An Easy-to-Understand Time-Based Salary Formula, with Detailed Examples

The time-based salary formula is commonly used to pay salaries based on the actual number of hours, days, or months worked by an employee. If the formula is applied incorrectly, businesses may miscalculate salaries, allowances, workdays, or related deductions. This article will help you understand how to calculate time-based salaries, with illustrative examples and important notes for application.

I. What is a time-based salary?

A time-based salary is a form of income payment based on a fixed wage rate and the actual duration of work (hour, day, week, month) of the employee, to ensure stability and compliance with agreements on attendance time at the company.

To operate in compliance with legal regulations and optimize human resource efficiency, businesses should note the following key points:

• Flexible unit of calculation: Depending on the specific nature of their business operations, companies can choose to pay salaries hourly, daily, or weekly. However, the monthly salary calculation method remains the most common standard for office workers and formal enterprises.

• Periodic payment cycle: According to the Labor Code, employees must be paid at least once a month or once every 15 days, depending on the agreement, to ensure a stable livelihood for the staff.

• Strict legal basis: This form of payment is regulated by Article 96 of the 2019 Labor Code and Decree 145/2020/ND-CP, requiring transparency and agreement between the employer and the employee from the moment the contract is signed.

• Diverse income structure: Businesses can choose to pay a pure time-based salary or combine it with performance bonuses (time-based salary with bonus) to motivate employees.

• Commitment to timeliness: Payments must be made directly and in full. In case of unavoidable delays, the business is obligated to compensate an amount equivalent to the bank interest rate to protect the employee’s rights.

Learn more: The best employee payroll software – An automated timekeeping and payroll management solution for businesses

II. A Compilation of the Most Accurate Time-Based Salary Formulas

1. Monthly Salary Formula

The method for calculating the monthly salary paid to employees is based on the contract (according to Article 3 of Circular 23/2015/TT-BLDTBXH).

Formula 1:

Where: Standard working days = Total days in the month – Days off

Example:

September 2022 has 30 days, including 5 Sundays (employees are off on Sundays)

=> The number of standard working days is: 30 – 5 = 25 (days)

Note:

When using time-based salary payment, for this formula as well as other monthly salary calculation formulas, businesses need to pay attention to legal regulations.

According to Clause 2, Article 6 of Circular 595/QD-BHXH, salary allowances to compensate for factors such as working conditions, job complexity, living conditions, and labor attraction that are not yet included or fully calculated in the agreed salary in the labor contract include:

• Position and title allowances.
• Responsibility allowances.
• Hardship, hazardous, and dangerous work allowances.
• Seniority allowances.
• Regional allowances.
• Mobility allowances.
• Attraction allowances and other similar allowances.

Formula 2:

The second formula in this monthly salary calculation method is applied when accountants do not want to spend time calculating the number of days in the month or the number of Sundays. With this method, the business will choose a fixed standard number of workdays to divide and calculate based on. Businesses today often use 26 days.

Formula:

Example:

The fixed salary for an HR Manager is agreed at 15 million/month, with a meal and travel allowance of 1 million. In September 2022, this person worked for 20 days.

=> Monthly salary = (15+1)/26 * 20, which is equivalent to 12,300,000 VND.

Note:

This calculation method may seem easier, but businesses should also take note and stay updated. Depending on the company’s conditions and specific characteristics, the business can choose one of the two calculation formulas.

2. Weekly salary calculation formula

Formula:

Example:

If the fixed monthly salary is 15 million, then the weekly salary = (15*12)/52, equivalent to 3 million dong.

3. Daily Salary Calculation Formula

The method for calculating daily salary is amended and supplemented in Article 14 of Circular 47/2015/TT-BLDTBXH. Specifically as follows:

Formula:

Note:

The number of normal working days in a month is chosen by the business, but it cannot exceed 26 days

4. Formula for calculating hourly wage

Hourly wage is the salary paid for one hour of work by an employee; in cases where the labor contract specifies a monthly, weekly, or daily salary, the hourly wage is determined by dividing the daily salary by the number of normal working hours in a day, as stipulated in Article 105 of the 2019 Labor Code.

