Payroll refers to the process of paying money for employees for a set period or on a given date. A company’s accounting or human resources department is usually in charge of payroll management. In this article, we’ll discuss more what is payroll, the benefits of payroll for employers and employees, and how to calculate payroll taxes. Let’s find out.
What Is Payroll?
Payroll is the total compensation a business has to pay its employees. However, payroll is more than just a paycheck. It also involves other activities such as tracking hours worked, calculating employee income (withheld taxes, bonuses, overtime, sick time, and vacation pay), and distributing payments via direct deposit to the employee’s bank account or by check. A company must calculate how much it needs to pay the government, such as social security, health care, unemployment tax, etc.
The accounting or payments department calculates wages, taxes, and benefits. Some businesses use software to streamline their payroll process. Some companies outsource their payroll processes to accountants, bookkeepers, or other third parties that provide HR and payroll services.
5 Advantages Of Using Payroll
An automated payroll system benefits employees and employers. Instead of doing it manually, using software helps businesses finish tasks in no time. Below are five benefits of using payroll. Let’s check out.
Easy calculations
Paying employees on time and accurately is always extremely important. A single-day delay or 99% accuracy may harm the relationship between employers and employees. A payroll system allows you to track and calculate payroll clearly and accurately. At the same time, it helps to reduce the possibility of tax errors, assisting businesses in avoiding fees from tax authorities.
Saving time
One of the benefits of using automated payroll software is to help you increase productivity and work efficiency, thereby saving time and money. The company does not need too many people involved in manual salary calculation and management. Instead, they can hire more employees and let them focus on other core business functions.
Safe backup
Manual data storage can be time-consuming and difficult. Backing up data online will be a much more convenient way for businesses. A payroll system that allows you to recover and restore data easily. Besides, replication is a useful functionality as it creates and saves real-time copies of your data. As a result, your data is safe.
Cost-effective
As a business owner, you always want to find ways to keep costs low. Using effective payroll software allows you to save a lot of money and will enable you to invest your money in core business functions and outside of your business.
When your business grows and needs to hire more employees, the one-time application fee will help lower the cost.
Easy forecasting
Payroll software gives you control over your payroll. From there, you’ll have an overview of your business’s finances to help you create predictions. It will be easier for you to decide when more resources are needed. If you want to control your human resource costs more effectively, you can also adjust the employee payroll based on the software.
7 Steps To Run Payroll
Regardless of whether you intend to calculate regular or leverage payroll software, the setup is essentially the same. Here are seven basic steps for you to run a payroll
Step 1: Define payroll policies and procedures
- Payroll schedule: Determine your pay frequency (e.g., biweekly, monthly)
- Payment method
- Employee Insurance Deductions: social security insurance, health insurance, unemployment insurance
- Benefits: supplementary life, vacation time, annual trips.
- Bonuses and Leave: maternity and paternity leave, sick leave, and annual leave
- Allowances include fuel, clothing, lunch, etc.
Step 2: Collect necessary employee information
Most businesses will calculate the salary based on timekeeping data. However, in Vietnam, for some fields with specific positions such as sales staff, production staff, etc., salary also depends on business results (KPIs, OKRs).
Step 3: Calculate gross pay according to hours and benefits
For an effective run, it’s vital to have a streamlined time and attendance process to ensure employee hours are captured and recorded accurately. You might consider choosing one of the following options time cards, timesheets, and mobile apps.
There are two ways to calculate the salary:
Step 4: Calculate deductions
Depending on the employee information, taxes can vary. Below is some information you should pay attention to.
Employee Insurance Deductions:
- Social security insurance (17.5% from employers; 8% from employees),
- Health insurance (3% from employers; 1.5% from employees)
- Unemployment insurance for Vietnamese (1% from employers; 1% from employees)
- Unemployment insurance for expatriates: 0%
- Personal Income Tax Rates in Vietnam:
| Monthly Taxable Income | Yearly Taxable Income | Income Tax |
| 0 – 5,000,000VND | 0 – 60,000,000VND | 5% |
| 5,000,000 – 10,000,000VND | 60,000,000 – 120,000,000VND | 10% |
| 10,000,000 – 18,000,000VND | 120,000,000-216,000,000VND | 15% |
| 18,000,000 – 32,000,000VND | 216,000,000 – 384,000VND | 20% |
| 32,000,000 – 52,000,000VND | 384,000,000 – 624,000,000VND | 25% |
| 52,000,000 – 80,000,000VND | 624,000,000 – 960,000,000VND | 30% |
| 80,000,001VND + | 960,000,001VND+ | 35% |
Step 5: Calculate net pay
After calculating gross pay, withholding payroll taxes, and determining deductions, you can calculate the employee’s salary.
