Learn how to calculate monthly salary based on contracts and 4 important considerations.

For HR departments, contract based monthly salary calculation is always a stressful process. Even a small error in the calculation, a misunderstanding in applying regulations, can lead to serious complaints from employees, damage the company’s reputation, and even face legal risks. Refer to the methods for calculating monthly salaries and important notes to ensure the process runs smoothly.

1. What is salary? What components does salary include?

Salary is the amount of money that an employer pays an employee for performing work as agreed upon. According to the 2019 Labor Code, salary includes the following basic components:

• Basic salary: This is a fixed amount of money recorded in the labor contract, used as the basis for social insurance contributions and calculating other benefits. This salary must not be lower than the regional minimum wage stipulated by the Government.
• Salary allowances: These are compensations for working conditions, job complexity, living conditions, or the level of attractiveness of the job that have not been taken into account or have not been fully taken into account in the agreed salary (e.g., position allowance, hazardous work allowance, responsibility allowance…).
• Bonuses: These are sums of money, assets, or other forms of rewards that the employer gives to the employee based on production and business results and the level of job completion.
• Other supplementary allowances: These include welfare allowances such as meal allowances, transportation allowances, telephone allowances, housing allowances, childcare allowances, etc. These amounts must be clearly agreed upon by both parties in the labor contract or the company’s financial regulations.

2. Methods of calculating monthly salary according to contract

Depending on the nature of the work, the operating model, and the agreement in the labor contract, businesses can choose one or combine several of the following salary calculation methods.

2.1. Calculating salary based on time

This is the most common method, applied to the majority of office and administrative staff and fixed-position employees.

With hourly salary calculation:

• This method applies to part-time jobs or jobs where salary is calculated directly based on the actual number of working hours.
• Calculation formula:

Salary = Number of working hours × Hourly wage rate

• For example, part-time employee A has an agreed salary of 30,000 VND/hour. In the month, employee A actually worked a total of 80 hours. So, the salary received will be:

80 x 30.000 = 2.400.000 VND

With monthly salary calculation:

• This method applies to full-time employees who receive a fixed monthly salary as agreed in their labor contract.
• Calculation formula:

Monthly salary: Monthly salary = Basic salary + Allowances + Bonuses (if any) – Deductions

• In the case that the employee does not work the standard number of working days in the month, the actual salary received is calculated as follows:

Actual salary received = [(Agreement salary + Fixed allowances) / Standard number of working days in the month] x Actual number of working days

• Example: Ms. B has an agreed salary in the contract of 15,000,000 VND/month. The standard number of working days in May is 26 days. In this month, Ms. B took 2 days of unpaid leave (meaning she only worked 24 days). Therefore, the actual salary received will be:

[15.000.000 / 26] x 24 ≈ 13.846.154 VND

2.2. Calculating salary based on revenue

Salary based on revenue is a method of paying salaries based on the business results of the enterprise or department, usually applied to sales, consulting, and sales staff…

To calculate salary based on revenue, we apply the formula:

Salary = Basic salary + (Actual sales revenue × Commission rate)

Example: Mr. C is a sales employee with a basic salary of 6.000.000 VND/month. The actual sales revenue Mr. C achieved in the month is 30.,000.000 VND, and the commission rate he receives is 1.5%. So, Mr. C’s salary is:

6.000.000 + (300.000.000 x 1.5%) = 10.500.000 VND

2.3. Calculating salary based on output

Salary based on output is a method of paying wages based on the number of products that an employee completes within a certain period of time. This method is mainly applied in manufacturing, textile, and processing businesses… An employee’s salary depends directly on the quantity and quality of products they complete based on the issued technical standards.

The formula for calculating salary based on output can be expressed as follows:

Salary = Number of completed products × Unit price paid for 1 product

Example: Ms. D works at a garment factory, the unit price for completing one shirt is 15,000 VND/piece. In the month, Ms. D sewed 800 shirts that met quality standards. So, Ms. D’s salary is:

800 x 15.000 = 12.000.000 VND

The company can calculate salary based on the number of products an individual produces.

2.4. How to calculate piecework ưages

Piecework wages are a form of payment based on the volume of work or results completed, rather than by time or the number of products. This method is applied when assigning a specific amount of work to an individual or a group of individuals.

