Payroll & Tax Hurdles in Implementing Your 2026 Compensation Plan

Key takeaways

• Ensure legal compliance and optimize costs by mastering the new regulations on Personal Income Tax (PIT) and minimum wage.
• Restructure the compensation package, moving from simple salary increases to building a comprehensive, tax-optimized Total Rewards system.
• Link salary to performance through a clear KPI system to ensure pay raises deliver a real ROI for the business.
• Communicate transparently about the new compensation policy to build trust and foster cooperation from employees

Implementing a compensation plan involves building, executing, and adjusting your company’s comprehensive rewards policies, from salary and bonuses to benefits. The year 2026 marks a period of fundamental change, with significant updates to personal income tax and minimum wage reforms rolling out at the same time. Leaders must master the latest PIT calculation rates and develop up-to-date salary and bonus frameworks to navigate the complex hurdles of modern payroll and taxation.

Key factors shaping 2026 compensation plans

The year 2026 creates a “perfect storm” by rolling out several critical policy changes at once, forcing businesses to face unprecedented challenges.

1. Rising regional minimum wage

Effective January 1, 2026, the regional minimum wage will increase by an average of 7.2% across the country:

Region	New salary level	Increase (USD)
Region I	~$212/month	+$14
Region II	~$189/month	+$12.80
Region III	~$166/month	+$11.20
Region IV	~$148/month	+$10

This isn’t just about raising pay for employees at the minimum level. It will trigger a domino effect, compelling businesses to readjust their entire salary structures to ensure internal equity. Employees earning just above the old minimum will expect corresponding raises, triggering a chain reaction of rising personnel costs. The biggest challenge is balancing this cost pressure with maintaining workforce motivation. Companies must calculate these adjustments carefully to avoid distorting their pay structures, where pay gaps between job levels become inequitable.

2. Evolving personal income tax (PIT) policies

The Ministry of Finance has proposed two options for PIT reform starting in 2026:

Option 1:

• Taxpayer deduction: ~$532/month
• Dependent deduction: ~$212/month

Option 2:

• Taxpayer deduction: ~$620/month
• Dependent deduction: ~$248/month

A proposal is also on the table to simplify the tax schedule from 7 to 5 brackets, with the top rate remaining at 35%.

Increasing personal and dependent tax deductions will boost employees’ take-home pay without requiring businesses to increase gross salary. This is an opportunity for leaders to restructure their benefits packages for tax efficiency, shifting part of the budget from base pay to non-taxable benefits like meal allowances, transportation support, or health insurance.

However, this change also creates a challenge in managing expectations. Employees might hope to “double-dip,” benefiting from both tax reform and a pay raise. Clear communication from employers is essential to prevent misunderstanding and disappointment.

3. New social insurance (SI) contribution rules

Because the minimum wage is the basis for SI contributions, an increase in the regional minimum wage means businesses must pay more in mandatory SI for employees. Starting July 1, 2025, and into 2026, SI contribution requirements will expand to include new groups of workers, such as seasonal employees on contracts of one month or more and owners of individual business households. This expands the corporate insurance burden, covering more people for longer periods.

While these changes will significantly raise direct costs for businesses, they also serve as a powerful motivator to improve HR management. This is a chance to invest in digital transformation, boost operational efficiency, and modernize compensation strategies, thereby increasing competitiveness and retaining talent in a dynamic, high-growth market.

4. Pressure from public sector spending

Salary reform in the public sector is creating seismic shifts:

• The base salary already jumped by 30% on July 1, 2024, from ~$72 to ~$94/month.
• The old salary coefficient system is expected to be replaced by a new model where basic pay makes up ~70% of the total salary fund, with a 30% cap on allowances.
• Public sector agencies with strong business results will have greater autonomy over performance bonuses.

This creates immense competitive pressure. This public sector pay overhaul is set to create a new salary benchmark, especially given that public servant salaries are projected to match or exceed those in the private sector for similar roles after 2026. This will heavily impact the private sector’s ability to attract and retain senior managers, specialists, and high-quality tech talent.

5. Demand for business autonomy and efficiency

A key trend across all new policies is the tight link between payroll funds and business performance:

Principle of linking salary to productivity:

• Salary increases must be tied to productivity gains.
• Profits must not decline year-over-year.
• Key performance indicators must improve across the board.

Special incentives for high-tech labor:

• Salaries can be based on market rates.
• Not restricted by the general salary framework.
• Condition: Does not negatively impact the company’s profits.

How to build an effective compensation plan for 2026

In this complex environment, your compensation plan can’t be merely reactive or based on trends. Businesses need a strategic, methodical, and long-term approach.

1. Ensure legal compliance

Businesses must stay current on all new regulations for minimum wage, PIT, and social insurance. Compliance errors not only pose legal risks but can also strain employee relations. This goes beyond simply applying the new minimum wage ; it requires a deep understanding of new tax calculations, especially for non-traditional roles like part-time staff or foreign employees. Investing in a modern payroll system and training your HR team is essential for long-term accuracy and cost savings.

2. Optimize the total rewards package, not just base pay

Instead of focusing only on raising base salaries, build a comprehensive total rewards package.

A model for an optimal 2026 package:

Basic salary (60-70%) + Performance bonus (15-20%) + Non-taxable benefits (10-15%) + Career development (5-10%)

This approach offers several key benefits:

• Financial flexibility: Variable pay can be adjusted based on performance.
• Tax optimization: Leverages non-taxable benefits to maximize value.
• Added value: Creates a holistic and engaging employee experience.
• Competitive edge: Sets you apart from competitors focused solely on base salary increases.

For example: instead of a ~$80 increase in base salary, consider a ~$40 raise plus a ~$40 investment in a competitive benefits package that includes high-end health insurance and professional training. This approach is not only more tax-efficient but also delivers tangible value to your employees.

3. Link pay increases to performance

To ensure salary increases deliver a real ROI, businesses need a clear, transparent, and fair performance measurement system (KPIs). Your compensation policy should be a tool to boost productivity, not just another line item expense. This requires a management mindset shift. The performance system must be objective and motivational, using both quantitative and qualitative metrics, reasonable review cycles, and a two-way feedback loop between managers and employees.

4. Enhance transparent internal communication

Transparent communication is the key to a successful rollout of any new compensation policy. This communication must happen on three distinct levels:

Level	Content
Level 1: Strategic vision	Explain the market context and competitive pressures. Clarify the company’s long-term goals and connect the new pay policy to the overall business strategy.
Level 2: Specific policy	Detail the new calculation methods, explain the impact on different employee groups, and provide a clear implementation timeline.
Level 3: Interaction & feedback	Create an open Q&A channel, host small group discussions, and actively collect feedback for timely adjustments.

The year 2026 marks a major turning point for HR management in Vietnam, with simultaneous changes to tax law, payroll regulations, and public sector reforms. Instead of viewing this as a cost challenge, smart leaders should see it as a strategic opportunity to overhaul their entire HR framework. The companies that act proactively—using salary survey reports to build transparent, performance-linked compensation models—will gain a decisive advantage in the war for talent.