WAGE STRUCTURE 2025
Topic 23:
WAGE STRUCTURE IN LABOR CODE
Senior Lecturer, MSc. Đoàn Công Yên
SUMMARY OF THE CASE AND COURT DECISION
[Judgment No. 531/2022/LĐ-PT dated August 30, 2022, regarding a dispute over unilateral termination of a labor contract]
Summary of the Case:
On July 1, 2021, Ms. Dương Lệ Nhung and the director of P.S Co., Ltd. (abbreviated as P.S Company) entered into an indefinite-term labor contract. Ms. Nhung’s monthly income consisted of a basic salary (primary wage) of 4,730,000 VND and a living allowance of 3,270,000 VND. On October 5, 2021, when Ms. Nhung reported to P.S Company, she was not allowed to work and instead received a notice of termination of her labor contract.
Ms. Nhung argued that P.S Company had unlawfully terminated the labor contract and demanded severance pay equivalent to four months of her basic salary, as well as compensation for 45 days without prior notice based on her actual received income. The trial court only accepted compensation based on her basic salary (primary wage). On April 29, 2022, the defendant appealed part of the trial court’s judgment.
Court Decision:
The appellate court partially granted the plaintiff’s claim, ordering P.S Company to compensate Ms. Nhung based on her actual received wage of 8,000,000 VND.
COMMENTARY
I. Introduction
Currently, the term “wage” is subject to various interpretations. From an economic perspective and in the context of human resource management, some authors assert that “wages are the amount of money paid to employees in a fixed and regular manner based on a unit of time (week, month, year)” [Nguyễn Văn Điềm, Nguyễn Ngọc Quân (editors-in-chief) (2007), Human Resource Management Textbook, National Economics University Publishing House, Hanoi, p. 172].
Under Vietnamese law, “wages are the amount of money that an employer pays an employee to perform work as agreed.” The wage structure comprises the salary based on the job or title, wage allowances, and other supplementary payments. However, as illustrated by certain situations outlined below, determining whether the amounts received by employees from employers constitute wages remains a challenging issue.
II. Legal Issues
- Components of Wages
In most countries, the definition of terms such as “wages,” “salary,” or “remuneration” tends to have a broad scope. For example, in Azerbaijan, Malta, and the Russian Federation, “wages refer to any remuneration or income, including basic salary, wage supplements, bonuses, insurance fees, and other payments.” In Côte d’Ivoire, Gabon, and Niger, wages are understood as the basic or minimum salary, encompassing all additional benefits, whether paid directly or indirectly, in cash or in kind.
Under Vietnamese law, “wages are the amount of money that an employer pays an employee to perform work as agreed.” The wage structure includes the salary based on the job or title, wage allowances, and other supplementary payments.
(i) Salary Based on Job or Title
The salary based on the job or title is typically understood as the salary within the wage scale or table established by the employer in accordance with the Labor Code and agreed upon with the employee in the labor contract. In practice, the salary based on the job or title is often interpreted as the basic salary or primary remuneration. “Basic remuneration is the fixed portion of remuneration that an employee receives periodically in the form of wages (weekly or monthly) or hourly pay. Basic remuneration is paid based on the specific type of work, the level of job performance, and the employee’s qualifications and seniority” [Nt., p. 170].
The salary for the simplest job under normal working conditions and standard working hours (excluding additional payments for overtime or night work) must not be lower than the regional minimum wage prescribed by the Government. This amount reflects the principle of the wage system, which is “payment according to the job performed or the title held.” Consequently, jobs requiring higher qualifications and responsibilities must be compensated at a higher rate than those requiring lower qualifications and responsibilities.
In the case between P.S Company and Ms. Nhung, pursuant to Labor Contract No. 80110.03/HĐLĐ-PSG dated April 1, 2021, and its appendix No. 80110.03/PLHĐLĐ-PSG dated April 1, 2021, the parties agreed on a basic salary of 4,730,000 VND per month. This basic salary complies with the law, as the regional minimum wage, effective from January 1, 2021, continues to be governed by Decree No. 90/2019/NĐ-CP. P.S Company, located in Ward S, District T, Ho Chi Minh City, is required to pay at least 4,420,000 VND per month.
However, many employees are paid a salary based on their job or title that falls below the regional minimum wage. In the case between the family of Mr. Ngọc and Ms. Lê Thị and Ms. Kim [Judgment No. 06/2016/LĐ-PT dated August 19, 2016, of the People’s Court of Cần Thơ City regarding a wage dispute], the employer admitted to paying Ms. Kim a wage of 2,000,000 VND for the first month. This was the agreed-upon wage between the plaintiff and the defendant.
At the time of payment, the law stipulated a minimum wage in the districts of Cần Thơ City of 2,100,000 VND per month in 2013 and 2,750,000 VND per month in 2014. The trial court reasoned that “although the agreed wage was lower than the regional minimum wage prescribed by the Government, both parties consented to it, so no adjustment is necessary.”
