The on-behalf salary payment activity is now common and is offered by many human resources service companies as a solution for employers in managing employee wages. It helps employers to be more proactive in processing payroll payments for employees and reducing administrative burdens since payroll work periodically consumes a lot of time for the HR department. However, the popularity of this activity also raises related legal issues, as the on-behalf salary payment activity is conducted by an intermediary unit, which will receive from the employer and pay the employee the wages.

This article will provide some basic approaches to analyze the legality of this activity.

1. General regulations governing on-behalf collection and payment services

On-behalf collection and payment activity has been taking place for a long time as a support activity from service companies for their clients. Normally, accounting service companies or logistics service companies will support foreign clients using their services in receiving/paying the clients’ partners in Vietnam, and then paying/receiving the corresponding amount of money from their customers. Accordingly, the support companies implement this activity without charging service fees. Regarding applicable regulations, they do not provide specific restrictions on the above activities, and the adjustment instructions are often scattered in the tax authorities’ guiding documents on invoice issuance.

However, the situation shall change entirely if this activity is offered as a fee-based service. Decree 52/2024/ND-CP on non-cash payments classifies on-behalf collection and payment services under both (i) Payment services through the client’s payment account and (ii) Payment services not through the client’s payment account. Under Circular 15/2024/TT-NHNN, collection, and payment on-behalf services are specifically defined and must be provided by payment service providers, such as:

• State Bank of Vietnam
• Commercial banks, policy banks, cooperative banks, foreign bank branches;
• People’s credit funds, microfinance organizations;
• Enterprise providing public postal services.

Thus, it can be seen the subjects that can provide collection and payment services are limited, and mainly belong to credit institutions. Aside from these subjects, the current law does not have additional regulations on the subjects that can provide collection and payment services. It should be noted that Decree 52/2024/ND-CP has listed “Providing payment services without being a payment service provider” in the list of prohibited acts under this Decree. Therefore, if not the above subjects, enterprises cannot provide on-behalf collection and payment services.

2. Regulations on salary payment, mechanism of an authorized representative for employees when receiving salary

As analyzed above, the on-behalf collection and payment services are currently performed by certain subjects according to regulations. However, it is common to encounter advertisements about the on-behalf salary payment activity from human resource service companies. Accordingly, these companies often integrate salary payment on-behalf activity into client support activities without recording specific unit prices, leading to difficulty in considering this as the on-behalf collection and payment service mentioned above.

Within the scope of business activities, VSIC code 7830: Human resources supply and management is commonly registered by human resources service companies. Accordingly, the description of this industry, as stipulated in Decision 27/2018/QD-TTg, may relate to the on-behalf salary payment activity, specifically:

“Activities of providing long-term, stable labor resources, managing domestic labor resources, representing workers in cases related to salary payments, taxes and financial or labor resources issues, but they do not have the responsibility to direct and supervise workers.”

Thus, if we consider the content of the description alone, it can be understood that representing employees in matters of salary and tax payment is very broad, including representing the declaration and payment of personal income tax, or representing the receipt of salary from the employer and paying this salary back to the employee based on the employee’s approval of representing the resolution of the above issues. However, the current law does not have detailed regulations on the above description, so it is difficult to confirm whether the above understanding is appropriate or not.

However, the actual practice of the on-behalf salary payment activity in the market differs from the aforementioned understanding. Accordingly, this activity is based on an agreement between the human resource service provider and the employer, rather than an authorization agreement between the employee and the human resource service provider. In other words, the employer retains the authority to determine how the employee is paid, not the employee. Consequently, the employer and the human resource service provider rarely obtain the employee’s consent for the on-behalf salary payment. From the employees’ perspective, they primarily prioritize receiving their full salary on time, rather than the specific payment method. Nevertheless, this discrepancy can still be considered an issue, as per the provisions of Article 94.1 of the Labor Code:

“Employers must pay the wage in full and on time and directly to the employee. If an employee is unable to receive his or her wage directly, then the employer may pay same to another person lawfully authorized by such employee”.

Therefore, the Labor Code has recognized the mechanism of authorization, allowing employees to authorize a representative to receive their salary on their behalf. This provision is quite similar to the understanding of the VSIC 7830 description mentioned above. In conclusion, to receive salary on behalf of an employee, a valid authorization from the employee is required.

Based on the above analysis, it can be seen that there are still ambiguities in the on-behalf salary payment activity for employees, particularly regarding whether it should be considered a service or merely a support activity when providing other services. Moreover, the implementation of on-behalf salary payment requires the approval of the employees, not the employers. Therefore, human resource service companies need to pay attention to legal regulations and exercise caution when performing salary disbursement activities.

Time of writing: 09/08/2024

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer  at  info@cdlaf.vn

You can refer for more information:

• Summary of questions by foreign investors when restaurant business in Vietnam
• Which information of employees is understood as personal data?
• Obligations of parties involved in personal data processing under Decree 13/2023/ND-CP