SALARY DEDUCTIONS 2025
Topic 25:
SALARY DEDUCTIONS IN LABOR CODE
Senior Lecturer, MSc. Đoàn Công Yên
SUMMARY OF THE CASE AND THE COURT’S DECISION
[Judgment No. 17/2017/LD-PT dated August 28, 2017, by the Đồng Nai Provincial People’s Court concerning a wage dispute, request for social insurance book return, termination decision, and compensation for damages.]
Case Summary:
Mr. Liên Thanh and S Joint Stock Company (abbreviated as S Company) signed a labor contract with a basic salary of 8,000,000 VND, job-based salary of 24,727,500 VND, and responsibility allowance of 12,000,000 VND. His net monthly income, after deductions (personal income tax, social insurance, and unemployment insurance contributions), was 40,000,000 VND. On March 14, 2016, Mr. Thanh submitted his resignation, with his official last working day being April 13, 2016.
On May 18, 2016, S Company issued Notice No. 10/2016/TB regarding violations and damages, stating that an investigation into Mr. Thanh’s work was underway and results would be available by June 2, 2016. However, after this date, Mr. Thanh did not receive any response from S Company.
A representative of S Company claimed the company retained 60,000,000 VND of Mr. Thanh’s wages (equivalent to one month and 13 days of work). Upon further review, S Company alleged that Mr. Thanh had violated company regulations, causing damages amounting to 27,402,000 VND, and proposed deducting this from the retained salary. The remaining 32,598,000 VND would be returned to Mr. Thanh.
In his lawsuit, Mr. Thanh demanded payment of his March 2016 wages, wages for 13 working days in April 2016, totaling 60,000,000 VND (as acknowledged by the company), and late payment interest calculated from April 13, 2016, until the trial date as per legal regulations.
The Court’s Decision:
Applying Article 305 of the 2005 Civil Code; Clauses 3 of Articles 36, 47, 123, 124, 130, and 131 of the 2012 Labor Code, the court ordered S Company to pay Mr. Thanh 60,000,000 VND in wages and 5,520,000 VND as late payment interest.
COMMENTARY
I. Introduction
In the labor law system, salary deductions serve primarily to enable employees to fulfill their obligation to compensate employers for material damages. Salary deductions are carried out by the party with authority—the employer. Consequently, there have been instances where employers misuse this authority and fail to comply with legal regulations, causing harm to employees. To address this, the State has established conditions that employers must meet before deducting employees’ salaries.
Through Judgment No. 17/2017/LD-PT and based on current labor laws, we will analyze two fundamental issues:
(i) The grounds for salary deductions; and
(ii) The procedures and steps for salary deductions to compensate for material damages.
II. Legal Issues
- Grounds for Salary Deductions
Broadly, salary deductions refer to the employer reducing a portion of the employee’s wages in accordance with legal regulations to fulfill obligations regarding assets to the employer or to third parties. Third parties typically include organizations or state agencies such as social insurance bodies or tax authorities. In labor relations, the narrower definition of salary deductions involves employers withholding part of the employee’s wages to compensate for material damages resulting from the loss or damage of tools, equipment, or property of the employer as regulated by labor law.
Under Article 102 of the 2019 Labor Code, “An employer may only deduct an employee’s salary to compensate for damages caused to tools, equipment, or assets of the employer as stipulated in Article 129 of this Code.” Therefore, the employer must have the following grounds to deduct wages:
(i) The employee has committed a violation.
Under Vietnamese labor law, the prerequisite condition for applying salary deduction measures is an act of violation by the employee. Violations mentioned in Article 102 include “damaging tools, equipment, or assets of the employer.” However, when compared with Article 129 of the 2019 Labor Code, it is evident that additional violations listed there are not mentioned in Article 102, such as loss of tools, equipment, or assets of the employer or other entrusted assets, excessive consumption of materials beyond permitted limits, or other actions causing damage to the employer’s assets.
Under the 1955 Employment Act of Malaysia, the following salary deductions are deemed legal: deductions for any overpayment of wages due to employer errors made in the three consecutive months preceding the month in which deductions are implemented; deductions for damages owed to the employer under Section 13(1) of the Act (compensation for termination without notice by the employee); deductions for recovering advance wages under Section 22; and deductions permitted by other applicable laws [See Section 24 Employment Act 1955 Malaysia].
