Payroll accounting is a critical task requiring transparency and efficiency to ensure employee rights and contribute to long-term talent retention. However, not every enterprise fully understands the payroll accounting process and how to ensure accuracy in payroll calculation and recording. To help businesses establish a transparent payroll accounting process and quickly address errors (if any), KMC experts provide detailed guidance on the payroll accounting process along with a comprehensive set of solutions for each scenario.
Legal Framework for the Payroll Accounting Process
Enterprises must be well-versed in the following legal documents relating to payroll accounting:
- Labor Code 2019 and its implementing regulations.
- Law on Social Insurance 2014 and the Law on Employment.
- Law on Tax Administration and guiding Circulars on Personal Income Tax (PIT).
- Circular No. 200/2014/TT-BTC or Circular No. 133/2016/TT-BTC: Guidelines on accounting regimes applicable to different types of enterprises. Determining the correct accounting regime is the first step in selecting an appropriate chart of accounts and accounting method.
- Circular No. 96/2015/TT-BTC (amended and supplemented): Provides guidance on deductible and non-deductible expenses for Corporate Income Tax (CIT) purposes, including specific regulations on salary expenses. Ensuring that salary expenses are recognized as deductible is critical.
Compliance with these regulations guarantees the legality of the entire payroll accounting process and helps enterprises avoid unnecessary risks in payroll calculation, tax finalization, and labor inspections.
Key Accounting Accounts Applied in the Payroll Accounting Process
Account 334 – Payables to Employees
- Debit side: Salaries, advances already paid to employees; amounts deducted from wages.
- Credit side: Salaries and wages payable to employees.
- Credit balance: Reflects the outstanding amounts payable to employees.
Account 338 – Other Payables
- Account 3382 – Trade Union Fees: Reflects union fees accrued and paid.
- Account 3383 – Social Insurance
- Account 3384 – Health Insurance
- Account 3386 – Unemployment Insurance
- Debit side of Accounts 3383, 3384, 3386: Insurance amounts already paid to competent authorities.
- Credit side of Accounts 3383, 3384, 3386: Insurance contributions accrued into enterprise expenses.
Accounts for Cost Accumulation:
- Account 622 – Direct Labor Costs
- Account 627 – General Production Costs
- Account 641 – Selling Expenses
- Account 642 – Administrative Expenses
Guidelines on Payroll Accounting Process (in accordance with latest regulations)
To ensure transparency and accuracy, enterprises should carry out payroll accounting as follows:
Step 1: Collect input data
Compile timesheets, payroll statements, salary increase decisions, allowances, and bonuses.
Step 2: Calculate total salary payable
Determine basic salary, supplementary salary, allowances, benefits, and bonuses for employees.
Step 3: Calculate deductions
- Deduction of Personal Income Tax (if applicable).
- Deduction of unsettled advances.
- Deduction of employee contributions to insurance:
- Social Insurance (8%)
- Health Insurance (1.5%)
- Unemployment Insurance (1%)
Step 4: Calculate employer contributions based on salaries
Employer’s portion of Social Insurance, Health Insurance, Unemployment Insurance, and Trade Union Fees included in enterprise expenses:
- Social Insurance (17.5%)
- Health Insurance (3%)
- Unemployment Insurance (1%)
- Trade Union Fees (2%)
Step 5: Record accounting entries
- Recognition of salary expenses:
- Debit: Accounts 622, 627, 641, 642
- Credit: Account 334
- Recognition of employer’s contributions to expenses:
- Debit: Accounts 622, 627, 641, 642
- Credit: Accounts 3383, 3384, 3386, 3382
- Recognition of employee’s deductions from salaries:
- Debit: Account 334
- Credit: Accounts 3383, 3384, 3386 (employee contributions)
- Credit: Account 3335 (Personal Income Tax payable)
- Payment of salaries:
- Debit: Account 334
- Credit: Accounts 111, 112 (Cash/Bank)
- Payment of Social Insurance, Trade Union Fees, etc.:
- Debit: Accounts 3382, 3383, 3384, 3386
- Credit: Accounts 111, 112
Guidelines for Handling Errors and Adjustment Entries
This is a highly practical section that addresses one of the most common concerns of accountants in the payroll accounting process.
Case 1: Adjustment due to salary miscalculation (underpayment in the previous month)
- Cause: Employee A was underpaid by VND 5,000,000 in the prior period.
- Resolution:
- Prepare a written record of the error and an official adjustment decision.
