How will the basic salary increase from 1st July 2023 affect the contribution levels and entitlements for social insurance and health insurance of employees?

On 14 May 2023, the Government issued Decree No. 24/2023/ND-CP, which stipulates the basic salary for cadres, civil servants, public employees and armed forces (“Decree 24”). Decree 24 will take effect from 1 July 2023, replacing Decree No. 38/2019/ND-CP. It officially raises the basic salary from VND 1,490,000/month to VND 1,800,000/month.

Regulated entities

Pursuant to the regulations of the Government in Decree 24, the basic salary for cadres, civil servants, public employees, and armed forces will officially increase from VND 1,490,000/month to VND 1,800,000/month from 1 July 2023. The group of subjects who receive an increase in the basic salary pursuant to this Decree includes:

  • Cadres, civil servants from central echelon to district level, as regulated in the Law on Cadres, Civil Servants 2008;
  • Cadres, civil servants at commune level prescribed in the Law on Cadres, Civil Servants 2008;
  • Public employees working in public sector entities prescribed in the Law on Public Employees 2010;
  • Employees who work under employment contracts as prescribed in the Government’s Decree No. 111/2022/ND-CP;
  • Employees on state regular payroll in state-funded associations as defined in Government’s Decree No. 45/2010/ND-CP;
  • Commissioned officers, professional soldiers, non-commissioned officers, soldiers and national defense workers and public employees, contractual employees in the People’s Army of Vietnam;
  • Commissioned officers, non-commissioned officers on payroll, non-commissioned officers, conscript soldiers, public security workers and contractual employees in the People’s Police of Vietnam;
  • Employees working in cryptography organizations;
  • Part-time employees in communes, hamlets or neighborhoods.

 

How does the increase in basic salary affect the labor force?

Pursuant to Decree 24, the basic salary is used as a basis for:

  • (i) Determining the levels of salaries in payrolls, allowances and other benefits as per the law with regard to individuals as defined in Article 2 of this Decree;
  • (ii) Calculate the level of activity fees, living expenses as regulated by law;
  • (iii) Calculate deductions and entitlements based on the basic salary.

Therefore, the increase in basic salary from 1 July 2023 has a great impact on workers across the country. The basic salary not only serves as the basis for calculating the salary of cadres, civil servants, public employees, the armed forces… but it also serves as the basis for calculating social insurance or health insurance contributions and benefits for workers in general.

 

Certain significant amounts adjusted upward after the increase in basic salary

1. Increase in social insurance and health insurance contributions

  • Increase in the maximum mandatory social insurance contribution.

According to Decision No. 595/QD-BHXH, if the monthly salary used to calculate the mandatory social insurance contribution exceeds 20 times the basic salary, the monthly contribution will be equal to 20 times the basic salary. Therefore, the maximum mandatory social insurance contribution will increase from VND 2,384,000/month to VND 2,880,000/month.

  • Increase in the maximum health insurance contribution.

According to the Law on Social Insurance 2014, the maximum monthly salary used to calculate the mandatory social insurance contribution is equal to 20 times the basic salary. Therefore, when the basic salary increases, the maximum health insurance contribution for employees will increase from VND 447,000/month to VND 540,000/month.

  • Increase health insurance premiums when joining as a household.

Pursuant to Decree 146/2018/ND-CP, when participating in household health insurance: The first policyholder shall be required to pay 4.5% of the base pay rate; the second, third and fourth policyholder shall be required to pay 70%, 60% and 50%, respectively, of the contribution rate of the first policyholder; the fifth and subsequent policyholder shall be required to pay 40% of the contribution rate of the first policyholder.

2. Increase the level of benefits, allowances and other payments:

  • Increase the allowance for convalescence, health rehabilitation after illness and convalescence, health rehabilitation after maternity.

According to the Law on Social Insurance 2014, the level of convalescence and health rehabilitation after illness and the rate of convalescence and health rehabilitation after maternity for one day is equal to 30% of the basic salary. Therefore, when the basic salary is increased, these allowances increase from VND 447,000/day to VND 540,000/day.

  • Increase the level of subsidy one time when giving birth or adopting a child under 6 months old.

According to the 2014 Law on Social Insurance, female employees giving birth or employees adopting an under-6-month child are entitled to a lump-sum allowance equaling 2 times the statutory pay rate for each child in the month of childbirth or child adoption. In case the mother gives birth to a child but only the father is covered by social insurance, the father is entitled to a lump-sum allowance equaling 2 times the statutory pay rate for each child in the month of childbirth. When the basic salary increases, this allowance will increase from VND 2,980,000 to VND 3.600.000.