Similarly, under UK labor law, employers may deduct wages in various situations beyond employee violations causing harm to the employer. Specifically, employers are permitted to deduct wages when: required or authorized by law, such as for National Insurance, income tax, or student loan repayments; employees provide written consent; deductions are agreed upon in the contract; payments are required by public authority decisions; employees do not work due to participation in strikes or industrial actions; or overpayments of wages or expenses have been made [Further information is available at: https://www.gov.uk/understanding-your-pay/deductions-from-your-pay].
In comparison with labor laws in the UK and Malaysia, Vietnamese labor regulations on salary deductions appear less comprehensive in covering various scenarios.
In the case between Mr. Thanh and S Company, the company’s representative claimed that Mr. Thanh committed the following violations: (i) arbitrarily splitting invoices for the construction of a chicken coop with a total value of 22,817,000 VND, and (ii) purchasing items at higher prices than surveyed prices, such as employee nameplates, room number signs in mica, aluminum markings, and round keychains. As a result, S Company applied the salary deduction measure against Mr. Thanh. Comparing Mr. Thanh’s violations with the acts listed under Articles 102 and 129 of the 2019 Labor Code, S Company’s application of salary deduction laws was deemed appropriate.
Similarly, in another dispute between NK Company and Ms. Nhàn [Judgment No. 19/2017/LD-PT dated November 9, 2017, by the Binh Duong Provincial People’s Court regarding a wage dispute], Ms. Nhàn began working at NK Company in January 2013 as an assistant and internal controller. Clause 3.2.3 of the labor contract signed between the two parties stipulated: “Compensation for losses of money or property related to assigned job responsibilities will be in accordance with company regulations, in compliance with labor law.”
On the morning of May 27, 2016, NK Company’s chief accountant discovered a theft of 712,768,000 VND from the safe after taking over the treasury office. NK Company reported the incident to the police, which was investigated and resulted in Decision No. 71 dated August 22, 2016, to prosecute a theft case.
On September 27, 2016, NK Company issued Decision No. 69.2016/NK/TGĐĐH/QĐ, requiring 100% compensation for damages by staff, citing “gross negligence resulting in significant consequences” even though the investigation had not concluded. The list of staff required to compensate included 19 individuals, ranging from management to employees, with Ms. Nhàn’s share set at 22,808,576 VND. Although the trial panel did not specify Ms. Nhàn’s exact violation, it still upheld NK Company’s application of salary deductions.
(ii) Employee Violations Resulting in Damage to Employer Tools or Equipment
In Mr. Thanh’s case, his act of arbitrarily splitting invoices for the chicken coop construction with a total value of 22,817,000 VND caused financial damage compared to completing the process without splitting. According to the company’s expenditure approval process, Mr. Thanh was required to submit the 22,817,000 VND expenditure to Ms. Thảo, the company’s general director, for approval. However, he split the total into smaller invoices to fall under the approval threshold of 10,000,000 VND, such as purchasing materials for 12,402,000 VND on January 6, 2016, buying palm leaves, bamboo, and pipes for 4,415,000 VND on December 25, 2015, and paying 6,000,000 VND for labor costs on January 5, 2016.
If the process had been followed correctly, Ms. Thảo would have conducted a price survey before approval, which would have resulted in a lower cost for the chicken coop than 22,817,000 VND. However, S Company did not provide specific details on how much lower the cost would have been.
Similarly, S Company also argued that Mr. Thanh caused financial damage by arbitrarily purchasing items at higher prices than the surveyed rates for products such as employee nameplates, mica room number signs, aluminum markings, and round keychains. The surveyed prices for aluminum markings and round keychains were provided by N Trading and Service Co., Ltd., while employee nameplates and mica room number signs were sourced from Phú Quý Engraving Store. These surveyed prices were lower than what Mr. Thanh unilaterally paid. Thus, S Company had sufficient grounds to apply the salary deduction measure against Mr. Thanh.
