“Advantages” and “disadvantages” when the region-based minimum wage increases in 2022

Recently, the Government issues the Decree No. 38/2022/ND-CP on adjusting the region-based minimum wage levels to 6% from July 01, 2022. How do employee's benefits change together with the increase in region-based minimum wage levels?

In the below post, LuatVietnam only considers the effects from the perspective of labor laws.

1. Effects on employees

1.1 Increase in wages that are under region-based minimum wage levels

In accordance with the regulations prescribed in the Article 90, Labor Code 2019, the minimum wage levels can be determined on an hourly basis beside on the monthly basis.

Therefore, employees shall have an increase in wage if they are receiving wages in accordance with region-based minimum wage levels from July 01, 2022 - when the region-based minimum wage levels increase.

 

The increased wage amount must not be lower than the region-based minimum wage prescribed in the Decree No. 38/202/ND-CP as follows:

Region	Region-based minimum wage from July 01, 2022
Region I	VND 4.68 million/month
Region II	VND 4.16 million/month
Region III	VND 3.64 million/month
Region IV	VND 3.25 million/month

1.2 Receive more wages in case of work suspension due to objective faults

In accordance with the Article 99, Labor Code 2019, employees have work suspension caused due to the fault of the employers with the suspension period of 14 working days due to natural disaster, fire, dangerous epidemic, enemy sabotage...shall be paid not lower than the minimum wage level.

Therefore, the suspension amount shall be higher due to the increase in region-based minimum wage.

1.3 Increase in wage for performing another job

Pursuant to the Clause 3, Article 29 of the Labor Code, the employee who is assigned to perform a job other than that stated in the labor contract will receive a wage for the new job.

If the wage for the new job is lower than the wage paid under the labor contract, the employee shall be paid the wage under the labor contract for 30 working days.  The wage for the new job must not be lower than the region-based minimum wage.

Therefore, employees who is assigned to perform a job other shall be paid more under the new regulations on region-based minimum wage from July 01, 2022.

1.4. Only pay compensation for greater damage

In accordance with the Clause 1, Article 129, Labor Code, in case the employee causes, due to negligence, a damage valued at no more than 10 months’ region-based minimum wage, the employee shall pay a compensation amount not exceeding 3 months’ wage.

Therefore, the employee shall pay a compensation amount not exceeding 3 months’ wage when the damaged value must be greater from the date that the Decree 38 takes effect.

1.5 Increase in the maximum unemployment allowance

Pursuant to the Article 50, Law on Employment 2013, The monthly unemployment allowance level equals 5 times the region-based minimum wage level. Therefore, the unemployment allowance shall be increased together with the increase in region-based minimum wage.

1.6 Increase in compulsory insurance premium

In accordance with the Decision No. 595/QD-BHXH, the social insurance, health insurance, and unemployment insurance of the employee based monthly wage calculated based on the salary funds Within that, the monthly wage calculated based on the salary funds must not be lower than region-based minimum wage.

Therefore, employees shall pay higher insurance premiums from the time of increasing region-based minimum wage on July 02, 2022. Accordingly, other compulsory insurances are higher.

1.7 Increase in trade union fee

In accordance with Clause 1, Article 23 of the Decision No. 1908/QD-TLD, the monthly rate of payment of trade union fee shall be 1 % of salary that is used as a basis for social insurance payment.

Therefore, the monthly rate of payment of trade union fees is higher when the region-based minimum wages increase.

1.8 Risk of job loss

This possibility is unlikely to happen but nothing is impossible. The increase in region-based minimum wage causes great pressure on enterprises, especially, micro-, small and medium enterprises when the profits as not as expected and low competition.

This problem can force enterprises to consider the plan on changing organizational structure, and technology or even make redundancy, especially for unskilled employees. 

2.  Effects on employers

The “advantages” of employees may be the “disadvantage” of employers and the employers shall get much more disadvantages than advantages when the region-based minimum wage levels increase.

2.1 More payment of wage

As above analysis, increases in region-based minimum wage cause increases in monthly wage, wage in cases of work suspension, and wage when transferring jobs.

Enterprises with a great number of employees must pay more from July 01, 2022, with a greater amount.
 

2.2 Increase in compulsory insurance premium

In accordance with Decision No. 595/QD-BHXH, employers must pay social insurance, health insurance, and unemployment insurance with a consistent percentage based on the salary funds.

Therefore, the monthly wage as the basis for payment of compulsory social insurance increase when the region-based minimum wage levels increase and must not lower than the region-based minimum wage levels.

The next time, enterprises must pay much in compulsory insurance premiums for employees.

2.3 Increase in trade union fee

Pursuant to Article 5, Decree No. 191/2013/ND-CP, the remittance level shall be 2% of salary funds which are used as the basis for social insurance payments for employees.

Similarly, enterprises must pay much more for trade union fees when the region-based minimum wage level increase.

2.4. Technology improvements

Fees on wage, insurance, trade unions...increase when region-based minimum wage levels increase.

These fees shall be calculated in the production costs which can cause an increase in product price, and the competitiveness is low. Therefore, enterprises must have improvements in technology and technical and scientific applications.

This is an effective solution for enterprises to increase productivity and quality of production and business.