Along with salary, businesses must pay an additional 17% of a workers wages to a social insurance fund. This causes a 12.4% increase in salary to become more like a 20% increase in costs, according to Hoang Quang Phong, Vice President of Vietnam Chamber of Commerce and Industry.
The garment industry, which includes 4,800 companies employing 2 million workers, will have to pay an additional VND6 trillion (US$260 million) in social insurance costs next year due to the higher minimum wage, said Vu Duc Giang. Chairman of Vietnam Garment Association.
"Minimum wage increase, high social insurance costs and trade union costs contribute to the loss of many enterprises," Giang said. "This is also the reason why enterprises fail to pay social insurance for employees."
The Chairman of the National Assembly's Committee of Social Affairs, Bui Si Loi, said he was concerned that a 12.4% increase could hurt workers by driving firms to reduce staff.
"Bearing too many kinds of expenses may cause a loss for the business and in that case, employees may get dismissed which obviously puts them at great disadvantage" Loi said.
There are 483,000 enterprises in Vietnam, 70% of which fail to make profit, according to the tax bureau's statistics.
If a business fails to have expenses under control, it may have to use allowances and bonuses supposedly for employees to compensate for other expenses, said Deputy Chairman of Trade Union of Hanoi processing and industrial zone, Nguyen Dinh Thang.
Nguyen Thi Tham, a worker at 19/5 Garment Company said the increased salary may not put more money in her pocket.
"I am afraid that my employer may cut other benefits," said Tham. "In the end, the increase in minimum wage may not raise the salary for us."