Question:
Currently, our company operates in the logistics sector, where the workload is highly dependent on customer demand and varies significantly depending on the season or specific time periods. As a result, some departments have exceeded the statutory overtime limit under the Labor Code, with approximately 30% of employees having worked over 200 overtime hours per year.
The company is considering the following solution:
- Limit overtime to no more than 200 hours per year and 40 hours per month per employee;
- Any overtime exceeding the statutory limit will not be recorded as overtime work but will be converted into a “Performance Bonus,” which will be paid monthly in accordance with the company's internal salary and bonus policy and under a monthly decision issued by the company. The objective is to ensure that employee income remains unaffected;
- The company will inform and discuss this policy with employees to ensure their understanding and cooperation;
- The timekeeping records will be adjusted to match the number of hours paid, rather than reflecting the actual hours worked.
We would like to ask: Is this proposed approach compliant with current labor laws? Are there any legal risks that should be taken into account when implementing it? Does SB Law have any recommendations or more suitable alternatives for our situation?
Answer
According to SB Law’s opinion, in order to comply with applicable regulations, if the company plans to require employees to work more than 200 overtime hours per year, it must carry out a notification procedure with the Department of Home Affairs regarding the plan to extend overtime to between 200 and 300 hours per year, in accordance with Clause 3, Article 61 of Decree No. 145/2020/NĐ-CP.
The proposed solution of paying the excess overtime as a monthly “Performance Bonus” entails various legal risks and may be disadvantageous to both the company and the employees. Specifically:
- A performance bonus may be considered a salary allowance and included in the salary base for calculating social insurance contributions. In practice, SB Law is not aware of any case where the performance bonus has been mandatorily included in the social insurance base salary. However, in our opinion, if such a bonus is paid regularly on a monthly basis along with the salary, there is a high likelihood that it will be treated as part of the salary for social insurance purposes. Consequently, both the company and the employees would face higher social insurance contributions.
- According to Item (i), Clause 1, Article 3 of Circular No. 111/2013/TT-BTC (as amended), the income received by employees from lawful overtime pay is exempt from personal income tax. However, if this payment is made in the form of a performance bonus, it would be subject to personal income tax. This approach would therefore adversely affect the employees' interests.
