working hours, rest periods, occupational safety and health conditions, etc. It is particularly important to note that the contract period of foreign employees cannot exceed the validity period of the work permit, which is usually up to 24 months.
In terms of salary, although the law does not specifically provide minimum wages for foreign employees, in practice the salary of foreign employees is usually much higher than that of local employees. This not only reflects the special skills and experience they bring, but also takes into account the additional costs of working in a foreign country. Many companies provide additional benefits to foreign employees, such as housing allowances, children’s education allowances, air tickets to return home to visit relatives, etc. These additional benefits need to be clearly stated in the contract, with attention to their tax treatment.
It should be noted that Vietnam has strict foreign exchange controls. While foreign employees can receive wages in foreign currencies, this requires approval from the National Bank. In most cases, wages are paid in Vietnamese dong, and foreign employees can then convert part of their wages into foreign currency and remit it abroad through legal channels. In terms of taxation, foreign employees are generally considered tax residents in Vietnam (if they stay in Vietnam for more than 183 days) and are required to pay personal income tax in Vietnam on their worldwide income. Employers are responsible for withholding and paying personal income tax for foreign employees. If foreign employees come from countries that have signed tax treaties with Vietnam, they may enjoy certain tax benefits, but this requires a special application process.
Vietnamese law requires foreign employees to participate in the social insurance plan, which has been implemented since 2018. However, this requirement may be waived if the foreign employee is temporarily transferred to Vietnam from another country. This needs to be determined on a case-by-case basis and applicable international agreements. Employers need to pay special attention to the termination procedures for foreign employee contracts. If the employer terminates the contract unilaterally, it must give at least 30 days’ notice (for a fixed-term contract) or 45 days’ notice (for an unfixed-term contract) in advance. At the same time, the employer also needs to notify the relevant government departments in order to cancel the work permit.
Best practice in salary management
In Vietnam’s business environment, implementing effective compensation management strategies is crucial to attract, retain and motivate talent. Best practices in compensation management include conducting regular market research, establishing a mechanism to link performance with compensation, and formulating transparent compensation policies. These practices not only ensure that company pay levels are competitive but also promote fairness and employee satisfaction. Let’s dive into the specifics and considerations for implementing these best practices.
Conducting regular market salary research is key to ensuring that company salary levels remain competitive. In Vietnam, due to rapid economic development and changes in the talent market, salary levels may change significantly in a short period of time. Therefore, it is recommended that companies conduct a comprehensive salary survey at least once a year. For some highly competitive positions or industries, more frequent surveys may be required.
Market salary research methods mainly include participating in third-party salary surveys, communicating directly with companies in the same industry, and analyzing data from recruitment websites and headhunting companies. In Vietnam, some well-known human resources consulting companies such as Mercer and Willis Towers Watson regularly release salary survey reports. These reports usually cover salary data for different industries and different job levels. Participating in these surveys not only provides access to detailed market data but also the latest salary trends.
In addition to participating in formal salary surveys, companies can also exchange salary information with peers through industry associations, human resources forums and other channels. In Vietnam, some cities such as Ho Chi Minh City and Hanoi have active foreign chambers of commerce. These organizations often hold salary-related seminars and exchange activities to provide members with valuable market information.
When conducting market research, companies need to be aware that there may be significant salary differences between companies of different sizes and regions. For example, salary levels in Ho Chi Minh City are generally higher than elsewhere. Therefore, when analyzing data, these factors need to be taken into consideration to ensure that what is being compared is truly comparable data. In addition, for some emerging or highly specialized positions, there may be a lack of sufficient market data. In this case, it may be necessary to combine a variety of methods, such as analogies to similar positions, analysis of position value, etc., to determine appropriate salary levels.
Establishing an effective performance-remuneration linkage mechanism is an important means to motivate employees and improve organizational performance. In Vietnam, with the improvement of corporate management levels, more and more companies have begun to implement more complex and systematic performance management systems. A typical performance-remuneration linking mechanism usually includes the following steps:
The first step is to set clear performance goals. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART principles). In Vietnam’s corporate culture, there may sometimes be a tendency to set goals that are not clear enough or too conservative, so managers need to pay special attention to fully communicating with employees to ensure that goals are both challenging and feasible.