The formula for piecework wages is:

Wage = Agreed-upon piecework wage × Percentage of work completed

Example: Mr. E is contracted to design a brand identity system for a company with a total contract budget of 30.000.000 VND. In the first month, he completed and approved 40% of the assigned work. Mr. E’s salary is:

30.000.000 x 40% = 12.000.000 VND

3. Important notes when calculating monthly salary according to contract

To ensure the rights of employees and protect the business from legal risks, businesses need to strictly adhere to the following principles:

3.1. Salary payment period

The employer and employee agree on the salary payment period by hour, day, week, month or lump sum, but must ensure:

• Employees receiving hourly, daily, or weekly wages are paid after the working hour, day, or week, or are paid in a lump sum as agreed upon by both parties, but at least once every 15 days.
• Employees receiving monthly wages are paid once a month or once every two weeks. The salary payment time must be determined periodically and at a fixed time.

3.2. Payment ethods

Businesses can pay salaries in cash or through the employee’s personal bank account. If salaries are paid through a bank account, the employer must pay all fees related to opening the account and transferring salaries according to current regulations.

3.3. Principles of salary ayment

Salaries must be paid directly, in full, and on time to employees. In exceptional cases where timely payment is impossible due to natural disasters, fires, or force majeure, the business must not delay salary payments by more than 30 days. If the delay is 15 days or more, the business must compensate an additional amount at least equal to the interest on the delayed payment, calculated at the 1-month term deposit interest rate of the bank where the salary account is opened.

3.4. Regulations on salary calculation and payment

• Calculation and Payment

A crucial regulation is that each time salaries are paid, the employer must provide the employee with a detailed statement of the actual salary received. This payroll statement must clearly state:

• Basic salary, actual salary.
• Allowances and bonuses.
• Overtime pay (if any).
• Deductions and amounts (social insurance, health insurance, unemployment insurance, personal income tax, etc.).

Internal payroll management requires businesses to constantly update the latest changes in tax, insurance, and labor laws. Even a small discrepancy can lead to significant administrative penalties and loss of employee trust.

To free HR departments from complex and risky administrative tasks, many leading businesses have chosen HR2B’s Payroll Management service. With over 20 years of in-depth experience and a highly secure technology system, HR2B provides a comprehensive payroll management solution: from salary calculation, personal income tax and social insurance settlement to maximum information security.

Contact HR2B today for quick and suitable advice.

4. Frequently asked questions about calculating monthly salary according to contract

4.1. How to calculate a monthly salary with 24 working days?

Apply the formula:

Actual salary = [Agreement salary / Standard number of working days in the month] x 24

4.2. How to calculate a monthly salary with 31 working days?

Your monthly salary will remain the same according to the labor contract if you work the full standard number of working days as stipulated in the company’s regulations (usually 26 days or other fixed regulations).

4.3. How to calculate a monthly salary with 25 working days?

Apply the formula:

Actual salary = [Agreement salary / Standard number of working days in the month] x 25

4.4. What is the difference between gross salary and net salary?

• Gross salary: Is the total income received by the employee (including mandatory insurance contributions and personal income tax).
• Net Salary: This is the actual salary an employee receives after deducting insurance contributions and personal income tax.

4.5. Is the contract salary the actual salary received?

No. The salary stated in the contract is usually the Gross salary. The actual salary received may be lower due to deductions for insurance and personal income tax, or higher due to overtime pay, allowances outside the contract, and performance bonuses.

4.6. How is salary deducted for taking one day off?

If you take unpaid leave or leave without permission, you will be deducted an amount equivalent to the value of one working day:

Amount deducted = Agreed salary in the contract / Standard number of working days in the month

4.7. How is salary calculated for not working the full number of days?

The company will pay your salary based on your actual number of working days in that month:

Net Salary = [(Agreement Salary + Fixed Allowances) / Standard Number of Working Days in the Month] x Actual Number of Working Days

4.8. Does the probationary salary include social insurance contributions?

If you sign a separate probationary contract, this period is not subject to mandatory social insurance contributions. However, if the probationary period is included in a fixed-term employment contract of 1 month or more, the company and you are required to pay social insurance contributions from the first month of the probationary period.

To accurately contract based monthly salary calculation, the company needs to understand the employee’s salary structure, choose the correct salary calculation method (time-based, revenue-based, product-based, or piece-rate), and strictly comply with legal regulations regarding the term, form, and transparency of the payroll.

If your business is struggling with human resource management, worried about errors, or lacking qualified personnel, contact HR2B today to experience professional payroll services that will help optimize operating costs and eliminate unnecessary legal risks!