Types of Salary Structure: Exploring the Best Options for Compensation

A suitable Viindoo automate payroll accounting will help businesses create a competitive working environment, retain employees and promote work performance. So what payment methods should enterprises apply to manage Employee salaries? How does the law regulate the form of payment? All will be answered by Viindoo in the following article.

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Types of salary structures in enterprises

Hourly Pay

Calculation basis and object of an application

Hourly pay is a salary structure based on actual working hours or hours worked by employees in a given period. The unit of time used to calculate and pay wages is days, weeks, months, or hours.

This structure is often applied to managers, workers who do not directly produce products/services, or people directly involved in the production of products/services that are difficult to quantify and abstract.

Viindoo automate payroll accountingForm of payment salary over time​

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Advantages and disadvantages

Outstanding advantages when applying time-based salary payment method in enterprises:

  • Simple, easy to implement, and easy to manage.
  • Ensure fairness among employees in the same position. Based on the working time, employees receive a salary commensurate with the effort and time contributed to the work.
  • Encourage employees to focus on work and adhere to working time.
  • Flexibility and adaptability to changes in work needs, especially when there are fluctuations in time.

Besides the advantages, time-based pay also has some disadvantages that should be noted:

  • Lack of employee incentives to achieve high performance, not exploiting the full potential of employees. Because wages are directly dependent on hours worked, employees may lack the motivation to perform at work and use their working hours appropriately.
  • Discourage creativity and new ideas from employees. Because salary does not depend on performance, employees lack the motivation to come up with new ideas and contribute to improvements.
  • It makes it difficult to assess and recognize the superior efforts of employees compared to other employees. This reduces the likelihood of promotions and raises based on individual performance and contribution, indirectly creating inequality in the employee career development system.

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Forms of payment over time

Method 1: Simple time-based salary calculation:

Actual salary = Base salary by grade x Unit of time

Option 2: Time-based salary system with bonus

Bonus Time Salary = Simple Time Salary + Bonus

Piece-rate Pay

Calculation basis and object of the application

Piece-rate Pay is a payment method in which the wages of workers are determined based on the products or services that the workers produce or participate in the production process. This form emphasizes the employee's performance and contribution to the production of product results. Piece-rate Pay is often based on factors such as finished products, sales volume, product value, or performance metrics.

This salary structure applies primarily to occupations or job positions where the performance and contribution of workers can be measured based on the products or services they produce. These are usually occupations where the product/service is quantifiable and the work has a clear correlation to the result. Subjects of application forms of payment by-product may include production workers, sales staff, engineers, and R&D staff,...

Piece-rate Pay salary structure

>>>> More Reference: How to convert Net salary to Gross, Gross to Net online 2023

Advantages and disadvantages

Form of payment by-product offers many advantages including:

  • Encourage employees to work hard and efficiently to achieve production or sales goals. Workers can control their income by working to create more products or achieve better business results.
  • Promote creativity and innovative thinking, thereby improving production processes and improving work efficiency.
  • Ensure fairness and transparency because the salary depends directly on the contribution of employees.

However, pay-by-product also has some disadvantages as follows:

  • High pressure on performance and production quotas can affect workers' mental health, creating a stressful work environment and unhealthy competition.
  • Product-based pay can lead to a focus on quantity of work rather than quality of work. Employees only focus on completing tasks quickly to achieve product goals without caring about the output quality.
  • Not suitable for professions that are difficult to quantify such as artistic work, management, or requiring creative thinking...
  • Bring financial risk to employees. If output decreases or the market fluctuates, workers may lose part or all of their income, causing financial difficulties and instability.

Forms of payment by product

Option 1: Paying according to individual direct products

Actual salary = Unit price of wages for 1 unit of product x Quantity of actual finished products

Option 2: Salary based on collective products

Actual salary = Unit price of wages paid in the team x Actual output completed by the team

Option 3: Payment method according to indirect products

Actual salary = Unit price of wages for service workers x Actual completion rate of main workers

Option 4: Pay-by-product mode with bonus

Pay by package salary

Calculation basis and object of the application

Contract salary is one of the payment methods of enterprises based on the quality of work, the volume of work, and the contracted time that the employee must complete the assigned work to determine the salary received.

The form of contract wages is applied mainly to seasonal and temporary jobs, especially workers in construction, agriculture, or other unstable and difficult-to-quantify jobs.

