The most popular forms of salary today

Salary payment methods play an important role in motivating employees and ensuring benefits for employees. Each salary payment method has its own advantages and disadvantages, suitable for different types of businesses and industries. In this article, let's learn about the popular salary payment methods today with 1C Vietnam!

1. Forms of salary according to law

Vietnamese law stipulates many different forms of salary payment so that businesses can flexibly apply them to suit their industry and business model.

1.1. Time-based pay

Time-based salary payment is the most popular form of salary payment in Vietnam, especially in businesses with stable and standardized working processes.

Calculation:

• Hourly wage: Wage rate = Number of working hours × Unit wage/hour
• Daily wage: Wage = Number of working days × Unit wage/day
• Monthly salary: Fixed salary as agreed in the labor contract

Advantage:

• Easy to manage and calculate
• Ensure stable income for workers
• Suitable for regular, continuous work
• Minimize wage disputes

Disadvantages:

• High productivity is not encouraged.
• Can cause psychological dependence, work to cope
• Difficult to differentiate work performance between employees

Example:

• Office staff: Fixed salary 10 million VND/month
• Teacher: 200,000 VND/teaching hour
• Construction worker: 350,000 VND/working day

According to a survey by the Central Institute for Economic Management (2023), about 65% of Vietnamese enterprises apply time-based salary payment, of which monthly salary accounts for the highest proportion at 48%.

1.2. Payment by product

Piece rate pay is a form of pay based on the quantity and quality of products that workers produce within a certain period of time.

Calculation:

• Salary = Number of completed products × Unit price for each product
• Salary = Number of products × Unit price × Quality coefficient

Advantage:

• Promote labor productivity
• Create clear work motivation
• Fair according to actual capacity
• Reduce direct monitoring costs

Disadvantages:

• Difficult to control product quality
• Can lead to sloppy work and hasty work.
• Unstable income
• Difficult to apply to jobs that require high creativity

Example:

• Sewing worker: 20,000 VND/product
• Craftsmen: 150,000 VND/handicraft product
• Sales staff: 5% commission on sales

According to the report of the Vietnam General Confederation of Labor (2024), about 22% of enterprises in the manufacturing sector apply the form of product-based salary payment, especially popular in the textile, footwear and food processing industries.

1.3. Paying piecework wages

Piece rate payment is a form of salary based on the amount of work completed according to a prior agreement between the employer and the employee.

Calculation:

• Salary is agreed in advance for a specific amount of work.
• Usually applied to work where the final result can be measured.
• Completion time can be flexible

Advantage:

• Flexible in implementation time
• Reduce management and monitoring costs
• Encourage employees to manage their own time
• Suitable for short term projects

Disadvantages:

• It is difficult to judge fairly without clear criteria.
• Disputes may arise over the quality of work.
• Difficult to adjust when additional work arises initially

Example:

• Construction project: 200 million VND for building a level 4 house
• Website design: 30 million VND for a complete website
• Translation: 2 million VND for translation of 50 pages of document

According to research by the Institute of Labor Science and Social Affairs (2023), piecework is becoming increasingly popular in the freelance and service industries, accounting for about 18% of salary forms in Vietnam.

2. Modern forms of salary in business

Along with the development of the economy and modern human resource management trends, many new forms of salary have been applied in Vietnamese enterprises.

2.1. Competency-based Pay

Pay for performance is a form of remuneration based on an assessment of an employee's skills, knowledge and abilities, rather than solely on job position or length of service.

