Essential Guide to Overtime Pay Calculation in Vietnam

Key Takeaways

• Overtime must be paid at a minimum of 150% (normal days), 200% (weekly rest days), and 300% (public holidays). Night overtime includes an additional 30% allowance and 20% extra compensation
• Employers must control overtime limits: no more than 40 hours/month and 200 hours/year (300 hours/year for specific industries), with employee consent required
• From July 1, 2026, all compliant overtime income is exempt from personal income tax, but proper timekeeping and separate OT lines in payroll are still required
• Overtime pay is not subject to social insurance contributions as it is not a fixed income component

This article provides a comprehensive overview of overtime pay regulations, including legal conditions, calculation formulas, night shift treatment, and tax and insurance obligations. It helps HR and payroll teams operate accurately, minimize risks, and stay prepared for compliance reviews.

Why must businesses closely manage overtime payroll?

In practice, overtime is not just about compensation but also a key compliance factor in labor, tax, and cost management. As overtime becomes more frequent in industries such as manufacturing, logistics, retail, services, and export processing, payroll accuracy becomes increasingly critical.

Common errors in overtime payroll often stem from:

• Misidentifying the type of working day
• Applying incorrect pay rates
• Failing to control legal overtime limits

Even minor discrepancies can result in tax miscalculations, internal disputes, or compliance risks during labor inspections.

Legal conditions for organizing overtime

Under the Labor Code 2019, overtime is only permitted when:

• Employee consent is obtained
• Working time, location, and job scope are clearly defined
• Legal overtime limits are not exceeded

Current overtime limits:

• Overtime does not exceed 50% of normal daily working hours
• If working 8 hours/day, overtime should not exceed 4 hours/day
• Total working time (including overtime) does not exceed 12 hours/day
• Not exceeding 40 hours/month
• Not exceeding 200 hours/year

Certain industries may extend up to 300 hours/year under Decree 145/2020/ND-CP, provided that the company notifies the provincial labor authority.Note: The current requirement is notification, not prior approval.

Legal basis for overtime pay

According to Article 98 of the Labor Code 2019, minimum overtime pay rates are:

• Normal working days: 150%
• Weekly rest days: 200%
• Public holidays or paid leave days: 300%

For the 300% rate, employees paid on a daily basis still receive separate holiday pay as required by law.

These are minimum statutory levels; companies may pay higher rates depending on internal policies.

Standard overtime payroll formula

General calculation formula

Overtime Pay = Actual Hourly Wage × Overtime Rate × Overtime Hours

Where:

• Actual hourly wage = Monthly salary / total normal working hours
• Salary basis excludes non-fixed bonuses

Example:

An employee earns 15,000,000 VND/month, working 22 days × 8 hours/day

Step 1: Calculate hourly rate

176 hours → 15,000,000 / 176 = 85,227 VND/hour

Step 2: Overtime calculation

Case	Rate	OT Pay
3 hours (normal day)	150%	383,522 VND
4 hours (weekly rest day)	200%	681,816 VND
5 hours (holiday)	300%	1,278,405 VND

A common payroll error is using an incorrect hourly base when allowances or flexible pay components are involved.

How to Calculate Night Overtime Pay

Night working hours are defined from 10 PM to 6 AM.

Employees working during this period are entitled to at least a 30% additional payment on their regular hourly wage.
If it is also overtime, in addition to the 30%, the company must pay an additional 20% based on the regular hourly rate.

Common Payment Rates in Practice

Overtime on normal days

150% + 30% + 20% = 200%

This rate applies when employees work overtime directly during the night period without extending from previous daytime work hours.

Overtime extending continuously from daytime to night

If employees start working overtime before 10 PM and continue past 10 PM, the hours worked after 10 PM are usually calculated at 210% because the rate is increased from the previous daytime overtime.

Overtime payroll in practice at businesses

In practice, many companies opt to apply a consistent 210% rate for night overtime on normal days to simplify the payroll process, reduce discrepancies in timekeeping, and minimize internal disputes.

This approach is compliant with regulations as long as the actual payment is not lower than the minimum required by law, and the company maintains consistency in its internal pay policies.

However, companies still need to clearly state this payment principle in their compensation policies or internal regulations to ensure proper justification when cross-referencing employee records.

How is overtime pay exempt from personal income tax starting in 2026?

Under the recent amendments to the Personal Income Tax Law, from July 1, 2026, overtime and night shift pay will be fully exempt from personal income tax if the payments are made in accordance with labor law regulations.

This means:

• All valid overtime pay will be excluded from taxable income.
• The distinction between regular salary and the premium portion of overtime will no longer be applicable as was required previously.

However, to apply the tax exemption correctly, businesses must ensure:

• Clear timekeeping data is maintained
• Correct classification of working days
• Proper application of overtime pay rates
• Compliance with legal overtime limits

If the payroll does not clearly reflect overtime (OT) or if overtime hours exceed the legal limits, businesses may face difficulties when justifying their tax records.

In practice, overtime should still be listed as a separate line item in the payroll to facilitate tax data reconciliation and labor record verification.

Is overtime pay subject to social insurance contributions?

Overtime pay is not included in the base for compulsory social insurance contributions in Vietnam.

This is because overtime pay is an irregular payment based on additional hours worked, not a fixed or regularly paid supplement.

Businesses must review their payroll systems to ensure overtime is not mistakenly included in the social insurance base.

Common mistakes businesses make when processing overtime payroll

• Incorrect rate application between weekly rest days and holidays
• Failure to monitor the overtime cap, e.g., 40 hours/month
• Insufficient timekeeping data for night overtime
• Failure to separate overtime pay on the payroll
• Mismatch between payroll data and employee records

These are common issues that arise during labor inspections.

Why should overtime payroll be managed through a professional system?

In businesses with multiple shifts, large workforces, or complex compensation policies, overtime is often the most error-prone component.
A professional payroll system helps businesses:

• Control overtime limits
• Apply correct legal rates
• Ensure correct tax exemptions
• Ensure the ability to justify payroll records during audits

In a competitive labor market, transparency in overtime payments is also a key factor in employee retention.
An accurate payroll system is not only a compliance requirement but also a tool for building internal trust.

Legal References

• Labor Code 2019
• Decree 145/2020/ND-CP
• Personal Income Tax Law

Accurate overtime payroll is not just a legal obligation but also reflects transparency and respect for employees. Ignoring these regulations can lead to legal risks and negatively impact employee morale. Talentnet offers professional payroll services to help businesses ensure compliance, optimize costs, and guide adherence to wage payment regulations for effective operations.