The second is to establish a scientific performance evaluation system. This may include regular performance reviews (such as quarterly reviews), 360-degree assessments, key performance indicator (KPI) tracking, etc. In Vietnam, due to cultural factors, direct negative feedback may cause discomfort, so when implementing performance evaluation, special attention needs to be paid to the method and language of evaluation, emphasizing constructiveness and development.
When determining salary adjustments, companies need to establish clear pay grades and adjustment ranges. For example, you can set the salary increase rate for outstanding performers to be 8-12%, for good performers to be 5-7%, and for average performers to be 2-4%, while for poor performers there may be no salary increase or even a salary reduction. The specific ratio needs to be determined based on the company’s compensation strategy and market conditions.
In addition to basic salary adjustments, performance bonuses are also an important part of linking performance and salary. Year-end bonuses (commonly known as Tet bonuses) are a common practice in Vietnam, and their amounts are often directly related to employee performance. Some companies also implement quarterly or semi-annual performance bonuses to motivate employees in a more timely manner.
When implementing a performance-remuneration linkage mechanism, attention needs to be paid to balancing short-term incentives and long-term development. Overemphasis on short-term performance can lead employees to neglect long-term value creation. Therefore, some companies have begun to introduce long-term incentive plans, such as stock options, profit sharing plans, etc., to closely link the interests of employees with the company’s long-term development.
Establishing a transparent compensation policy is key to improving employee satisfaction and trust. In Vietnam, salary information has traditionally been viewed as a highly sensitive topic, and discussing pay among employees may be viewed as inappropriate. However, as a new generation of employees increasingly demands transparency and fairness, more and more companies are adopting more open pay policies.
A transparent remuneration policy first means a clear remuneration structure. The company should clearly explain to employees the various components of the compensation package, such as basic salary, performance bonuses, various allowances and benefits, etc. At the same time, the calculation method and adjustment mechanism of each part should also be explained. For example, you can explain how base salary is determined based on job grade and market levels, and how performance bonuses are tied to individual and company performance.
Second, companies should make pay grades and promotion pathways public. Employees should have a clear understanding of the salary ranges for different positions, different levels, and what they need to meet to advance to the next level. This not only helps employees understand their own development space, but also motivates them to work hard for higher positions.
Companies should provide adequate explanations when implementing pay adjustments. For example, you can explain to employees the overall principles of this salary increase, the company’s performance, market salary trends, etc. For individual salary adjustments, managers should communicate one-on-one with employees to explain the reasons and extent of the adjustment.
While pursuing pay transparency, companies also need to balance personal privacy and information sensitivity. In Vietnam, directly disclosing each person’s specific salary may cause discomfort or conflict. A better approach is to disclose a salary range rather than a specific number so employees know roughly where they fall within the range.
In addition, companies should establish open communication channels to encourage employees to raise questions and suggestions on compensation issues. You can hold regular salary policy briefings, or set up a salary FAQ column on the internal website. HR departments should be prepared to answer employee compensation-related questions promptly and professionally.
A transparent compensation policy also includes fairness and consistency. Companies need to ensure that employees with similar positions and similar performance receive similar compensation. If there is a discrepancy, there should be a reasonable explanation. In Vietnam, compensation decisions can sometimes be based on relationships rather than performance, a practice that can seriously damage employee trust and motivation. Therefore, companies need to establish strict internal control mechanisms to ensure fairness and consistency in compensation decisions.
Case studies
Attracting and retaining high-quality foreign talent has become a key strategy for many multinational companies and local businesses in Vietnam . Different industries have different needs and compensation strategies for foreign employees. By analyzing cases from several typical industries, we can gain an in-depth understanding of the characteristics and trends of foreign employee compensation plans in the Vietnamese market, as well as some successful practices.
Manufacturing case
Take, for example, a Japanese electronics manufacturer that set up a factory in northern Vietnam. In order to ensure product quality and production efficiency, the company dispatched many senior engineers and managers from Japan to work in Vietnam. The company’s compensation package for these foreign employees includes basic salary, overseas allowances, housing subsidies and annual air tickets back home to visit relatives. The basic salary is usually 2-3 times that of Vietnamese employees of the same level, while overseas allowances are determined based on the cost of living and difficulty of the work place, and usually account for 20-30% of the total salary. The housing subsidy is sufficient to cover the cost of renting a high-quality local apartment, and the company also provides international school education subsidies for the children of foreign employees.