How to deploy:

Step 1: Build a competency framework

• Identify the organization's core competencies
• Build competency sets for each position
• Establish competency levels and assessment criteria

Step 2: Evaluate employee capacity

• Conduct periodic assessments (every 6 months or annually)
• Use multiple assessment methods (self-assessment, 360-degree assessment)
• Identify strengths, weaknesses and capability gaps

Step 3: Link competencies to salary scales

• Set salary levels corresponding to each level of ability
• Build a roadmap for capacity development and salary increase
• Create mechanisms to encourage employees to develop new skills

Advantage:

• Encourage workers to develop skills
• Create continuous learning motivation
• Retaining talent effectively
• More flexible and fair than a fixed salary system

Disadvantages:

• Difficult to build an accurate competency framework
• Costly and time consuming to evaluate
• Subjectivity in assessment can be controversial.
• Difficult to apply to simple, repetitive positions

For example:

A software company applies a competency-based salary scale for programmer positions:

• Level 1 (Junior): 15-20 million VND/month
• Level 2 (Middle): 20-30 million VND/month
• Level 3 (Senior): 30-45 million VND/month
• Level 4 (Expert): 45-70 million VND/month

According to a survey by Mercer Vietnam in 2023, about 35% of foreign-invested enterprises (FDI) and 18% of Vietnamese enterprises are applying the form of salary payment based on capacity, especially in the information technology, finance-banking and pharmaceutical industries.

2.2. Salary based on KPI or OKR

Salary based on KPI (Key Performance Indicators) or OKR (Objectives and Key Results) is a form of salary based on the assessment of the level of completion of established performance indicators or goals.

How to build a KPI/OKR system:

Step 1: Identify strategic goals

• Analyze organizational goals
• Break down goals by department or group
• Identify specific metrics

Step 2: Set up KPI/OKR for each position

• Build 3-5 key KPIs for each position
• Ensure KPIs meet SMART criteria (Specific, Measurable, Achievable, Relevant, Time-bound)
• Unify the weight for each KPI

Step 3: Link KPIs to compensation and benefits

• Determine the ratio of fixed salary and performance-based salary
• Set up a rating scale and corresponding rewards
• Build a periodic evaluation process

Advantage:

• Encourage high performance
• Linking personal goals with organizational goals
• Transparency in performance evaluation
• Suitable for dynamic, competitive environment

Disadvantages:

• Difficult to implement without a clear evaluation system
• Can put a lot of pressure on workers
• Easily leads to chasing targets, ignoring quality
• Not suitable for all positions and industries

Example:

A sales person has the following salary structure:

Basic salary: 10 million VND/month

Salary based on KPI (maximum 10 million VND/month):

• KPI 1: Sales (weight 50%)
• KPI 2: Number of new customers (weight 30%)
• KPI 3: Conversion rate (weight 20%)

According to Talentnet-Mercer's 2024 report, 42% of businesses in Vietnam are applying KPI-based salary, mainly concentrated in the retail, real estate and financial services industries.

2.3. Salary according to 3P model

Salary according to the 3P model (Position - Person - Performance) is a form of salary that combines three factors: job position, personal capacity and work performance.

Explaining the 3P model:

Position: Base salary based on the value of the position in the organization

• Job analysis and evaluation
• Compare with the labor market
• Determine the base salary for each position

Person: Allowance based on ability, skills and experience

• Professional Assessment
• Review degrees and certificates
• Work experience review

Performance: Bonus based on work results

• Evaluate KPI completion level
• Consider contributing to a common goal
• Periodic performance appraisal

Advantage:

• Comprehensive, balanced between elements
• Fair and flexible
• Encourage personal growth and high performance
• In line with modern human resource management trends

Disadvantages:

• Complex in design and implementation
• Requires professional human resource management system
• High operating costs
• Can be confusing for workers

Example of application in Vietnam:

A consulting firm applies the 3P model with the following salary structure:

• Position (60%): Basic salary according to position
• Person (20%): Allowance based on qualifications and skills
• Performance (20%): Bonus based on work performance

According to research by the Central Institute for Economic Management (2023), about 15% of large enterprises in Vietnam have applied the 3P salary model, mainly multinational companies and enterprises with over 500 employees.

3. Compare salary forms

Each form of salary payment has its own characteristics, suitable for each type of business and industry. Below is a detailed comparison table to help businesses have an overview to choose the most suitable method.