The sole purpose of salary deductions under Vietnamese labor law is to “compensate for material damage caused to the employer’s tools, equipment, or assets.” Therefore, the mandatory basis for applying salary deduction measures is the existence of material damage. In contrast, Malaysian labor law allows employers to deduct wages not only for damages caused by employees but also in various other scenarios where no damage occurs, such as union dues, share purchases, contributions to scholarship programs, or savings funds [See Section 24(3), (4) Employment Act 1955 Malaysia]. Based on these grounds, Vietnamese lawmakers have closely tied salary deduction provisions to material compensation obligations.
- Procedures and Steps for Salary Deductions
The 2019 Labor Code does not provide specific rules on the procedures, steps, or principles employers must follow when applying salary deduction measures. Under Article 102, “An employer may only deduct an employee’s salary to compensate for damages caused to tools, equipment, or assets of the employer as stipulated in Article 129 of this Code.” To apply Article 129, employers must also comply with the provisions in Article 130 of the 2019 Labor Code. Therefore, some opinions suggest that before deducting wages, employers must follow the proper procedures outlined in these articles. These procedures include [Article 71, Decree 145/2020/ND-CP]:
– Requiring the employee to provide a written report on the incident.
– Conducting a meeting to handle material compensation as per regulations.
– Recording the meeting proceedings, having them approved before the meeting concludes, and obtaining signatures from participants as required.
– Issuing a compensation decision within the time frame specified for handling material compensation.
In this case, the trial panel determined: If S Company believed Mr. Thanh caused damages to the company, they were required to handle material compensation according to the principles and procedures stipulated by labor law. However, while S Company invited Mr. Thanh on July 4 and July 14, 2016, these meetings were merely negotiation attempts rather than formal material compensation proceedings.
Thus, S Company failed to carry out the proper procedures for handling material compensation against Mr. Thanh, did not sufficiently prove that the damages were caused by him, and could not establish whether the claimed amount of 27,402,000 VND was proportionate to the actual damages. Consequently, there were no legal grounds to accept S Company’s request to deduct this amount from Mr. Thanh’s unpaid wages.
Similarly, in the dispute between NK Company and Ms. Nhàn, the trial panel observed that while NK Company did not apply labor discipline measures or handle material compensation liability procedures for Ms. Nhàn, the grounds for deducting Ms. Nhàn’s wages, as well as the actual deductions, effectively constituted a form of handling material compensation liability applied by NK Company. Thus, when determining Ms. Nhàn’s liability for compensation, the company was required to adhere to prescribed principles, procedures, and steps.
Regarding procedural compliance, NK Company did not follow the necessary steps for handling material compensation liability. Instead, the company only prepared investigation records and met with Ms. Nhàn before imposing compensation through wage deductions, which did not comply with proper procedures. Consequently, Ms. Nhàn’s lawsuit requesting resolution of the labor dispute was well-founded.
We believe this stance by the People’s Court aligns with efforts to protect the rights of employees—the vulnerable party in labor relations. Malaysian labor law provides detailed procedures that employers must comply with before deducting employees’ wages, even in cases where the employee is not at fault, such as contributions to savings funds, employee welfare programs, union dues, or advance wages [See Section 24(3), (4) Employment Act 1955 Malaysia]. Similarly, Singaporean law stipulates that employees’ wages may be deducted if they damage or lose goods or money for which they are responsible. Before deducting wages, employers must:
(i) Conduct an investigation to determine whether the employee is directly at fault, and
(ii) Ensure no deductions occur until the employee has had an opportunity to explain the cause of the damage or loss [See Section 29(1), Employment Act Singapore: https://sso.agc.gov.sg/act/ema1968?ProvIds=P13-#pr29- ].
III. Conclusion
Salary deductions are a frequently applied measure in labor relations, particularly for employers in enterprises. In practice, shortcomings have arisen regarding salary deductions, such as differing views on applicable cases and procedural compliance. The writer believes lawmakers should more comprehensively address salary deduction scenarios in labor relations, such as advance wages, suspension from work, union dues, and insurance contributions. Additionally, depending on the specific deduction case, the State should establish clear procedures and steps for employers to better protect employees’ rights and interests.
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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”
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