Setting up payroll for paying Vietnam employees

As I set up a vietnam business, I have to have a way to make payments t ok my employees there.  It will not be as simple as just writing and sending a company check like payroll here.  

Fact it will be what's more difficult because the type of company I'm setting up is a representative office and we are not allowed to have a bank account in Vietnam.

So I now have to think about how I even get the money to the employees. An additional thought is that there is a rather complex tax environment in which have to make sure all of the payroll addresses.

For these reasons I need to engage some sort of payroll manager whether they only handle the taxes or perhaps if they handle taxes and other HR services as well.

Jacob in my EMBA class was kind enough to draw my attention to the fact that a DP service in Vietnam so I will be investigating that,  as the same time as I investigate some of the HR services that are offered by the companies that are helping me to setup the Representative Office (like Grand Wakto).

To start I contacted Jake in my class and asked if he could forward my information to an ADP contact that could help me.

I then hit the Web and looked up their service.

http://www.adp.com/streamline/

For a service that is used by thousands (millions )  they actually have relatively little information quickly available.  Possibly this is because they have so many different scenarios that very few fit into set plans.  But more likely this is because there is too big of a difference in pricing scenarios between different clients with differing service levels.  Oh well I am sure a good account rep will help me navigate the huge spectrum of services and fees.  But I certainly like to be able to help self select some of the service levels based on some sort of list fees.

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It took several days with summer vacation to get a contact with ADP overseas and in the end,   they really didnt have anyone there.  Instead I received an email from:

• Van Ma 
• Manager 
• Payroll & HR Outsourcing Services | Partner of ADP Streamline

Who did a good job asking what types of services I needed from the in order to provide services.   I will followup up the service with them,  but now I know that they are not ADP and I will be working with a remote services.  In particular one of their questions helped me to understand that they will be taking care of the taxes and filing portions,  which is important,  but for the money handling,  they consider that to be  a different service.   Since the questions they ask appear to be very helpful to me as far as describing what services are needed and what services they can offer,  I have included both their questions,  and my answers below.  I will be sure to identify what type of business we end up doing together when we get to that point

1. Is Matraex Vietnam a Limited Liability Company or Representative Office? ​Matraex will be a Representative Office,  we have started the filing process this week​
2. How many entities do you have in Vietnam and where are they located?  We will have 1(one) in Hanoi​
3. The standard scope of payroll service will cover: payroll calculation, declaration and filling of Personal income tax, compulsory insurance and personnel movement to Labour Department. It does not cover Money movement service: payment on behalf of client to employee and statutory bodies. Kindly advise us whether you want to cover the Money movement as additional scope.  I do not yet know,  can you include the Money Movement as an optional line item to your proposal,  so I can evaluate the cost? ​
4. Do you need us to prepare the Employee labor contract and Termination letter as additional service? Can you also provide a separate proposal for this?​ I already have a hiring agency that will be helping me to find employees,  and they have proposed that they could do it,  but if you have that ability, it may be better to keep all of those HR capabilities centralized with your company,  can you provide a separate line item on your proposal so I can evaluate your offering and the cost?
5. Do you have any expatriates. If yes, are they assignee expatriates or local hired expatriates?  No,  no expatriates.  I will be visiting for less than 1 month at a time​
6. Has your company obtained the tax code and insurance code? No​,  however the organization that is currently helping us setup our Representative Office will be obtaining these by October.
7. If you're interested, when would you like to start payroll outsourcing service?  In October

It took a couple of days for them to come back with a proposal,  but it was long and it was not simple to evaluate the true cost per employee of doing business with the company.

So I decided to start a spreadsheet,  which I would use to compare other of the companies that have proposed the same services.

Google Spreadsheet

After I calculated everything out with Talent Net,  some of the services need a bit of clarification and I have a couple of questions out to the talent net rep.  For example,  I did not understand how to evaluate this fee.  How do we determine which fee will be charged per employee in the below scenario

• a. PIT Finalization for local staff under company tax code: VND 645,000/person/year
• b. PIT Finalization for local staff under individual tax code (for 2 income sources): VND 1,700,000/person/year

Either way I created a table of fees from Talentnet which defines the cost per employee per month of payroll services.   I put it into a grid which helps me identify the different fees depending on the number of months I stay in business (rows) and the number of employees I have.   The difference comes down to how the cost of the one time, yearly and minimum fees are spread out across the multiple employees. (Talent net has a minimum fee of 6,000,000 VND for upto 10 employees for payroll service, I assume a 600,000 VND fee per employee on top of that)

Essentially I can see that my fees per employee if I start small,  and assume a minimum risk period of 3 months,   I need to be prepared to pay $263 per employee extra per month.  I have not calculated whether this fee includes taxes,  or whether taxes is a straight % on top.  I will ask that question and have an answer in the coming days

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I sent another email to the company called HR2B. And after a couple of emails describing the number of employees I will have in my organization they replied back with a proposal. Their proposal different from talent nets proposal in that it required a 12 month commitment however there were fewer upfront setup costs. To make sure that they were not omitting anything from the proposal I simply sent an email back to them confirming whether the services which talent net charged individually for we're covered in the fees listed on the proposal. Not heard yet but when I find out I will date this post and include the spreadsheet identifying the full cost. Even if it turns out they do charge upfront setup fees it still would be less expensive to go with the company because their fees are on a per month basis not on a payroll cycle basis if I were to pay twice a month.

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I received an email back from HR2B and they explained that they had left out the Setup costs,  however they had accurately included the costs of yearly company PIT (personal income tax) filing as part of the monthly services.

So the resulting fees for HR2B which allows for an apples to apples comparison with Talentnet is below

Basically this reads to me,  that if I had four employees and I only stayed in business for a month,  it would cost me 474.54 per employee for that first month on talent net or $1898.  If I were to stay in business 2 months it would cost me 331$ per employee of 2494$ total.  This takes into consideration the 'one time' costs being front loaded so I pay all of them as part of the first month,  and the monly average slowly dissapates as I am in business longer.

If I go with HR2B,  I can see that my costs are significantly less.  The first month only being 242$ per employee the first month and only 968 total,  or in the second month it is only 152 per employee and a total of 1221$.  The fees are half of Talentnet and from what I can see they offer the same services with a little better responsiveness to email.

This helps me to see what my total cost will be if we do not stay in business long,  but it also shows me the cost as we go longer term and grow.