What makes this manufacturer successful is that its compensation package not only takes into account monetary compensation, but also comprehensively takes care of the living needs of foreign employees. For example, the company provides “soft landing” services for new foreign employees, including assisting with various procedures and providing language training. In addition, the company also regularly organizes cultural exchange activities to help foreign employees better integrate into the local community. This all-round support enables the company to successfully retain key foreign talents and ensure the smooth progress of technology transfer and local employee training.
Financial services industry cases
Take, for example, an international bank with a branch in Ho Chi Minh City. The bank mainly employs foreign employees in senior management positions and certain professional and technical positions. Their compensation packages usually include higher base salaries, performance bonuses, stock options and a range of international benefits. The basic salary is usually based on the salary level in the employee’s country of origin, and then adjusted according to the cost of living in Vietnam. Performance bonuses may be as high as 100% or more of base salary and are directly tied to personal and company performance.
The bank’s compensation package places a strong emphasis on long-term incentives, closely linking executives’ personal interests to the company’s long-term development through stock options. At the same time, the bank also provides global career development opportunities, promising that after the assignment period, employees can choose to return to their country of origin to work or seek new opportunities in other countries within the group. This global compensation and career development strategy enables the bank to attract truly international talents, providing strong support for its rapid expansion in the Vietnamese market.
Rapidly developing technology industry cases
We could see more flexible and innovative compensation packages. Take a multinational technology company in Hanoi as an example, which mainly employs foreign employees as senior developers and project managers. Their compensation package includes a competitive base salary, quarterly and annual performance bonuses, a stock award plan, and a host of unique benefits.
The technology company’s compensation package is characterized by a high degree of personalization and flexibility. For example, they have implemented a “flexible benefit plan” that allows employees to freely choose the benefits that best suit their needs within a certain budget, such as additional paid leave, gym membership, additional pension contributions, etc. The company also provides remote working options, allowing foreign employees to work remotely in their country of origin or elsewhere for a certain period of time each year, which greatly increases the flexibility and attractiveness of the job.
The company’s success lies in its ability to fully understand and meet the needs of a new generation of tech talent. The company successfully differentiates itself in the highly competitive technology talent market by offering highly competitive salaries, flexible work arrangements and rich career development opportunities. It is particularly worth mentioning that the company has also established a mentor system to equip foreign employees with experienced local mentors to help them adapt to the local working environment and culture more quickly, which has greatly improved the retention rate of foreign employees.
Education industry cases
We can see another unique compensation model. Take, for example, an international school in Vietnam that mainly employs teachers from English-speaking countries. Their compensation packages usually include benefits such as after-tax salary, free accommodation, international medical insurance, annual return air tickets, and free schooling for their children.
The school’s salary package is characterized by providing a “package” solution that covers almost all aspects of foreign teachers’ life in Vietnam. For example, the school not only provides accommodation but is also responsible for all utility bills and maintenance costs. At the same time, the school also provides teachers with continuous professional development opportunities, including participation in international education conferences, refresher courses, etc. This all-round support enables the school to attract and retain high-quality international education talents, ensures the quality of education, and improves the school’s competitiveness in the international school market.
By analyzing these cases in different industries, we can summarize several successful experiences:
A successful foreign employee compensation package not only focuses on monetary compensation, but also needs to comprehensively consider the employee’s life needs and career development. From housing, children’s education to cultural integration, all-round support can greatly improve the satisfaction and loyalty of foreign employees.
Flexibility and personalization are key to attracting high-quality foreign talent. More and more companies are beginning to provide flexible benefits, flexible work arrangements, etc. to meet the diverse needs of different employees.
Long-term incentive mechanisms, such as stock options, career development plans, etc., are crucial to retaining key talents. Linking personal interests to the company’s long-term development can effectively increase employee loyalty and work motivation.
Cultural integration and local support are also important components of a successful solution. Helping foreign employees better integrate into the local environment through cultural exchange activities, mentorship programs, etc. can not only improve work efficiency, but also increase employee happiness.
Continuous professional development opportunities are valued by many high-quality foreign talents. Whether it is participating in international conferences, further training courses, or rotating studies within the company, these opportunities can help employees continuously improve themselves and maintain professional competitiveness.
In general, in the Vietnamese market, a successful foreign employee compensation package needs to strike a balance in multiple aspects such as financial remuneration, life security, career development and cultural integration. As Vietnam’s economy continues to develop and become more internationalized, I believe we will see more innovative and effective compensation strategies emerge to meet the changing needs of the talent market.
