Minimum wage increase burdens businesses

From October 1, the new wage policy will take effect, under which the highest minimum wage will be 2 million dong a month. Businesses complain that the new policy will put a heavier burden on them because they will have to pay higher for workers’ social insurance premiums.

Minimum wage up, profit down

Nguyen Tri Kien, Director of Miti, a company specializing in making handbags, compares the minimum wage increase with an additional burden on businesses.

According to Kien, with 400 workers, the company will have to pay an additional sum of 100 million dong a month for social insurance. In the current conditions, when the purchasing power decreases due to the high inflation, sales go slowly, revenue decrease, any additional spending items would cause headaches to businesses.

Kien said that in fact, the minimum wage increases would not affect laborers, because minimum wage is just nominal wage. In fact, the actual minimum wages laborers receive every month are much higher than the nominal wage levels. At Miti, for example, the minimum wage is 2.5 million dong a month.

Meanwhile, the minimum wage increase will create a hard pressure on businesses, especially when the purchasing power decreases by 30-40 percent. Businesses will have to pay higher for social insurance, which spells that the production costs will be higher.

“However, we dare not raise the sale prices at this moment, when the purchasing power is weak. We cannot lay off workers now to cut down expenses. So we have only once choice: accepting low profits,” Kien said.

Pham Xuan Hong, Chair and General Director of Gatexim, also said that the minimum wage increase will only bring benefits to laborers when they get retired, while the increase will put big difficulties for businesses, which also means that laborers will suffer.

Hong explained that when businesses have to pay higher for social insurance, they cannot offer higher actual wages to laborers, despite the high inflation rate.

Pham Ngoc Hung, Deputy Chair of the HCM City Business Association, also said that in fact, businesses pay 2.5 million dong a month already. Therefore, the new minimum wage policy will not make any changes to the actual salaries of laborers, while it will load a heavier burden on employers, because they will have to pay 10 percent more on social insurance.

“Enterprises say if they did not have to raise the minimum wages, they would increase the wages for workers by 500,000 dong a month. However, they now can increase the wages only by 300,000 dong a month, because the remaining 200,000 dong must be paid for social insurance premiums,” Hung said.

Businesses will reconsider payrolls

There always exist two payrolls at every enterprise. The first payroll is calculated based on the state-stipulated minimum wage levels and the service length. The second one is the actual pay to laborers, based on the negotiations between employers and workers.

The first payroll is used when enterprises calculate the social insurance premiums they have to pay, because the salaries shown in the nominal payroll are lower than the actual pay, which means that enterprises have to pay lower for social insurance.

Businesses have said that they may have to reconsider the structure of the payrolls in an effort to reduce the sums of money they have to pay for social insurance.

A director of a garment company said that in the past, the gaps between different pay levels were relatively big, which made the company to pay high for social insurance. However, the company will make some adjustment to the calculation of wages to reduce the sum of money to be paid for social insurance, from 2 billion dong to 1.1 billion dong a month.

Source: TBKTSG

Tags: Vietnam minimum wage