Advantages and disadvantages

The advantages of the lump sum payment method include:

  • Suitable for jobs that do not have clear quantification, such as ad hoc work, temporary work, or work that cannot be precisely determined in advance. Fixed salary allows businesses to be flexible in deciding salary based on actual results.
  • Paying employees flat wages can help businesses control labor costs. Since wages are based on volume, quality, and working time, businesses can adjust the amount of work and resources according to actual needs.
  • Encourage employees to show initiative and effort to improve work, thereby optimizing work processes, reducing labor time, and completing assigned tasks quickly.

However, besides the outstanding advantages, a form of payment for employees has a few downsides:

  • With the form of package payment, employees' income can change according to the fluctuation of products and work performance.
  • While encouraging creativity and innovation, it sometimes focuses only on the short-term goal of getting work done and achieving product targets. This can affect employees' ability to develop creativity and long-term thinking.
  • Determining the unit price is quite complicated and requires careful evaluation. Incorrect determination of unit prices can lead to unfair pay and imbalance in the distribution of income.
  • With contract pay, the focus on getting the job done can lead workers to pay less attention to other aspects of departmental work. This can lead to a lack of cooperation and interaction among department members, affecting team development.

Forms of paid wages

Actual salary = Unit price for product/work x Number of finished products

Salary based on revenue

Calculation basis and object of the application

A revenue-based salary is a form of salary payment in which the employee's income is based on the sales achieved according to the organization's sales target and salary/bonus policy.

Employees will be entitled to a percentage or a fixed amount based on the revenue or profit they generate.

Revenue-based pay is typically applied to salespeople, salespeople, and positions that are involved in generating sales or revenue for the company.

Salary-based payment method

Advantages and disadvantages

The revenue-based salary model brings many benefits to both employees and businesses. Here are some advantages of this form:

  • Create motivation for employees in the organization. When salaries and bonuses depend on sales, employees are strongly motivated to focus on revenue growth. They will set clear goals and work hard to achieve better business results.
  • Encourage employees to look for creative and innovative ways to increase sales. Employees will find new solutions, develop better products and services, and strengthen customer relationships. This brings great benefits to the company in improving the quality and performance of the business.
  • Develop a fair and transparent system for performance appraisal and compensation. Job performance is measured against specific metrics such as sales or revenue, which helps to avoid bias and disputes in the pay process.

While revenue-based pay offers many benefits, there are also some downsides to consider:

  • Create stress for employees. When the income of employees depends entirely on the sales achieved, the pressure to achieve the revenue target can increase stress and cause stress, affecting the psychology and health of employees.
  • Increased neglect of tasks other than revenue. When salaries and bonuses are based on revenue, employees may favor jobs that are directly related to sales, ignoring other important and supporting jobs. This can lead to imbalance and affect the overall development of the company.
  • In some cases, pay-as-you-go can encourage employees to focus on achieving sales at the expense of product or service quality. This negatively affects the image and reputation of the company in the hearts of customers.

Types of salary based on revenue

  • Pay according to individual sales
  • Salary according to group sales
  • Other forms of business bonuses: market development, debt, etc.

Regulations on forms of salary payment 

The legal regulation on the form of wage payment in labor relations is an important aspect of protecting the rights of employees and ensuring fairness in payment. Vietnamese law has set out specific principles and regulations on the form of salary payment, ensuring flexibility and suitability with the conditions and nature of work.

According to Article 96 of the Labor Code 2019, the form of salary payment is prescribed as follows:

  • Employers and employees agree on a form of time-based, product- or contract-based pay.
  • Wages are paid in cash or through employees' accounts opened at banks.
  • In case the salary is paid through the employee's account opened at the bank, the employer must pay the fees related to the account opening and salary transfer.