- Record the additional salary expense in the current period (assumed to relate to the Administrative Expenses department):
- Debit Account 642: 5,000,000
- Credit Account 334: 5,000,000
- Concurrently, calculate and record additional social insurance, health insurance, unemployment insurance, and trade union contributions on the adjusted amount.
- When paying the employee, process the payment as per normal payroll procedures.
Case 2: Adjustment due to overpayment of Social Insurance
- Cause: Accountant overpaid Social Insurance contributions by VND 10,000,000 to the Social Insurance Authority.
- Resolution:
- Submit a written request to the Social Insurance Authority to confirm the overpayment and propose a resolution (refund or offset against the following period).
- If the Social Insurance Authority refunds the amount in cash:
- Debit Account 111: 10,000,000
- Credit Account 3383: 10,000,000
- If the overpayment is offset against the following period:
- The accountant monitors this off-book and reduces the payable amount of the next period accordingly.
- Example: Next period payable = 50,000,000. Actual payment = 50,000,000 – 10,000,000 = 40,000,000.
- Accounting entry for payment:
- Debit Account 3383: 40,000,000
- Credit Account 111: 40,000,000
Case 3: Adjustment due to omission of Trade Union Fees accrual (2%)
- Cause: Failure to accrue 2% Trade Union Fees on the payroll fund of the previous month, totaling VND 20,000,000.
- Resolution:
- Record additional Trade Union Fees expense and liability in the current period:
- Debit Account 642 (or 622, 641, depending on the department): 20,000,000
- Credit Account 3382: 20,000,000
- When paying the Trade Union Fees:
- Debit Account 3382: 20,000,000
- Credit Account 111, 112: 20,000,000
- Record additional Trade Union Fees expense and liability in the current period:
Note: Such additional entries may affect the expenses of the current period. Enterprises should assess the materiality of the adjustment and consult with professional experts to determine the most appropriate handling method.
Frequently Asked Questions on Payroll Accounting
What are the differences in payroll accounting between enterprises applying Circular 200 and Circular 133?
The main difference lies in the use of detailed accounts at levels 2, 3, etc. for cost accumulation.
Enterprises must base their accounting on the regime they apply to select the correct accounts.
For example, the allocation of costs into accounts 622 (Direct labor), 627 (Manufacturing overhead), 641 (Selling expenses), and 642 (Administrative expenses) is the same. However, the level of detail required for these accounts may differ depending on the accounting regime.
How can enterprises ensure that salary expenses are reasonable and deductible for Corporate Income Tax (CIT) purposes?
Salary expenses are deductible only if they meet the following conditions:
- A valid labor contract in accordance with regulations exists;
- Timesheets and payroll statements are fully maintained;
- Salaries are paid through the employees’ bank accounts (where required by law) or supported by valid payment vouchers.
(For more details, please refer to our article: Conditions for Recognition of Deductible Expenses.)
When is it necessary to file an adjustment to the Personal Income Tax (PIT) return?
If errors are identified that lead to under-declared tax liabilities or overpayment, the enterprise must submit an adjustment to the PIT return.
In practice, this usually involves filing an additional return for the month/quarter where the error occurred, or directly adjusting in the return for the month/quarter when the error is detected (if permitted under the Law on Tax Administration).
KMC – Professional Consulting on Payroll Accounting Procedures
The payroll accounting process—particularly in handling arising issues—requires a team with specialized knowledge, practical experience, and up-to-date understanding of legal regulations.
For this reason, most FDI enterprises choose to engage a professional service provider to manage payroll calculation and payroll accounting, ensuring accuracy, legal compliance, and optimal alignment with the business.
As a leading consultancy in tax and accounting solutions for FDI enterprises, especially Japanese-invested companies, KMC is proud to provide expert services. Our team of lawyers and specialists have in-depth knowledge of both Vietnamese law and international practices, enabling us to design payroll solutions and accounting processes that minimize errors and risks.
Our HR and Payroll Consulting Services provide comprehensive solutions:
- Develop transparent and automated payroll and insurance contribution procedures
- Ensure strict compliance in all operations, minimizing legal risks
- Accurately and promptly handle adjustments and arising issues
- Optimize personnel costs and statutory contributions in full accordance with the law
With KMC, your enterprise can save significant time – cost – effort through direct consultation with leading tax and accounting experts.
Contact KMC Consulting Hotline: 081 489 4789