Formula:

Note:

For this time-based salary calculation formula, businesses need to ensure compliance with the regulations set out in Article 104 of the Labor Code, specifically:

• Do not work more than 8 hours in 1 day, 48 hours in 1 week.

However, companies and businesses are regulated to work by the hour, day, or week. If working hours are regulated by the week, they should not exceed 10 hours in 01 day, but not more than 48 hours in 01 week.

• Working hours should not exceed 06 hours in 01 day for those performing particularly arduous, toxic, or dangerous jobs.

III. Comparison of Time-Based Pay and Piece-Rate Pay

1. Differences in Calculation

• Time-based pay: calculated based on the number of hours, days, or months an employee works, not directly dependent on the quantity of products completed. The basic formula is usually:
  Salary = Time-based rate × Actual working time.

• Piece-rate pay: depends directly on the volume and quality of products or services the employee produces. The formula is usually:
  Salary = Unit price per product × Number of products completed.

2. Impact on Labor Productivity

• Time-based pay: ensures a stable income for employees, but may reduce the motivation to increase productivity if the company does not incorporate an additional bonus mechanism.

• Piece-rate pay: encourages employees to work faster and produce more, directly linking income to results. However, if quality is not well-controlled, it can lead to a focus on quantity, neglecting safety or product quality.

3. When to Apply Each Form

• Time-based pay is suitable for positions that require quality, stability, and are difficult to measure by specific products, for example: management, administration, human resources, maintenance technicians.

• Piece-rate pay is suitable for direct production jobs that are easily measured by output quantity, such as garment manufacturing, processing, and assembly.

IV. What Factors Affect Time-Based Pay?

Time-based pay is the result of an interplay between the legal minimum threshold, the organization’s financial capacity, and individually negotiated value, aiming to balance operational costs and employee benefits.

1. Legal Regulations

According to the Labor Code of Vietnam, salary is an agreement between the employee and the employer, but it must not be lower than the regional minimum wage issued by the Government. This is the legal basis for protecting the minimum rights of employees, especially for general labor positions or repetitive jobs.

In addition, the law also clearly stipulates:

• Overtime pay must be higher than the normal wage (at least 150% on regular days, 200% on weekly days off, and 300% on public holidays and Tet).

• Night shift pay is supplemented by at least 30% compared to the daytime wage.

• Businesses must pay salaries on time, not delayed by more than 30 days in special cases.

Complying with these regulations is not only a legal obligation but also a crucial factor in helping businesses build credibility, avoid labor disputes, and administrative penalties.

2. Company’s Internal Policies

Each business has the right to build a time-based pay system that aligns with its industry specifics and HR strategy. For example:

• Manufacturing businesses can apply a basic salary plus attendance and shift allowances.

• Service businesses often combine time-based wages with sales bonuses and KPIs to link income with job performance.

• Large-scale enterprises tend to design salary scales based on position, level, and seniority to ensure fairness and transparency.

In addition to the basic salary, many companies also provide allowances for lunch, transportation, and phone expenses, as well as holiday bonuses, Tet bonuses, and health insurance to motivate employees and retain talent. The clearer and more transparent the internal policies, the fewer conflicts arise and the greater employee loyalty.

3. Agreement in the labor contract

The labor contract is a legally binding document between the employee and the employer, in which the time-based wage must be clearly specified. The elements that need to be specifically stated include:

• Basic salary.

• Form of payment (monthly, daily, or hourly).

• Payment period (monthly, semi-monthly).

• Allowances and bonuses, if any.

• Conditions for periodic or ad-hoc salary reviews.

Having transparent regulations in the contract helps ensure the rights of both parties, avoids salary disputes, and creates peace of mind for employees.

Thus, time-based wages are simultaneously influenced by the legal framework, the company’s internal policies, and the agreements in the labor contract. Businesses need to combine all three of these factors to comply with the law while remaining flexible in human resource management, ensuring a balance of interests between the organization and its employees.

