Gross Salary vs Net Salary: Vietnam Calculation & Employer Guide

Apr 28, 2025

HR & Payroll

Gross Salary vs Net Salary: Definitions, Calculation Formula, and Which One Should Businesses Use?

Understanding the difference between gross salary and net salary is important for both employees and employers. These two concepts not only directly affect an employee’s monthly take-home pay, but also play a key role in budgeting, designing compensation policies, and managing overall HR costs for businesses.

Table of Contents

What Is Gross Salary?

Gross salary refers to an employee’s total income before mandatory deductions are made. This amount typically includes base salary, allowances, benefits, commissions, bonuses, compulsory insurance contributions, and personal income tax, if applicable.

In other words, gross salary is the salary amount agreed upon in the employment contract and is used as the basis for calculating deductions such as insurance, tax, and union fees.

Gross salary may include:

Base salary: The fixed amount paid to an employee periodically, based on their position, title, professional qualifications, work experience, and agreement with the employer.
Allowances and benefits: Additional payments provided on top of the base salary to cover work-related expenses, such as meal allowance, transportation allowance, phone allowance, or overtime pay.
Commissions and bonuses: Income earned based on business results, work performance, or the company’s bonus policy.
Other taxable income: Depending on the company’s payment policy and applicable legal regulations.

In practice, gross salary is commonly used in employment contracts, offer letters, and internal payroll systems.

Gross Salary vs Total Employee Cost

In addition to gross salary, employers are responsible for contributing to Social Insurance, Health Insurance, Unemployment Insurance, and trade union fees. These are mandatory employer obligations under the law.

The total employee cost can be calculated as follows:

T o t a l E m pl oyee C os t = G ross S a l a ry + S oc ia l I n s u r an ce + He a lt h I n s u r an ce + U n e m pl oy m e n t I n s u r an ce + T r a d e U ni o n F ee

This includes:

Social Insurance: Employer contribution of 17.5%
Health Insurance: Employer contribution of 3%
Unemployment Insurance: Employer contribution of 1%
Trade Union Fee: 2%

The salary used as the basis for Social Insurance, Health Insurance, and Unemployment Insurance contributions may be lower than or equal to the gross salary, depending on the company’s salary policy and relevant legal regulations.

Refer to the total employee cost calculation formula here.

What Is Net Salary?

Net salary is the employee’s take-home pay — the actual amount an employee receives after all mandatory deductions have been subtracted from their gross salary.

In Vietnam, common deductions include:

Social Insurance: Employee contribution of 8%
Health Insurance: Employee contribution of 1.5%
Unemployment Insurance: Employee contribution of 1%
Personal Income Tax: Calculated based on the progressive tax rates applicable to taxable income
Trade union fee: Applicable to employees who participate in a trade union

How to Calculate Net Salary from Gross Salary

In most cases, gross salary is used as the basis for calculating net salary.

N e t S a l a ry = G ross S a l a ry - (S oc ia l I n s u r an ce + He a lt h I n s u r an ce + U n e m pl oy m e n t I n s u r an ce + P erso na l I n co m e T a x + T r a d e U ni o n F ee)

In which:

Mandatory insurance contributions by the employee: 10.5% of salary, including:
- Social Insurance: 8%
- Health Insurance: 1.5%
- Unemployment Insurance: 1%

Personal Income Tax is calculated using the following formula:

P erso na l I n co m e T a x = (T o t a l I n co m e - T a x E x e m pt I n co m e - De d u c t i o n s) \times T a x R a t e

Trade union fee: 0.5% of salary, applicable only to employees who participate in a trade union.

Understanding this formula helps employees negotiate salary more proactively, while also enabling businesses to design a transparent and manageable compensation policy.

