How is total payroll calculated?
Total payroll is an important concept in corporate financial management, directly affecting operating costs and business efficiency. So how is the total payroll calculated ? In the following article, 1C Vietnam will provide detailed information on how to determine and calculate the total payroll for businesses.
1. What is total payroll?
Total payroll is the total amount of money that a business plans to pay its employees over a given period of time, usually a fiscal year. This is an important indicator in a business's budget plan, helping to control costs and ensure the ability to pay salaries and bonuses to employees.
Salary funds in enterprises are often divided into two main types:
- Main salary fund : Includes basic salary and fixed allowances according to regulations.
- Additional salary fund : Includes bonuses, benefits and other supplements.
The components of the total salary fund include:
- Basic salary : Amount paid to employees as agreed in the employment contract.
- Allowances : Including position allowance, responsibility allowance, toxic allowance, regional allowance,...
- Bonuses : Productivity bonuses, performance bonuses, project bonuses,...
- Social insurance costs and mandatory contributions : Business contributions to social insurance, health insurance, unemployment insurance,...
Determining the correct total salary fund helps businesses have a basis for financial planning, ensuring resources for production and business activities and complying with legal regulations.
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2. Formula for calculating total salary fund
The formula for calculating the total basic salary fund is determined as follows:
Total salary fund = Total basic salary + Total allowances + Total bonuses + Total social insurance costs and mandatory contributions
In there:
- Total basic salary = Total number of employees × Average basic salary
- Total allowances = Total allowances of all employees
- Total Bonus = Total expected bonuses paid
- Total social insurance costs and mandatory contributions = Total salary subject to social insurance × Social insurance contribution rate of the enterprise (currently 17.5% in Vietnam)
Example:
Company A has 50 employees with an average basic salary of 10,000,000 VND/month. Total monthly allowance is 100,000,000 VND. Expected annual bonus is 500,000,000 VND.
Step 1 : Calculate total monthly basic salary
- Total basic salary = 50 × 10,000,000 = 500,000,000 VND/month
- Total basic salary per year = 500,000,000 × 12 = 6,000,000,000 VND/year
Step 2 : Calculate total annual allowance
- Total annual allowance = 100,000,000 × 12 = 1,200,000,000 VND/year
Step 3 : Determine the total annual bonus
- Total annual bonus = 500,000,000 VND
Step 4 : Calculate social insurance costs and mandatory contributions
- Total social insurance cost = (500,000,000 + 100,000,000) × 17.5% × 12 = 1,260,000,000 VND/year
Step 5 : Calculate total salary fund
- Total salary fund = 6,000,000,000 + 1,200,000,000 + 500,000,000 + 1,260,000,000 = 8,960,000,000 VND/year
Thus, the total salary fund of enterprise A in the year is 8,960,000,000 VND.
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3. Relevant legal regulations
The total salary fund must be calculated in accordance with current legal regulations. In Vietnam, there are a number of important legal documents related to the determination and management of salary funds as follows:
- Labor Code 2019 : Regulates issues related to wages, bonuses, welfare regimes and allowances for employees.
- Decree No. 90/2019/ND-CP : Regulating regional minimum wages applicable to employees working under labor contracts.
- Circular No. 96/2015/TT-BTC : Guidance on corporate income tax, including regulations on deductible expenses related to wages.
- Decree No. 38/2022/ND-CP : Regulating the minimum wage for employees working under labor contracts.
Regulations on the establishment and use of salary reserve fund:
- Enterprises are allowed to set aside a salary reserve fund of no more than 17% of the actual salary fund.
- The salary reserve fund can only be used to supplement the salary fund of the following year if the salary fund implemented in the previous year is lower than the planned salary fund.
Compliance with legal regulations not only helps businesses avoid legal risks but also ensures the rights of employees, contributing to creating a fair and transparent working environment.
4. How to determine total salary fund
To accurately determine the total payroll , businesses need to perform the following steps:
Step 1 : Determine the number of workers
- Statistics on the number of existing employees by department
- Forecasting new recruitment needs this year
- Calculate personnel changes (quits, transfers, retirements...)
Step 2 : Determine the average salary
- Review current salary levels for each employee group
- Refer to market salaries for similar positions
- Expected salary adjustment during the year (periodic salary increase, performance bonus...)
Step 3 : Calculate allowances
- List all types of allowances applicable in the enterprise
- Determine allowance levels for each type of worker
- Estimated total allowance costs for the year
Step 4 : Estimate bonuses and benefits
- Build a bonus policy based on expected business results
- Calculation of periodic and non-periodic benefits
- Provision for unforeseen expenses
Step 5 : Plan your salary budget
- Summary of salary, allowance and bonus items
- Allocate budget by month, quarter
- Establish indicators to evaluate the effectiveness of salary fund usage
Determining the total salary fund should be done carefully, based on actual data and reasonable forecasts of the business results of the enterprise. This not only helps control costs but also ensures competitiveness and fairness in the salary policy.
5. Factors affecting total salary fund
A company's total payroll is affected by many different factors, both internal and external to the company:
5.1. Internal factors of the enterprise
- Number of employees : The size of the company's workforce is the most important factor that directly affects the total payroll. Changes in the number of employees will directly affect salary costs.
