6 Steps to Standardize the Process of Building a Transparent, Fair Salary Policy

Salary payment regulation is one of the top concerns for employees as it directly affects their benefits. Therefore, developing a transparent and fair salary payment regulation not only helps businesses avoid dissent from employees but also plays a significant role in attracting and retaining talent. To help businesses standardize their employee salary payment regulations, 1Office shares how to build a salary payment regulation for your company and the key principles to note in the article below.

1. What is a salary payment regulation? Why is it necessary to build one?

Developing a salary payment regulation is the process of establishing rules and principles to ensure consistency in the use and distribution of the company’s salary fund. An effective salary payment regulation must standardize the salary calculation method, the allocation of the salary fund, and the form of payment to suit the specific characteristics of the business and its workforce.

The role of building a salary payment regulation in a business

• A fair and transparent salary payment regulation becomes an effective tool in human resource management, helping to motivate and encourage increased productivity among employees.
• A salary payment regulation is a factor that enhances a company’s reputation and competitive advantage in the recruitment market. An attractive compensation and benefits policy will help the company attract talent and retain employees.
• Additionally, building a salary payment regulation helps businesses control and forecast salary expenses, enabling effective cash flow management and balancing of revenue and expenditure.

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2. Legal basis for developing a salary payment regulation

When developing a compensation and benefits regulation, businesses must strictly adhere to legal provisions and base it on the following legal documents:

• Law on Enterprises
• Labor Code
• Related decrees, guiding documents, and circulars such as:

• • Official Letter No. 4320/LDTBXH-TL (Ministry of Labor, Invalids and Social Affairs) guiding the development of salary regulations in state-owned enterprises
  • Decree 51/2016/ND-CP (Government) regulating salaries and bonuses in state-owned companies holding charter capital
  • Decree No. 49/2013/ND-CP (Government) detailing the implementation of a number of articles of the Labor Code on wages

Additionally, to ensure transparency and fairness, businesses must base the regulation on the collective labor agreement signed with the Trade Union, policies on insurance, working hours, overtime pay, and the market salary rates being paid to employees.

3. Steps to build a salary payment regulation for a business

Step 1: Determine the source of the salary fund and the salary unit price

The source of the salary fund includes the factors that make up the business’s salary fund. These components will be determined based on the business’s production and business performance results and other mechanisms to ensure the rights of employees.

The source of the salary fund is fully established according to the following formula:

F = Fđg + Fnđg + Fbs + Fdp

Where:

• F – Total source of the salary fund
• Fđg – Fund based on the salary unit price
• Fnđg – Fund outside the unit price, formed from other business activities such as leasing premises, etc.
• Fbs – Supplementary fund including allowances and salaries for paid leave days as stipulated by the State (public holidays, Tet, etc.)
• Fdp – Reserve salary fund carried over from the previous year to ensure there is no shortage of funds for salary payments

Depending on the plan for building the salary regulation, the business can choose one of the following methods to determine the salary unit price:

• Salary unit price based on total revenue: For every 1000 VND of revenue generated, how much salary is calculated for the employee.
• Salary unit price based on total revenue minus total costs: For every 1000 VND of total revenue minus total costs generated, how much salary is calculated for the employee.
• Salary unit price based on profit: For every 1000 VND of profit generated, how much salary is calculated for the employee.
• Salary unit price based on product unit: For every 1 product unit created, how much salary is calculated for the employee.

Step 2: Allocate the salary fund

To ensure a balanced allocation of the salary fund for different expenses, the business needs to divide the total salary fund into component funds, specifically:

• Salary fund for direct payment to employees based on the number of products, working days, piece-rate salary, etc.
• Bonus and incentive fund for employees with outstanding work performance
• Reserve salary fund for the following year

Step 3: Distribute the salary fund

Distributing the salary fund refers to the activity of building a system of salary scales, salary schedules, and allowances for each department and each labor level within the business. This includes:

• Salary scale: A system of salary grades determined by the complexity of the skills required to perform a job. Each increasing level of difficulty corresponds to a salary grade.
• Salary schedule: A table created for a group of job titles or positions with corresponding salary coefficients. A salary schedule can have one or more salary grades.
• Allowances: Including phone, transportation, meal allowances, hazardous work allowances, position-based allowances, etc., and other types of allowances suitable for the business’s production and operational characteristics.