In addition, according to Decree No. 145/2020/ND-CP of the Government, specific provisions are as follows:

  • Based on the nature of the job and production and business conditions, the employer and the employee agree in the labor contract on the form of time-based, product-based, and flat-wage payment as follows:
  • Time-based wages are paid to employees with time-based wages, based on the working time of the month, week, day, and hour as agreed in the labor contract, specifically:
    • Monthly salary paid for one month of work;
    • Weekly wages are paid for a work week. In case the labor contract agrees on a monthly salary, the weekly salary is determined by the monthly salary multiplied by 12 months and divided by 52 weeks;
    • Daily wages are paid for one working day. In case the labor contract agrees on a monthly salary, the daily salary is determined by the monthly salary divided by the number of normal working days in a month according to the provisions of the law selected by the enterprise. In case the labor contract agrees on weekly wages, the daily salary is determined by the weekly salary divided by the number of working days in the week as agreed in the labor contract;
    • Hourly wages are paid for an hour worked. In case the labor contract agrees on a monthly, weekly, or daily salary, the hourly wage is determined by the daily salary divided by the number of normal working hours in a day as prescribed in Article 105 of the Labor Code.
    • Product-based wages are paid to employees who receive product-based wages, based on the level of completion of the quantity and quality of products according to the labor norms and the unit price of the assigned products.
    • The package salary is paid to employees who receive a fixed salary, based on the volume and quality of work and the time to be completed.
  • The employee's salary according to the forms of salary payment specified in Clause 1 of this Article shall be paid in cash or through the employee's account opened at a bank. Employers must pay fees associated with opening an account and transferring wages when choosing to pay wages through an employee's account.

How to build Salary Structure for your company?

Building a salary structure for your company involves several steps, including choosing the salary structure, defining the details by jobs or positions, building formulas with salary rules, and automating the structure. Here's a breakdown of the steps:

Step 1: Choose the best Salary Structure

Determining the best, or the most suitable salary structure for an organization depends on various factors, including industry, company size, and employee preferences. There is no one-size-fits-all solution, as different structures cater to different needs and objectives. To identify the most suitable option, employers should consider the following:

  • Organizational Goals: Aligning the salary structure with the overall goals and strategies of the company ensures a cohesive approach.
  • Employee Motivation: Understanding what motivates employees is crucial. Some may value stability, while others thrive in a performance-driven environment.
  • Market Research: Analyzing market trends and competitors' practices helps establish competitive compensation packages.
  • Job Roles: Different roles require different structures. Sales positions might benefit from commission-based structures, while technical roles may prefer fixed salaries.
  • Budget Considerations: Companies must factor in their financial capabilities when designing a salary structure.

Step 2: Define Salary Structure Details by Jobs or Positions

Identify and categorize jobs or positions within your organization. Group similar roles based on factors such as job responsibilities, required skills, experience levels, and seniority. Assign each job or position to the appropriate level or grade within the chosen salary structure.

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An auto-suggested base salary structure

Additionally, you can build a base salary structure as a foundation for future updates and modifications. This base salary structure will serve as a reference point for evaluating and making adjustments to individual salaries, reducing repetitive tasks, and ensuring consistency across job roles.

Step 3: Build Formulas for Salary Structure

Viindoo CRM

Automated formulas for Salary Structure

Develop formulas or guidelines for determining salary ranges within each level or grade. Consider factors such as market data, internal equity, job requirements, performance evaluations, and experience. Determine the minimum, midpoint, and maximum salary points for each range.

You can consider various factors when building the formulas, such as a percentage increase from the previous level, a range based on market data, or a combination of factors specific to your organization's needs. Ensure the formulas are clear, consistent, and aligned with your compensation strategy.

Step 4: Automate Salary Process

Viindoo automate payroll accounting

Automate payroll accounting

To streamline the salary administration process, consider automating the salary structure using appropriate software or HR systems. Automation can help ensure accuracy, consistency, and efficiency in managing salary information, calculations, and updates.

Additionally, this will help provide clear processes for salary adjustments, promotions, bonuses, and other compensation-related changes within the automated system, as a basis to train HR staff and managers to follow the established processes.

Also, with integrated payroll systems, you can automate the process of human resource accounting with the resulting accounting entry of this salary rule to be recorded in the respective accounting account.

>>>> See MoreSteps to automate Salary process using integrated payroll system

Viindoo CRM

Viindoo Payroll - Automated Salary Calculation


Viindoo Payroll can replace the traditional salary calculation method, saving time and resources for businesses with many utilities.


Through the information that Viindoo shared, hope you can understand more details and deeper about the form of payment the organization. Thereby, businesses can choose and apply an appropriate form of payment to stimulate the creativity and contribution of employees, create higher work motivation, and promote the sustainable development of the business.

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Types of Salary Structure: Exploring the Best Options for Compensation
Jun Nguyen June 27, 2023