This article will provide a complete and detailed guide on how to organize a Payroll Management System (also known as a salary system) in a business.
1. Understanding the Payroll Management System
A payroll management system, salary system, or compensation system is a system comprising tightly organized components designed to implement the overall payroll policy applied to the workforce.
Directors and business owners have full discretion in choosing how to manage their company's payroll; however, regardless of the method used, the company's payroll system must legally ensure it meets two requirements:
- It must be effective.
- It must comply with relevant legal regulations.
1.1. The wage system must be efficient.
An effective salary system is one that is appropriate and sufficiently good to help a business successfully build a workforce for its production and business operations. Therefore, when building a salary system, it must meet certain requirements. 4 basic requirements or:
- Salaries should reflect market competitiveness.
- Salaries should be commensurate with each person's abilities and contributions, ensuring fairness within the company.
- The salary structure must be flexible, with both hardware and software components that allow for adjustments up or down as needed.
- The method of calculating salaries should be simple, easy to understand, and clear so that everyone can understand and check their salary.
1.2. The wage system must comply with relevant legal regulations:
The company's wage system must ensure that its implementation meets the following legal requirements:
- Regulations on labor and wages in the Labor Code;
- Regulations on compulsory insurance (social insurance, health insurance, unemployment insurance) in the Social Insurance Law, Health Insurance Law, and Employment Law;
- In order for salaries to be accounted for as business expenses and presented on financial statements, the Accounting Law and the Corporate Income Tax Law must be followed.
- Salaries are subject to personal income tax, and therefore must comply with the Personal Income Tax Law.
2. The process of building and implementing a payroll management system.
The process of building and implementing a payroll management system includes carrying out the following five tasks:
- Establish a salary payment system;
- Establishing a salary scale (also known as a salary table);
- Timekeeping;
- Salary calculation;
- Paying salaries;
2.1. Establishing a salary payment system.
A wage regulation is a document developed by a business based on the provisions of the Labor Code and government decrees guiding the development of wage regulations in businesses, and is published and applied within the business.
The wage regulations stipulate wages, wage-related issues, and other payments to employees such as bonuses, allowances, and welfare benefits. This establishes the basis and method for calculating wages for employees working at the enterprise.
⚠️ Important note:
The wage payment mechanism or policy cannot be static; it needs to be continuously reviewed, evaluated, and revised to suit the business situation of the enterprise, changes in labor laws, and new requirements.
2.2. Developing a salary scale
A salary scale (or more accurately, a salary scale system) is a system of salary groups, salary grades, and salary levels designed as a basis for paying employees. Depending on their abilities, job positions, and the complexity of their work, businesses will pay employees based on the established salary scale.
The role of salary scales in businesses
Establishing a salary scale helps businesses ensure fairness in compensation, allowing employees to understand their actual income and setting expectations for advancement to higher-paying positions within the scale.
Salary scales also demonstrate professionalism in a company's labor management system, helping businesses easily plan their payroll budget and manage salary costs extremely effectively.
Establishing a salary scale is the responsibility of the enterprise. When establishing a salary scale, the employer must consult with the collective labor representative organization at the workplace and make it public at the employees' workplace before implementation.
2.3. Timekeeping
Timekeeping involves tracking actual working days, days off, days on social insurance benefits, etc., to provide a basis for calculating salaries, social insurance payments in lieu of salary for each individual, and managing labor and wages within the enterprise.
Currently, there are many different methods of timekeeping. The most commonly used methods today include:
- Timekeeping using paper cards
- Time attendance using magnetic cards
- Facial recognition time attendance system
- Fingerprint time attendance
- Online timekeeping…
Regardless of the method used for timekeeping, all methods serve the purpose of determining the number of working days in a month according to labor regulations, company wages, and in compliance with legal requirements.
2.4. Salary Calculation
Salary calculation is the process of determining the monthly wage that an employee receives based on all the regulations of the company's salary system.
To calculate salaries, payroll analysts need to gather all the parameters that make up an employee's wage. The calculation method varies depending on each company's wage system.
Salary calculation requires meeting the following requirements:
- Salary calculations must be accurate.
- Salary payments must be processed promptly and on time.
- Salary calculation must "It can be verified." It serves the purpose of self-auditing by businesses; employee verification; and labor, insurance, and tax authorities during audits and tax settlements.
The result of payroll processing is to create Salary scaleDue to the large number of salary parameters, the payroll sheet contains a wealth of information that is closely interconnected and involves many legal fields, making it prone to errors. Therefore, businesses need to pay close attention during the implementation process.
Refer payroll and human resources services For Expertis businesses!
2.5. Salary Payment
Paying wages is the process of paying money to employees.
Common forms of salary payment:
- Prepare payroll vouchers for direct cash payments to each individual.
- Prepare payroll vouchers and disburse payments in cash, with the payment made to a designated representative for businesses with team-based or project-based operations.
- Transfer via bank account.
- Salary payments are authorized through the payroll service of the bank where the business has an account.
Salary payment deadline:
Contrary to the common perception that most businesses can pay whenever they want, the actual payment deadline depends on two factors:
- Agreements in the Employment Contract and Salary Regulations.
- The payment schedule for wages is stipulated in the Labor Code.
FAQ - Common mistakes in payroll management
Errors in timekeeping, inaccurate product quantity calculations; violations in recording personnel data such as: failure to promptly reflect personnel changes, incorrect reporting of days off, incorrect overtime hours, etc.
- Incorrect payroll calculations may result in penalties, back taxes, or social insurance audits, depending on the severity and nature of the error.
- Furthermore, incorrect calculation of food wages causes psychological stress for employees.
The timing and method of payment will be mutually agreed upon by both parties.
In exceptional cases due to natural disasters, fires, or other force majeure events where the business has taken all remedial measures but is unable to pay wages on time as agreed in the labor contract, the business has the following obligations:
- Salaries must not be paid more than one month late;
– Pay employees an additional amount due to delayed salary payments, specifically as follows:
- If salary payments are delayed by less than 15 days, no additional payment is required.
- If salary payments are delayed by 15 days or more, an additional amount must be paid, at least equal to the delayed amount multiplied by the maximum interest rate for 01-month time deposits announced by the State Bank of Vietnam at the time of payment. If the State Bank of Vietnam does not specify a maximum interest rate, the interest rate will be calculated based on the 01-month time deposit interest rate of the commercial bank where the enterprise or agency has its transaction account, as announced at the time of payment.
The salary stated in the labor contract and the salary paid to the employee must be in Vietnamese Dong. In the case of foreign employees in Vietnam, it may be in a foreign currency.