Question: I am in charge of human resources of a service company. The Company is applying a fixed monthly salary of VND 10,000,000 for employees who work a full 8 hours per day. However, a number of employees frequently arrive late for work and the Board of Directors wishes to pay salary only according to the actual working time and not to pay for the late time calculated in minutes. Please advise whether this handling is lawful and how the salary structure can be adjusted accordingly?

Answer:

Concept: Salary is the amount paid by the employer to the employee as agreed in the labor contract, based on a form of payment by time, product or lump sum under the 2019 Labor Code. Handling late arrival must follow the agreed salary mechanism and salary may only be deducted within the limits permitted by law, while a performance based component may be designed that is linked to work results and compliance with internal regulations.

1. Forms of salary payment

Article 96 of the 2019 Labor Code and Clause 1 Article 54 of Decree 145/2020/ND-CP allow the company and employees to agree on salary payment by time, product or lump sum, in line with the nature of the job and business conditions.

With a salary of VND 10,000,000 per month and working time of 8 hours per day, it can be identified that the company is applying a time based monthly salary, calculated on the standard working hours recorded in the labor contract.

The company may renegotiate the form of salary payment to make it more suitable, but any adjustment must comply with the above provisions and be clearly reflected in the labor contract and relevant internal regulations.

2. Salary payment obligations and limits on salary deduction

Under Articles 94 and 95 of the 2019 Labor Code, the company is obliged to pay salary directly, fully and on time to employees according to the agreed salary. It may not unilaterally reduce or delay salary payment without a legal ground.

The option of paying salary only according to the actual working time in the day and not paying for the late period (for example not counting 10 minutes of late arrival) is in substance a deduction from the employee’s salary.

However, Article 102 of the Labor Code only allows salary deduction to compensate for damage caused by the employee to tools, equipment or property of the company. Apart from this case, the company may not deduct salary due to lateness, otherwise labor disputes and administrative sanctions may arise. Therefore, if the company wishes to control late arrival, it should choose other measures instead of directly deducting from the fixed salary already agreed.

3. Options for handling the situation of employees arriving late:

Option 1: Handling in the direction of labor discipline (Keep the salary payment mechanism unchanged).

The Company still considers the act of arriving late as an act of violating labor discipline (as already provided in the Labor Regulations). Depending on the level and frequency of violation, the Company may apply corresponding forms of disciplinary handling.

Example: Arriving late from 3 times/month will be reprimanded in writing; repeated violations in the month may result in extension of the time limit for salary increase by not more than 6 months.

Advantage: This option helps the Company limit the situation of NLĐ arriving late for work, is completely in accordance with the provisions of law, and avoids the risk of being considered an unlawful deduction of salary.

Option 2: Rebuilding the salary structure into two components (Recommended option).

Instead of deducting from fixed salary, the Company may restructure the salary of NLĐ into two distinct parts:

(i) Basic salary (Fixed salary): This is the fixed salary amount that NLĐ receives when fully completing the working days, regardless of performance. This salary amount must be at least equal to the regional minimum wage as prescribed.

(ii) Performance salary (Flexible/variable salary): This is the variable salary amount, calculated based on the actual working results and performance of NLĐ in the salary calculation period (month).

To apply this mechanism in order to handle late attendance, the Company needs to:

• Develop a set of performance evaluation criteria (KPIs): The tool for evaluating the working performance of NLĐ must include clear criteria, including the criterion on "Compliance with the Labor Regulations and working time".
• Deduction mechanism: When NLĐ violates the working time (coming late, leaving early), they will have points deducted in the compliance criterion. This will lead to the overall performance evaluation result being reduced.
• Result: The performance salary of NLĐ will be reduced corresponding to the performance evaluation result. This is the case where NLĐ "does not achieve" the maximum performance salary, rather than an act of the Company "deducting" from the basic salary, therefore it will be in conformity with the provisions of law.

Note:

For option 2 to be lawfully implemented, the Company is required to institutionalize this entire mechanism by formulating, promulgating and registering a new Regulation on salary and bonus (or Regulation on salary payment, Regulation on performance evaluation).

This Regulation must provide in detail:

• Salary structure (ratio between Basic salary and Performance salary).
• Performance evaluation criteria (KPIs), including criteria on working time.
• Method of timekeeping, recording violations and converting into points/performance results.
• Formula for calculating Performance salary based on the evaluation result.

This Regulation needs to be consulted with the organization representing NLĐ at the establishment (if any) and must be publicly and transparently notified to all NLĐ before implementation.

Consultation: Labor Law Services