4. Principles and terms of salary payment according to legal regulations

The application of salary forms must comply with current legal regulations to ensure the rights of employees and avoid legal risks for businesses.

Below are the important principles and regulations on salary payment according to the Vietnam Labor Code 2019:

Principle of fair pay:

• Pay salary directly, fully and on time
• Pay salary by cash or bank transfer
• No discrimination based on gender, ethnicity, religion
• Ensure that wages are not lower than the regional minimum wage
• Pay wages based on agreements in labor contracts and collective labor agreements

Regulations on salary payment period:

• Maximum salary payment period is 1 month
• Can be paid weekly, 10 days, half month or month
• Salary payment must not be later than the 7th of the following month.
• Special cases must not be delayed more than 15 days.

Regulations on salary payment:

• Must provide detailed salary statement
• Must have signature or proof of salary receipt
• Salary can be paid through bank account with employee's consent.

Regulations on overtime pay:

• Weekdays: At least 150% of actual hourly wages
• Weekly rest day: At least 200% of actual hourly wages
• Holidays: At least 300% of actual hourly wages

Regulations on severance pay:

• Due to employer's fault: 100% of salary
• Due to electricity and water problems: Not less than minimum wage
• Due to natural disasters, fires: Not lower than the regional minimum wage

According to the report of the Inspectorate of the Ministry of Labor, War Invalids and Social Affairs in 2023, about 15% of enterprises violated regulations on salary payment, the most common of which were late payment of salary (8%) and failure to pay the agreed salary (5%).

5. How to choose the right salary form for your business?

Choosing the right form of salary is an important decision that directly affects the performance and sustainable development of the business. Below are the factors to consider when choosing a form of salary.

Business type:

• Manufacturing: Suitable for hourly or piece rate wages
• Service business: Salary according to ability or KPI
• Trading Enterprise: Suitable for basic salary combined with commission
• Creative Enterprise: Salary commensurate with ability or project

Staff size:

• Small businesses (<50 employees): Should apply simple, easy-to-manage forms
• Medium enterprises (50-300 employees): Can combine 2-3 forms
• Large enterprises (>300 employees): Can apply complex models such as 3P

Company strategic goals:

• Fast growth: Prioritize high performance incentives such as KPI, commission
• Sustainable Development: Balancing Fixed Salary and Performance-Based Pay
• Innovation: Prioritize salary based on ability and project bonus
• Cost savings: Prioritize piecework or contract wages

Suitability to budget and management system:

• Assess the financial capacity of the business
• Review existing IT systems
• Assessing the management capacity of the staff
• Consider the cost of implementing and operating a payroll system

Steps to choose the appropriate form of salary:

Step 1: Analyze the current situation

• Evaluate the effectiveness of the current salary system
• Employee satisfaction survey
• Analyze the strengths and weaknesses of the current system

Step 2: Determine the goals of the new salary system

• Attracting and retaining talent
• Increase labor productivity
• Optimize human resource costs
• Increase employee engagement

Step 3: Market Research

• Check out popular salary models in the industry
• Analyze competitors' salaries and pay practices
• Explore new salary trends in the market

Step 4: Design a new salary system

• Determine salary structure (fixed salary, variable salary)
• Set clear evaluation criteria
• Build a review and payment process

Step 5: Pilot implementation and evaluation

• Pilot application with one department
• Collect feedback and adjust
• Expand to apply throughout the company

According to a 2024 Talentnet-Mercer survey, 75% of businesses that successfully improved work efficiency after changing their salary structure went through a thorough evaluation process and implemented each step as above.

Thus, in Vietnam, there are many different forms of salary such as salary based on time, product, contract to modern models such as salary based on ability, KPI or 3P. Choosing the appropriate form of salary should be based on many factors such as business type, human resource scale, strategic goals and financial capacity of the enterprise.