- Compensation policy : The company's salary, bonus and allowance system determines the average cost per employee.
- Business results : A company's revenue and profits affect its ability to pay and reward employees.
- Personnel structure : The ratio between management staff, technical staff and operational staff with different salary levels will affect the total salary fund.
5.2. Labor market factors
- Average salary in the market : Competitive salaries of businesses in the same industry create pressure for businesses to adjust salaries to retain talent.
- Regional minimum wage : State minimum wage regulations directly affect the basic salary of employees.
5.3. Industry and location factors
- Industry specific : Different industries have different average salaries, for example the information technology industry often has higher salaries than the manufacturing industry.
- Business location : The area where a business operates affects labor costs, for example, labor costs in big cities are often higher than in the provinces.
Understanding the factors that affect the total payroll helps businesses have an effective human resource cost management strategy, ensuring competitiveness in the labor market while still controlling operating costs.
6. How to optimize total payroll
To optimize total payroll , businesses can apply the following methods:
Step 1 : Analyze the current salary structure
- Evaluate the proportion of components in the total salary fund (basic salary, allowances, bonuses...)
- Compare with the general market level and businesses in the same industry
- Identify areas where you can save or where you need to invest more
Step 2 : Build a performance-based salary and bonus system
- Design a salary and bonus mechanism based on productivity and work results
- Reduce the proportion of fixed salary, increase the proportion of performance-based bonuses
- Apply KPI (Key Performance Indicators) to evaluate work performance
Step 3 : Optimize management process
- Use human resource management software to automate the payroll calculation process, reduce errors and save time
- Build a clear and transparent payroll approval process
- Strictly control the use of salary funds to ensure proper purposes.
Step 4 : Make a detailed budget plan
- Allocate salary budget by department and project
- Establish a mechanism to monitor budget use
- Periodically evaluate the effectiveness of salary fund usage and make timely adjustments.
Step 5 : Invest in training and development
- Improve workers' capacity to increase productivity and efficiency
- Reduce unnecessary staffing through professional development
- Create internal promotion opportunities, reduce recruitment and training costs for new employees
7. Risks of not calculating the total salary fund correctly
Inaccurate calculation of total payroll can lead to many risks for the business.
When the total payroll is not calculated correctly, the business may encounter the following risks:
7.1. Financial risks
- Over budget : Underestimating payroll can lead to actual costs exceeding budget, putting financial pressure on the business.
- Unbalanced cash flow : Not having enough salary budget can make it difficult for businesses to balance cash flow, especially at times when large salaries and bonuses must be paid.
- Impact on profits : Salary costs are one of the major expenses of a business, miscalculation can significantly affect business results.
7.2. Legal risks
- Violating tax regulations : Incorrect calculation of salary fund can lead to incorrect declaration of personal income tax and corporate income tax.
- Violations of social insurance regulations : Failure to correctly calculate social insurance contributions can lead to violations of labor laws.
- Labor disputes : Incorrect calculation of wages and bonuses can lead to disputes with employees.
7.3. Human resource risks
- Reduced work motivation : If the salary fund is not enough to ensure an attractive salary and bonus policy, employees may lose their motivation to work.
- Difficulty in retaining talent : Uncompetitive salary policies due to limited salary funds can cause businesses to lose talent.
- Impact on corporate culture : Poor management of payroll can create unfair pay, affecting the working atmosphere.
To minimize these risks, businesses need to have a strict, transparent and legal process for calculating the total salary fund. Periodically review and re-evaluate the use of the salary fund to promptly adjust it to suit the actual operations of the business.
8. Frequently asked questions about total payroll
8.1. Does the total salary fund include bonuses?
Yes, the total payroll includes bonuses expected to be paid to employees. Bonuses can be performance bonuses, project bonuses, year-end bonuses, or other forms of incentives. Including bonuses in the total payroll helps businesses have an overall view of human resource costs.
8.2. How is the actual salary fund different from the total planned salary fund?
The planned salary fund is the amount of money that a business plans to pay its employees in a period, determined based on the production and business plan. Meanwhile, the implemented salary fund is the actual amount that a business has paid after the end of the operating period. The difference between these two types of funds reflects the accuracy of the business's cost forecasting and control.
8.3. What allowances are usually included in the total salary fund?
Allowances that are often included in the total salary fund include: position allowance, responsibility allowance, regional allowance, hazardous allowance, seniority allowance, travel allowance, lunch allowance, telephone allowance... Depending on the policy of each enterprise, some allowances may be included in taxable or non-taxable income.
8.4. How are the regulations on total salary fund in Vietnam different from international regulations?
In Vietnam, determining the total salary fund must comply with regulations on regional minimum wages, social insurance contribution rates, and income tax regulations. Compared to international standards, Vietnam has some differences such as a higher social insurance contribution rate (about 32.5% of total salary, of which the employer contributes 17.5%), a salary structure that often includes many allowances, and regulations on regional minimum wages.
Total payroll is an important factor in corporate financial management, playing a key role in ensuring efficient and sustainable business operations. Accurate calculation of total payroll not only helps businesses control costs but also ensures compliance with legal regulations and motivates employees. To effectively manage total payroll, businesses need to apply the correct calculation formula, comply with legal regulations and optimize the use of resources.