VietNamNet Bridge - The sharp minimum wage increase of 12.4 percent and the new insurance premium calculations to be applied from 2016 have caused concern among businesses. 

The National Wage Council has decided that the minimum wage will increase by 12.4 percent in 2016.

Meanwhile, the insurance premiums businesses have to pay for laborers will be calculated based on their total monthly incomes instead of fixed salaries.

Nguyen Xuan Duong, chair of Hung Yen Garment Company,  complained that the 12.4 percent wage increase was too high, considering businesses’ health at the moment. 

Duong, while agreeing that it is necessary to raise the minimum wage, noted that the increase should be lower, about 10 percent, to create favorable conditions for business operations.

In a document to the Prime Minister and relevant ministries, Virginia B. Foote, Co-Chair of VBF Consortium's Management Board, suggested an increase of 9-10 percent in minimum wage, saying that the increase was reasonable, taking into account that the inflation rate in 2015 was forecast at 2.5 percent.

EuroCham also suggested a 9-10 percent minimum wage increase, warning that businesses in Vietnam were facing increases in labor costs. 

Mai Lan Anh from EuroCham said in the long term EuroCham is concerned about the competitiveness of the labor force in Vietnam in comparison with other regional countries, if the minimum wage increases year by year.

Duong of Hung Yen Garment Company said the pay to workers account for 60 percent of the company’s profit, while lunch allowances take 4 percent and insurance premiums 10 percent. Meanwhile, the remaining 26 percent of profit must be spent on equipment amortization, transport and re-investment.

With the new insurance premium calculation method, Duong will have to pay 4 percent more on insurance premiums (14 percent instead of the current 10 percent).

“I believe that businesses will have no other choice than cutting workers’ income to cover increasing costs,” he said. “The businesses that cannot cut costs will take losses, go bankrupt or be swallowed by foreign sharks."

Duong said there were two choices for businesses now, either go bankrupt or dodge the laws to cut expenses. For example, businesses would offer higher lunch allowances and year-end bonuses, expenses not subject to insurance premium calculation, and cut salaries and overtime pay, expenses subject to insurance premium calculation.

The Vietnam Textile and Apparel Association (Vitas) is disappointed about the 12.4 percent wage increase. Two thirds of the association’s members suggested a modest 6-7 percent increase before the final decision was released.

Vitas also said the insurance premiums and union dues in Vietnam accounted for 32.5 percent of workers’ salaries, compared with Malaysia (13 percent) and the Philippines (10 percent).

Tien Phong