V. Which businesses should apply the time-based wage formula?

The time-based wage payment method is often prioritized by companies when the nature of the work requires a fixed presence, when the output is difficult to quantify with specific numbers, or when the focus is on process quality and management capabilities.

Common target groups and application areas:

• Management and administrative personnel: Suitable for executive, administrative, or office staff positions where the work involves maintaining system operations and it is difficult to impose rigid product quotas.

• Assembly line production facilities: Applied to automated production stages or industrial assembly lines where the work pace depends on machinery, and employees need to ensure continuous presence to monitor the process.

• Service and professional consulting industries: Used for jobs with unstable product volumes or those that are difficult to measure accurately with piece-rate indicators, requiring personnel to focus on skills and service attitude throughout their working hours.

• New businesses or special projects: Companies that are still in the process of establishing procedures and have not yet built a complete piece-rate (KPI) system often choose time-based wages to ensure stable income for their team.

VI. Pros and Cons of Time-Based Salary Calculation

Although time-based salary is a popular form of payment for businesses today, it’s undeniable that applying these time-based salary formulas has its own advantages and limitations.

1. Advantages of Applying Time-Based Salary Formulas

• Time-based salary is easy to understand, calculate, and apply
• It helps employees/workers avoid pressure regarding workload, unlike KPI-based salary calculation
• It allows employees more time to invest effort in improving their work methods, ensuring creativity isn’t stifled by KPI pressure
• It supports the improvement of employee work efficiency
• For the business, time-based salary formulas help the accounting department build a synchronized payroll management system, minimizing discrepancies during audits.

2. Disadvantages of Applying Time-Based Salary Formulas

Despite its advantages for both employees and businesses, the time-based salary model also has its drawbacks. Specifically, it may not be entirely fair or accurate in assessing and evaluating employee performance.

Clearly, with a fixed salary, employees might work at a higher or lower productivity level than what they are paid for. This is a limitation of time-based salary compared to the KPI-based salary model.

To overcome this issue, many businesses today combine time-based salary with benefits. This is the most optimal measure to boost labor efficiency and employee responsibility at work.

VII. Frequently Asked Questions about Time-Based Salary Formulas

Can a business arbitrarily change the standard number of workdays in a month?
Businesses have the full right to decide the standard number of workdays (e.g., 24 or 26 days) based on their weekly rest schedule. However, this regulation must be clearly stated in the internal labor regulations, labor contract, or salary and bonus policy to ensure transparency and consistency when applying time-based salary.
Are public holidays and Tet holidays included in time-based salary?
Yes. Employees on a time-based salary are entitled to take leave and receive their full salary during public holidays and Tet as stipulated by the Labor Code. These days are counted as actual working days for full payment.
Should a business choose 24 or 26 as the standard number of workdays?
Choosing 26 standard workdays helps the business reduce the daily salary paid for an employee’s actual workday. However, the company must clearly specify this in the labor contract to avoid disputes when calculating time-based salary.
Does time-based salary include allowances?
Yes. The total income when applying the time-based salary method usually includes the basic salary and various allowances (lunch, travel, position, etc.). These amounts must be listed transparently on the monthly payslip.
How do piece-rate salary and time-based salary differ?
The biggest difference lies in the basis for calculation: Time-based salary is based on the actual hours or days worked, ensuring a stable income for employees. In contrast, piece-rate salary is based entirely on the quantity and quality of finished products, aiming to maximize labor productivity.

VIII. Conclusion

Today, to ensure the accurate and highly effective application of time-based salary formulas, many businesses have turned to technological solutions to improve the efficiency of timekeeping and payroll management, helping HR and accounting departments reduce their workload and minimize errors.

The payroll management software of 1Office – today’s leading all-in-one management solution – has helped over 5,000 businesses overcome bottlenecks in monthly timekeeping and payroll with its modern features. By using this feature, businesses can easily synchronize data, automatically calculate salaries, and conveniently transfer payments through bank account integration.

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