Gross vs. Net Salary: Key Differences

Criteria	Gross Salary	Net Salary
Meaning	Total income agreed upon in the employment contract, including base salary, allowances, and bonuses, before insurance and tax deductions	The final amount an employee receives after deducting Social Insurance, Health Insurance, Unemployment Insurance, Personal Income Tax, and other applicable deductions
Components	Base salary, allowances, bonuses, commissions, other pre-deduction income, insurance, and Personal Income Tax	Base salary, allowances, bonuses, commissions, and other income after insurance and Personal Income Tax deductions
Typical value	Always higher than net salary	Always lower than gross salary
Main purpose	Commonly used in employment contracts, offer letters, budgeting, and compensation planning	Helps employees clearly understand their take-home pay and plan personal finances

Payroll Optimization: Why Businesses Should Rethink Their Salary Structure

Both gross salary and net salary play different roles in HR and payroll management. However, to optimize costs and reduce operational risks, businesses need to build a salary structure that aligns with their business objectives, management capabilities, and employee expectations.

Net salary agreements are often more attractive to candidates who want to know exactly how much they will receive each month. This can be an advantage when recruiting foreign employees, senior professionals, or project-based workers.

However, negotiating salaries on a net basis can also expose businesses to greater cost fluctuations. When the law changes the base salary, regional minimum wage, insurance rates, or tax regulations, employers must still ensure that the committed net salary remains unchanged. This may increase total labor costs throughout the employment contract period.

In addition, most payroll formulas are designed based on gross salary. If net salary is used, the HR or payroll team often needs to convert net salary into gross salary before entering it into the payroll system. This conversion process may lead to errors if not properly controlled.

Therefore, for businesses that want to maintain budget stability, reduce administrative workload, and minimize risks arising from maintaining a fixed net salary, gross salary is generally the more suitable option.

See more: HR Payroll Solutions for SMEs | Eliminate Payroll Delays & Errors

Frequently Asked Questions

Does net salary include allowances?

This depends on the agreement between the employee and the employer, as well as the company’s internal benefits policy.

In addition to base salary, employees may receive allowances such as transportation allowance, phone allowance, meal allowance, or overtime pay. These amounts may be included in the monthly net salary, depending on how the company defines and pays them.

Therefore, when negotiating net salary, employees should clarify whether the proposed net salary already includes allowances. If an employer offers a net salary, employees should also request clear information on allowances, bonuses, and other benefits to avoid misunderstandings later.

What contributions and taxes apply when receiving a net salary

When receiving a net salary, employees should understand that insurance contributions and taxes have already been calculated, deducted, or converted within the overall salary cost. The main items include:

Compulsory insurance contributions

Under the law, when signing an employment contract with a company, employees are entitled to benefits from Social Insurance, Health Insurance, and Unemployment Insurance. At the same time, both employees and employers are required to make compulsory insurance contributions at the applicable rates.

Specifically:

Social Insurance: 22.5%, of which the employee contributes 8% and the employer contributes 17.5%.
Health Insurance: 4.5%, of which the employee contributes 1.5% and the employer contributes 3%.
Trade Union Fee: 2% of the salary fund, fully paid by the employer.

Personal Income Tax

In addition to compulsory insurance contributions, employees with employment contracts of two months or more may also be subject to Personal Income Tax. The calculation of Personal Income Tax depends on the employee’s salary, deductions, and other sources of income.

Is probation salary calculated based on gross salary or net salary?

In most cases, probation salary is calculated as a percentage of gross salary, such as 85% or 90% of gross salary. However, some companies may agree on probation salary based on net salary so that employees can easily understand their actual take-home pay.

Therefore, employees should clarify the calculation method and applicable salary amount from the beginning when signing a probation agreement. Clearly stating this in the probation agreement helps prevent disputes and misunderstandings during employment.

Conclusion

Gross salary and net salary are two important concepts that both employees and businesses should clearly understand. Gross salary refers to total income before deductions and is commonly used as the basis for calculating insurance, tax, and related contributions. Meanwhile, net salary is the actual take-home pay after mandatory deductions have been made.

For businesses, gross salary is often more suitable when the goal is to control budgets, ensure transparency, and simplify the payroll process. On the other hand, net salary can be useful in recruitment when businesses want to communicate a clear take-home amount to candidates.

Regardless of which approach is chosen, the most important point is that businesses should make clear agreements, present salary information transparently in employment contracts and payslips, and fully comply with applicable legal regulations.

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