How will the way payroll is calculated at businesses change?

The Ministry of Labor, War Invalids and Social Affairs is drafting a Decree amending and supplementing a number of articles of Decree No. 49/2013/ND-CP dated May 14, 2013 of the Government detailing the implementation of a number of articles of the Labor Code on wages.

In particular, the Ministry proposed new regulations on principles for building salary scales and payrolls to gradually reduce and eventually eliminate State intervention (not issuing principles) in building salary scales, payrolls, and labor norms of enterprises.

Specifically, according to Decree No. 49/2013/ND-CP, the salary scale multiple is the coefficient of difference between the salary level of the job or position requiring the highest technical level compared to the salary level of the job or position requiring the lowest technical level, the number of levels of the salary scale, salary table depends on the complexity of management, job level or required position.

The difference between two adjacent salary levels must ensure that employees are encouraged to improve their professional, technical, and vocational qualifications, accumulate experience, and develop their talents, but must be at least 5%.

The Ministry of Labor, War Invalids and Social Affairs said that the principle of a gap of at least 5% between salary levels has affected the salary policy, salary scale structure and payroll of enterprises and is not consistent with the market mechanism.

Many businesses build a salary scale based on seniority (to ensure a gap of at least 5%), leading to a disincentive to pay based on work but to pay based on seniority. Those with more seniority must pay high salaries and high social insurance costs (for the same job, businesses must pay salaries and insurance costs for employees who have worked for 15-20 years, 2-3 times higher than those who have just started working).

This situation leads to businesses not wanting to use workers with many years of experience, finding many ways to fire workers to recruit new workers.

In the draft, the Ministry of Labor, War Invalids and Social Affairs proposed two options to amend the above regulations.

Option 1:Qualitative regulations for businesses and grassroots unions to negotiate and determine specific values ​​(remove the 5% regulation).

Specifically: “The number of levels of the salary scale and salary table is decided by the enterprise based on the complexity of management, job level or required title. The difference between two adjacent salary levels must ensure that employees are encouraged to improve their professional, technical and vocational qualifications, accumulate experience and develop their talents”.

According to the Ministry of Labor, War Invalids and Social Affairs, this plan has the advantage of increasing the autonomy of enterprises in building and deciding on the construction of salary scales and payrolls.

However, this option has disadvantages due to the limited bargaining power of workers, high pressure on employment, and the weak organization representing workers, which can easily lead to businesses forcing workers' wages to be low.

Option 2:The quantitative distance is still regulated, but the level is reduced from 5% to 3% to consider abolishing this regulation.

Specifically, “The number of levels of the salary scale and salary table is decided by the enterprise based on the complexity of management, job level or required title. The difference between two adjacent salary levels must ensure that employees are encouraged to improve their professional, technical and vocational qualifications, accumulate experience and develop their talents, but must be at least 3% compared to the regional minimum wage prescribed by the Government”.

This option has the advantage that the State still creates the lowest floor to avoid the situation where businesses force workers' wages to be low, but has the disadvantage of limiting the initiative of businesses in building and deciding on the construction of salary scales and payrolls, affecting the structure of salary scales and payrolls when businesses build them.

In the current labor market conditions, capacity of grassroots unions, and employment pressure, an implementation roadmap is needed, so the Ministry of Labor, War Invalids and Social Affairs recommends choosing option 2./.