The minimum wage increase for areas set to be in effect starting January 1 will add burdens to companies that have already been facing difficulties.

Minimum wage increase for areas is set to be in effect starting January 1 

The new scheme was outlined in Decree 103/2012/ ND-CP, dated December 4, 2012 on minimum salaries for the private sector, replacing Decree 70/2011/ND-CP dated August 22, 2011.

Under the Government’s new Decree, the minimum wage will be raised to VND1.65-2.35 million (USD79.1-112.7) per month, from the current of VND1.55-2 million, depending on the areas.

Despite the rise being only half of that proposed by the Ministry of Labour, Invalids and Social Affairs, it still poses difficulties for companies struggling to find markets for their goods during an economic downturn.

One footwear company with 4,000 workers in southern Binh Duong Province calculated that it will have to spend additional VND2.1 billion (USD100,000) per month if the minimum wage rises by VND300,000 (USD14.2) per worker. They will have to spend VND25 billion (USD1.2 million) more annually.

Pham Minh Huan, Deputy Minister of Labour, Invalids and Social Affairs, said the rise of VND200,000-300,000 per month is suitable. According to Decree 103, businesses have to increase the minimum wages for workers and are not allowed to cut allowances.

Dien Quang Hiep, Director of Mifaco, a furniture manufacturing firm in Binh Duong Province, said that if enterprises do not raise the salary as regulated, workers will move to other companies. Many businesses which are unable to implement the salary increases will have to apply to pay on a volume-based system.

This compromise could be good for businesses, but detrimental to workers who still have to buy the necessities amid high inflation.

According to many companies, the Government should consider lowering VAT from 10% to 5% and slash land rental fees in half.