Simply subtract taxes and deductions from the employee’s gross pay to find net pay. Use the following formula, if necessary:
Before approving payroll, double-check everything to ensure you entered everything correctly.
Step 6: Decide how to pay employees (e.g., direct deposit, checks, or other options)
There are multiple options for you and your employees to choose from, including:
- Direct deposit
- Cash
- Pay cards
- Checks
- Mobile wallet
The company will decide on the payment. If an employee requires a specific option due to some reason, the company can consider their options. It depends on the negotiation of the two parties.
Step 7: Keep records
As you process payroll, it’s important to keep records of your transactions. If tax authorities need some kind of documentation, you need to have records ready. Besides, you can resolve any issues that arise in the event of an employee dispute payment.
How To Calculate Payroll Taxes?
How you calculate taxes will depend on your business and government laws. Here is a guide to calculating payroll tax in Vietnam.
- Calculate the total employee salary
Most businesses will pay employees monthly (sometimes weekly, bi-weekly, or based on an agreement with both parties.) To calculate total hourly employee payment wages, check out the formula:
- Calculate the taxable income
To calculate the taxable income, check out the formula:
Tax-exempt income:
- Callback pay: Wages paid for night shift or overtime work in accordance with the law
Deductions:
- Family circumstance-based deduction: The deduction for taxpayers is 11 million VND/month (132 million VND/year); the deduction for each dependent is 4.4 million VND/month
- Voluntary deductions: Deducting voluntary payments, including insurance contributions, charity, study promotion, humanitarian fund contributions, and retirement,…
- Calculate personal income tax to be paid
To calculate personal income tax to be paid, check out the formula:
The personal income tax rate to be paid will be calculated according to the progressive method. Check out the table below to see how much personal income tax someone must pay.
How to Handle Payroll For Foreigners in Vietnam?
If you are foreigners who want to start a business in Vietnam, below are some ways to help you deal with Vietnam payroll calculation and compliance.
Internal payroll
This option is suitable for the company in Vietnam, which has an internal department that deals with the payroll process for the organization. It’s usually mid-size and large companies. Internal payroll requires hiring more full-time employees. As a result, payroll administration costs will increase.
Remote payroll
Foreign employers may consider outsourcing their payroll to a third party in Vietnam when they need more resources and technology to run accurately to avoid penalties for filing incorrect taxes or late payments.
Foreign employers can work with a service provider like an ERA staffing solution agency. We have years of experience providing HR and payroll services.
Frequently Asked Questions
What are the different types of payroll?
Businesses can use several types of payroll to pay their employees. Here are some common types:
- Regular payroll: Employees receive a regular salary or hourly wage, and taxes with deductions are taken from their paychecks.
- Bonus payroll: Some businesses offer bonuses to employees as a form of incentive or reward.
- Commission payroll: This type is used to pay employees who work on commission to receive a percentage of sales they generate.
- Overtime payroll: This is used for employees who work more than the standard number of hours in a workweek and may be eligible for overtime pay.
- Contractor payroll: This is used to pay for contractors who work on a project basis.
- Off-cycle payroll: This one processes one-time payments such as bonuses or severance pay.
- Manual payroll: If a company calculates payroll and deductions by hand and writes a check to the employee, it’s manual payroll.
What Is the Difference Between Payroll and Salary?
- Salary refers to the fixed amount of money an employee earns over a certain period, usually a year, regardless of the hours worked. A salary is generally expressed as an annual figure, such as $50,000. It is a pre-agreed amount paid to an employee regularly, such as weekly, bi-weekly, or monthly.
- Payroll, conversely, refers to calculating and distributing compensation to employees. Payroll includes all forms of employee payment, such as salaries, wages, bonuses, and overtime pay. The process also involves deducting various taxes and contributions, such as income tax, social security, and Medicare, from employees’ earnings.
What Is a Payroll Tax Cut?
A payroll tax cut is a tax reduction withheld from an employee’s paycheck. Payroll taxes are taxes employees and employers pay to fund social programs such as Social Security and Medicare.
Now you know “what is payroll?” and how to calculate the tax. If you are a foreigner looking for an outsourcing payroll provider, ERA Staffing solution is your best choice. Visit https://eraworkforcesolutions.com/ for more information.
Ms. Tracy has worked in human resource consulting for over 15 years. A driven entrepreneur focused on business expansion and people development. She previously worked as Country Manager for an international Australia firm that specializes in global workforce management, as well as several key roles as Business Growth Director and Executive Search Director for both large local firms to effectively drive their business growth. A strong emphasis is placed on aligning organizational priorities/objectives with business needs. She has a large network of local business leaders and a thorough understanding of the local market.
