Vietnam will increase regional minimum wages by approximately 6 percent from July 1, 2022. The increase varies from US$140 to US$202 depending on the living expenses in a particular region. Businesses should prepare their budgets given the short notice and incorporate the increased HR costs from July 1 and beyond going forward.

Vietnam is set to increase regional minimum wages by an average of 6 percent from July 1, 2022, after almost two and a half years due to the pandemic.

Deputy Prime Minister Pham Binh Minh signed Decree No 38/2022/ND-CP on June 12 after reaching an agreement with the relevant government agencies and labor representatives.

The increase in rates are as follows:

In addition, the Decree also ensures minimum hourly wage rates for the relevant regions. These are:

• Region I – VND 22,500 (US$0.97)
• Region II – VND 20,000 (US$0.86)
• Region III – VND 17,500 (US$0.75)
• Region IV – VND 15,600 (US$0.67)

Wages for employees that are paid daily or on a weekly basis, must not be lower than the minimum wage when converted to monthly or hourly rates.

Who is eligible?

The wage increase applies to employees who work under labor contracts under the labor code which includes businesses, organizations, cooperatives, households, and individuals that hire employees on labor contracts.

Long-awaited increase

The increase in minimum wage comes as Vietnam is facing inflation pressures due to an increase in fuel prices and the Russia-Ukraine conflict. Vietnam’s consumer price index rose 2.86 percent in May up from 2.64 percent in April. The labor ministry has also stated that the minimum wage increase will ensure the livelihoods of workers while employees have asked for increases of up to 7 to 8 percent.

Businesses have complained however that wage increases will increase costs and disrupt business plans for the year. Representatives of VCCI stated that they expected increases from January 2023 rather than 2022. Smaller firms and SMEs have also complained that the wage hike would increase HR costs and be an added burden due to reduced revenue caused by the pandemic. Rising external risks due to lockdowns in China, and the Russia-Ukraine conflict have resulted in surging raw material and commodity prices affecting business budgets.

 Firms have stated that their labor costs would increase at a minimum by 10 percent.

Firms have also stated that while it was not mandatory to raise minimum wages for workers paid above the minimum wage, not giving a raise would result in worker dissatisfaction who may switch jobs during a time when it is challenging to recruit with a shortage of labor.

Plan ahead for July and beyond

Given the short notice and likely that businesses have budgeted for the year, organizations should plan ahead and take into account the increase in HR costs, operational capacity, and costs for when the new wage hike goes into effect. In addition, businesses should likely plan for another increase which is possible in January 2023.

As Vietnam’s economy continues to grow despite the effects of the pandemic, rising wages will be an unavoidable feature of doing business in the country. Nevertheless, Vietnam’s business environment, free trade costs, and its ideal location as a China plus one destination make it favorable among foreign investors looking to relocate or diversify their operations.