In cases where administrative sanctions are applied, the State will impose fines on employers who pay employees less than the Government-prescribed minimum wage. Additionally, the employer will be required to pay the full wage plus interest on the delayed or underpaid amount, calculated at the highest non-term deposit interest rate of commercial banks as announced by the State Bank at the time of the violation.
(ii) Wage Allowances
Wage allowances are amounts paid in addition to the basic salary to employees performing jobs with unstable factors or conditions exceeding normal circumstances, which have not been accounted for in the basic salary. These allowances aim to provide additional compensation to employees, encourage job stability, and ensure social fairness. Wage allowances are generally divided into two basic types: a) allowances to compensate for factors such as working conditions, the complexity of the job, living conditions, or labor attraction levels that were not fully considered or included in the agreed salary in the labor contract; b) allowances tied to the employee’s work process and performance results.
Based on these provisions, employers will specify and agree upon the types of wage allowances with employees. “Allowance regimes … with employees are agreed upon in the labor contract, collective labor agreement, or stipulated in the employer’s regulations” to suit the conditions of each employing entity. Some common types of wage allowances applied in enterprises include position allowances, regional allowances, hazardous work allowances, responsibility allowances, attraction allowances, foreign language allowances, and competency allowances
[See Judgment No. 343/2011/LĐ-PT of the People’s Court of Ho Chi Minh City, which held: “The salary under the labor contract was 65.95 USD/month from January 2008, making Mr. Thi’s salary 76.95 USD/month. However, since the company unlawfully dismissed Mr. Thi, pursuant to Article 15 of Decree No. 114/NĐ-CP dated December 31, 2002, of the Government,
the salary used to calculate compensation is based on the salary of the six consecutive months prior to dismissal, including allowances, if any. Mr. Thi’s salary for the six consecutive months before dismissal was 67.6 USD/month, comprising a basic salary of 66.95 USD/month and a competency allowance of 0.65 USD/month”]. This approach aligns with labor regulations in a market economy.
In practice, it is evident that in many cases, employers only vaguely agree on “allowances” with employees without specifying the type of allowance. Consequently, when disputes arise, it becomes challenging for both employees and adjudicating bodies to determine whether these are indeed wage allowances. In Judgment No. 1072/2011/LĐ-PT dated August 30, 2011, the court held that “according to the labor contract established between Mr. Vũ and Gulliver Co., Ltd., the salary was 2,502,200 VND/month, with no allowances. The allowances reflected in the payslip were related to the nature of the job but were not clearly specified and did not constitute legally mandated allowances, thus providing no basis for consideration.”
In the case between Ms. Nhung and P.S Company, the trial court held that “the defendant had compensated the plaintiff for 45 days based on the basic salary (primary wage) of 7,095,000 VND, which was correct, and thus did not accept the request for additional compensation for the living allowance.” This view was rejected by the appellate court, which stated that “the trial court’s determination was inaccurate and lacked thorough review when it resolved the compensation claim for the violation of the notice period by denying the request for additional living allowance compensation.”
The appellate court relied on Article 90 of the 2019 Labor Code regarding wages, which states: “Wages are the amount of money that an employer pays an employee to perform work as agreed, including the salary based on the job or title, wage allowances, and other supplementary payments.”
In reviewing the case, the appellate court held that it was necessary to apply Clause 1 of Article 90 of the 2019 Labor Code correctly. Based on the plaintiff’s actual received wage of 8,000,000 VND, the court ordered P.S Company to pay Ms. Nhung 16,000,000 VND. Thus, it can be observed that the appellate court’s stance recognized the “living allowance of 3,270,000 VND” per month as a wage allowance and part of other supplementary payments.
(iii) Other Supplementary Payments
Other supplementary payments are generally understood as “amounts added beyond the salary and wage allowances, related to the performance of the job or title in the labor contract, excluding bonuses, meal allowances, and support or benefits provided by the employer that are unrelated to the job or title in the labor contract.” Broadly speaking, supplementary payments typically fall into two categories: i) payments with a specific amount determined alongside the agreed salary in the labor contract and paid regularly in each pay period; ii) payments without a specific amount determined alongside the agreed salary in the labor contract, paid either regularly or irregularly in each pay period, tied to the employee’s work process and performance results.
However, in practice, it is often difficult to distinguish which amounts constitute “other supplementary payments” as opposed to other welfare support payments, as these two types of payments share many similarities.
In the case between V Company and Ms. Hồng [Judgment No. 02/2018/LĐ-PT dated April 11, 2018, regarding a dispute over unilateral termination of a labor contract], under Labor Contract No. 18, Ms. Hồng was paid the following amounts monthly by the company: basic salary: 5,000,000 VND; transportation allowance: 380,000 VND; housing allowance: 400,000 VND; lunch allowance: 20,000 VND/day; other allowances: 5,700,000 VND (vehicle: 1,000,000 VND; telephone: 1,000,000 VND; other welfare benefits: 3,700,000 VND).