Step 4: Regulations on salary payment methods

Based on the nature of the work, businesses can apply different salary payment methods for employees in each department. Some common salary calculation methods applied by businesses are:

• Time-based salary: A salary calculation method based on the employee’s rank and actual working time. This payment method is mainly applied to positions where it is difficult to determine work quotas, such as management, service staff, etc.
• Piece-rate salary: A payment method based on the quantity and quality of products an employee actually produces during a period. This method reflects the relationship between income and work results, thereby motivating employees to increase productivity.
• Lump-sum salary: This is a form of payment where an employee completes a certain volume of work assigned for a specific period. This method is applied to ad-hoc tasks where a stable labor standard cannot be determined.

In addition, businesses can also apply multiple salary calculation methods for the same employee, as long as these methods do not conflict with each other. Currently, many companies have salary advance policies for employees, which is considered an effective payment method that brings significant value to both the business and the employees.

See more: Process for employee salary advances according to the latest regulations

Step 5: Develop a system of evaluation criteria

To ensure transparency, clarity, and employee motivation in the salary policy, businesses need to build a system of criteria to evaluate work completion levels. Businesses can use various evaluation methods such as KPI-based assessment, ASK competency framework assessment, etc.

These criteria will be the basis for businesses to pay performance-based salaries and award achievement bonuses to employees. Additionally, businesses also rely on these criteria to make salary deductions if employees do not complete their work according to the set plan or make errors such as not meeting product specifications or quantity.

Step 6: Issue, apply, and continuously amend and supplement the salary payment policy

The final step in completing the salary payment policy is to issue and implement it. When applying the salary policy, businesses must clearly communicate it to all employees, ensuring everyone understands the basic regulations and content within the policy.

Since the salary policy is aimed at employees, the business must be receptive to all feedback from them and make necessary amendments and supplements to ensure their rights are fully protected.

4. Requirements for developing a salary payment policy

Compliance with legal regulations

A company’s salary payment policy must comply with legal regulations on employee wages. Specifically, businesses need to address issues such as minimum wage, statutory salary, and adhere to regulations on insurance contributions and personal income tax for employees.

The salary policy must be clear and easy to understand

Employees are the primary audience for the salary policy, so they have the right to understand how their salary is calculated. Therefore, the principles and formulas within the policy must be easy to understand and explained clearly and specifically.

Ensure fairness and transparency

The salary system must accurately and adequately reflect the nature of the work, employee capabilities, and performance. If employees feel their compensation is unfair, they may become dissatisfied and protest, negatively impacting the company’s image.

Salary competitiveness

The salary offered in the policy must be competitive enough to satisfy and motivate employees. Furthermore, an attractive salary in the job market will play a key role in attracting high-quality talent to the business.

5. Standardize the salary policy development process with 1Office HRM

In an increasingly competitive human resources market, businesses need to optimize their employee salary policies to enhance their competitive position and strengthen internal resources. To solve the payroll challenge for businesses, 1Office has developed the HRM module, helping companies build a transparent and efficient salary system.

HRM is an automated employee salary management software that replaces traditional payroll systems and paper forms with outstanding features such as:

• Digitize payroll on the software; set up flexible, customizable payroll sheets to suit your business
• Integrate all Excel formulas into timekeeping and payroll calculation – suitable for all modern businesses
• Automatically calculate monthly payroll based on pre-set configurations
• Review and approve payroll 24/7 directly on the software
• Transfer salaries directly on the software through a link with the Military Commercial Joint Stock Bank

This article from 1Office has shared the process of developing a salary policy, along with principles for ensuring transparency and fairness in employee compensation. To experience our automated HR payroll management software, please register for a free consultation here:

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