  • Increase the level of subsidy one time when having a work accident or occupational disease.

According to the 2015 Law on Occupational Safety and Health, each employee suffering a working capacity decrease of between 5% and 30% is entitled to a lump-sum benefit. In which, each employee suffering a 5% working capacity decrease is entitled to a benefit which is five times more than the basic salary, a half of the statutory pay rate shall be added to each additional 1% working capacity decrease. From 1 July 2023, when the basic salary increases, this allowance will be adjusted from VND 7,450,000 to VND 9,000,000 if there is a 5% decrease in working capacity. After that, for every 1% decrease, will be entitled to an additional VND 900,000.

  • Increase monthly allowance when working capacity decreases by 31% or more.

According to the 2015 Law on Occupational Safety and Health, each employee suffering a working capacity decrease of at least 31% is entitled to a monthly benefit. In which, each employee suffering a 31% working capacity decrease is entitled to benefit equivalent to 30% of the statutory pay rate, 2% of the statutory pay rate shall be added to each additional 1% working capacity decrease. Thus, from 1 July 2023, this allowance will be increased from VND 447,000/month to VND 540,000/month, then for every 1% decrease, an additional VND 36,000 will be enjoyed.

  • Increase the level of allowance for people with working capacity reduction

According to the 2015 Law on Occupational Safety and Heath, if an employee suffering a working capacity decrease of 81% or more, such as rachioplegia, total blindness, paraplegia, amputation of two legs or a mental disease, except the monthly allowance, employees are also entitled to a service allowance equal to the basic salary. When the basic salary increases, the service allowance will be adjusted from VND 1,490,000/month to VND 1,800,000/month.

  • Increase the level of subsidy one time when dying due to work accidents or occupational diseases

According to the 2015 Law on Occupational Safety and Health, if the employee dies due to a labor accident or occupational disease or dies due to an occupational accident or occupational disease after the first treatment or dies during the treatment period without assessment of working capacity decline, the employee’s relatives are entitled to a lump-sum allowance equal to 36 times the basic salary in the month the employee dies, corresponding to VND 64,800,000 instead of VND 53,640,000 after the basic salary increase.

  • Increase the level of convalescence, restore health after treatment of injury and illness

According to the 2015 Law on Occupational Safety and Health, workers who, after receiving stable treatment for injuries caused from occupational accidents or occupational diseases, that require rest and recuperation as prescribed by this Law, are entitled to receive 30% of the basic salary for each day of leave. Therefore, from 1 July 2023, when the basic salary increases, this allowance will be adjusted from VND 447,000 to VND 540,000.

  • Funeral allowance increase

When the following persons die, the persons who take charge of their funeral are entitled to a lump-sum funeral allowance must equal 10 times the statutory pay rate of the month when the employees die: (i) employees who are paying social insurance premiums or employees who have their period of social insurance premium payment reserved and have paid social insurance premium payment for at least full 12 months; (ii) employees who die of a occupational accident or an occupational disease or die during treatment due to a occupational accident or an occupational disease; (iii) persons who are on pension or monthly occupational accident or occupational disease allowance and have ceased working. As a result of the basic salary adjustment, from 1 July 2023, the funeral allowance will be increased from VND 14,900,000 to VND 18,000,000.

  • Increase the monthly death benefit

Pursuant to the Law on Social Insurance 2014, the monthly survivorship allowance for each relative must equal 50% of the basic salary. From 1 July 2023, the subsidy will increase from VND 745.000/month to VND 900,000/month. In another case, the monthly survivorship will be 70% of the basic salary for relatives who have no direct foster care, corresponding to the adjusted increase from VND 1,043,000/month to VND 1,260,000/month.

  • Increase the lowest pension

Pursuant to the Law on Social Insurance 2014, the lowest monthly pension of employees covered by compulsory social insurance who fully satisfy the conditions for pension enjoyment must equal the basic salary. From 1 July 2023, when the basic salary increases, the lowest pension an employee can enjoy will increase from VND 1,490,000/month to VND 1.800.000/month.

 

Note: This article is provided for reference purposes only and does not constitute legal advice. Depending on each specific matter from time to time, the content presented above may no longer be appropriate. For detailed advice, please contact LMP Lawyers.

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