The trial court held that all amounts beyond the basic salary constituted other supplementary payments, determining Ms. Hồng’s wage to be 12,000,000 VND. In contrast, the appellate court found that only the “other allowances” amount (5,700,000 VND) qualified as other supplementary payments. Consequently, Ms. Hồng’s wage was determined to be 10,700,000 VND, not 12,000,000 VND.
Under current legal provisions, the determinations by both the trial and appellate courts were not entirely appropriate. The “other allowances” of 5,700,000 VND, specifically itemized as vehicle (1,000,000 VND), telephone (1,000,000 VND), and other welfare benefits (3,700,000 VND), should be regarded as amounts outside the wage.
- Non-Salary Payments
The law provides: “As for other regimes and benefits, such as bonuses regulated under Article 104 of the Labor Code, initiative bonuses; mid-shift meal allowances; allowances for fuel, telecommunication, transportation, housing, childcare, and care for young children; support when employees have relatives who passed away, employees whose relatives get married, employees’ birthdays, support for employees facing difficulties due to occupational accidents, occupational diseases, and other support and allowances, these should be separately recorded in the labor contract” [Clause 5, Article 3 of Circular No. 10/2020/TT-BLĐTBXH.].
Under tax law, “other support and allowances” typically include: “expenses for funerals and weddings of the employees and their families; expenses for vacations; support for medical treatment; expenses for additional study support at educational institutions; support for employees’ families affected by natural disasters, enemy-inflicted damage, accidents, or illnesses; rewards for employees’ children with outstanding academic achievements; travel expenses for holidays and Tet for employees; accident insurance, health insurance, other voluntary insurance for employees (excluding life insurance purchases and voluntary pension insurance for employees)”
[Point 2.30, Clause 2, Article 4 of Circular No. 96/2015/TT-BTC, amending and supplementing Article 6 of Circular No. 78/2014/TT-BTC (as amended and supplemented in Clause 2, Article 6 of Circular No. 119/2014/TT-BTC and Article 1 of Circular No. 151/2014/TT-BTC).].
Based on the wording in labor regulatory documents, the State does not explicitly (expressly) state whether other welfare payments are considered a component of wages. In the view of the writer, as well as the opinions of many experts, bonuses and other welfare payments are not wages.
Theoretically, the fundamental similarity between supplementary payments and salary allowances lies in their secondary nature compared to wages for jobs or titles, and these two types of payments are closely related to job wages. These are the benefits employees receive based on job wages and titles. Some opinions suggest that without wages based on job or title, there would be no allowances and other supplementary payments.
According to Judgment No. 11/2006/LD-PT dated April 4, 2006, of the People’s Court of Ho Chi Minh City: “Regarding the demand for 20% sales-based wages from November, December 2002, which amounts to 400,000 VND, based on the verification report of the Supervisory Board of Tân Bình Commerce and Service Cooperative Union dated May 4, 2003, the deduction of 20% wages for three consecutive months of Ms. Đào in November, December 2002, and January 2003 was due to all store departments failing to meet the planned targets, resulting in wage reduction proportional to revenue, while the coefficient-based wage remained unchanged.
Simultaneously, as for demands for other allowances based on wages and bonuses, as analyzed above, Ms. Đào was not paid wages, so these demands were not considered. The first-instance Trial Panel did not accept this request from Ms. Đào, which is correct and should be upheld.”
In the dispute between V Company and Ms. Hồng, under Labor Contract No. 18, V Company paid Ms. Hồng the following amounts each month: basic salary: 5,000,000 VND; transportation allowance: 380,000 VND; housing allowance: 400,000 VND; lunch allowance: 20,000 VND/day; other allowances: 5,700,000 VND (vehicle allowance: 1,000,000 VND; telecommunication allowance: 1,000,000 VND; other welfare payments: 3,700,000 VND).
The appellate court determined that the transportation allowance of 380,000 VND, housing allowance of 400,000 VND, and lunch allowance of 20,000 VND/day are not wages. Thus, it can be understood that these three amounts are considered other forms of support, separate from wages. Referring to Circular No. 10/2020/TT-BLĐTBXH and Decision No. 595/QD-BHXH of 2017, the adjudicating body should also classify the vehicle allowance of 1,000,000 VND, telecommunication allowance of 1,000,000 VND, and other welfare payments of 3,700,000 VND as non-salary payments.
III. Conclusion
The provisions on the structure of wages under Article 90 of the 2019 Labor Code represent a significant development. This provision has helped address various issues related to wages, such as wages used as a basis for calculating severance pay and redundancy pay, or social insurance contributions. However, in practice, the use of different terminology for one or multiple payments of the same nature (e.g., transportation allowance vs. transportation supplement; business salary vs. business bonus) has led to inconsistent resolutions for similar disputes. This highlights the need for further legal research to answer numerous questions related to wage structure.
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