What Is 3P Salary And How To Build It Correctly Under Vietnamese Law
Many foreign companies opening their first factory or office in Vietnam face the same question: should pay be based on qualifications, seniority, or a more modern model that is both fair and effective at retaining strong performers. The 3P salary system is the model most companies choose, yet most of the material available online covers it only from a human resources angle. It skips the part that matters most to a foreign-invested company: how this model fits together with Vietnam’s Labor Code, Law on Social Insurance, and tax regulations, so the company avoids a social insurance back-payment claim or a disallowed expense at tax finalization.
The guide below covers 3P salary in full: its definition and three components, a worked calculation example, the five-step process for building the system, and, most importantly, how each component maps onto current Vietnamese law, so the company can set it up correctly the first time instead of fixing it after a problem arises.
1. What is 3P salary
3P salary is a pay model built on three factors: Position, Person, and Performance. Rather than basing pay mainly on qualifications or years of service, as traditional pay structures do, the 3P model ties an employee’s income to the actual value they create for the organization.
The core difference is in the underlying logic. A traditional structure answers how long an employee has worked or how much they have studied. The 3P model answers three separate questions instead: how much is this position worth to the organization, how capable is the person currently holding it, and what results did they deliver in the period being reviewed. Adding these three answers together produces total pay, which reduces guesswork in setting salaries and strengthens internal fairness.
At its core, 3P salary is a hybrid pay structure. It combines a fixed component tied to the position with two variable components tied to the individual and to the review period. This is why the model suits companies that want to control personnel costs while still motivating individual development.
2. The three components P1 P2 and P3
2.1. P1 pay for position
P1 is the fixed portion of pay, set by the value of the position within the organization. It reflects the level of responsibility, influence, and complexity attached to the role, independent of who actually holds it. Building P1 requires job analysis, job evaluation, a ranking of job titles, and a comparison against market pay levels in the same industry. P1 is the foundation of the entire system. If this step is done imprecisely, the other two components, built on top of it, will also be off.
2.2. P2 pay for person
P2 adjusts pay for the actual capability of the person holding the position, covering skills, professional knowledge, certifications, and experience. To assess P2 objectively, a company needs a competency framework with three layers: core competencies that apply company-wide, leadership competencies for management level, and functional competencies specific to each job family. P2 is the hardest of the three components to pin down, because it is inherently qualitative and, without a clear scoring tool, is easily skewed by the evaluator’s personal judgment.
2.3. P3 pay for performance
P3 is the variable component, tied directly to actual work results over a review period, usually measured through performance indicators tracked monthly, quarterly, or annually. P3 is the strongest motivator of the three components, but it is also the one most likely to trigger disputes if the measurement criteria are not clearly communicated from the outset.
The table below summarizes the nature of each component.
| Component | Nature | Type | Basis for design |
|---|---|---|---|
| P1 – Position | Value of the position within the organization | Fixed | Job analysis, job evaluation, market salary survey |
| P2 – Person | The actual capability of the position holder | Semi-fixed, reviewed periodically | Competency framework, reviewed on a 6 to 12 month cycle |
| P3 – Performance | Work results for the period | Variable | Performance indicators, reviewed monthly or quarterly |
3. How to calculate 3P salary a worked example
The general formula for 3P salary is total income equals P1 plus P2 plus P3. Some companies add further allowances outside the three components, such as a lunch allowance or a transport allowance.
The example below uses a sales staff position. The figures are illustrative only, meant to show how the calculation works, and do not represent actual figures from any specific company.
| Component | How it is determined | Illustrative amount |
|---|---|---|
| P1 position | Fixed by the sales staff job title | VND 10,000,000 |
| P2 competency | Reassessed periodically, can rise or fall each cycle | VND 2,000,000 |
| P3 result | 90% of monthly target achieved, against a bonus pool of VND 5,000,000 | VND 4,500,000 |
| Total income | P1 plus P2 plus P3 | VND 16,500,000 |
This example makes one point clear: two employees with the same job title but different competency and results will end up with different total pay. That is the core difference from a flat, seniority-based pay structure.
4. The legal framework in Vietnam when applying 3P salary
This is the section a foreign-invested company should pay closest attention to. The 3P model is a human resources framework, but once it is written into a labor contract and an actual payroll in Vietnam, each of the three components has to be mapped correctly onto the pay categories defined under Vietnamese labor law, social insurance law, and tax regulations.
4.1. Salary scale and pay structure under the Labor Code
Under Article 93 of the 2019 Labor Code, a company must build a salary scale, a pay structure, and labor norms as the basis for recruitment, agreeing on pay, and paying employees. The salary scale and pay structure must be discussed with the internal employee representative organization at the workplace, such as a trade union, if one exists, and must then be publicly posted at the workplace before it takes effect. Since 2021, companies no longer have to file the salary scale with the local labor authority, but internal records still need to be kept on file in case an explanation is ever required.
4.2. Social insurance obligations for P2 and P3
The 2024 Law on Social Insurance and its implementing Decree 158/2025/ND-CP took effect on 1 July 2025, with Article 7 of the decree setting out in detail what counts as salary for compulsory social insurance purposes. The key principle for any company to understand is that the nature of a payment determines the social insurance obligation, not the label given to it on the payslip. A competency allowance or a bonus, if paid regularly and consistently every pay period, still has to be included in the social insurance base, even if it is labeled as a bonus.
4.3. Conditions for salary and bonus expenses to be tax deductible
Article 4 of Circular 96/2015/TT-BTC sets out that a salary or bonus expense is only tax deductible if the eligibility conditions and the payment level are clearly specified in one of the following documents: the labor contract, a collective labor agreement, the company’s internal financial regulations, or a bonus policy issued by the company’s legal representative. If a company pays a bonus without having a document setting out the conditions beforehand, that expense is at risk of being disallowed by the tax authority at finalization.
The table below summarizes how the three components map onto Vietnam’s legal framework.
| 3P component | Category under labor law | Effect on social insurance | Condition for tax deductibility |
|---|---|---|---|
| P1 position | Salary for the job or job title | Mandatory inclusion in the social insurance base | The specific amount must be stated in the labor contract |
| P2 competency | Salary allowance | Must be included in the social insurance base if paid consistently and stated in the labor contract | Requires a competency assessment policy as the basis |
| P3 result | Other supplementary payment or bonus | Must be included if paid regularly every pay period, can be excluded if it is an irregular bonus tied to business results | Requires a salary and bonus policy setting out clear criteria and payment levels |
4.4. Regional minimum wage and periodic review
When designing P1, a company needs to check it against the current regional minimum wage. Decree 293/2025/ND-CP raised the regional minimum wage, effective from 1 January 2026, so companies need to review the lowest pay grade in their salary scale to make sure it is not below the new floor. This is work a company should do on a recurring basis, every time the regional minimum wage changes, and it falls within the scope of Vina Boueki’s salary scale and pay structure service for foreign-invested companies.
The social insurance obligation for P2 allowances and P3 bonuses also needs regular review. Many companies pay these amounts consistently for years without ever including them in the social insurance base, which creates a real risk of a back-payment claim if the social insurance authority carries out an inspection. Further detail on the new regulation is available at Decree 158/2025/ND-CP on the legal education portal (Vietnamese-language source).
5. The five-step process for building a 3P salary system
Building a complete 3P salary system is a project that has to be carried out in sequence. Skipping steps is not advisable if the goal is a system that runs sustainably and stays compliant with the law.
Step 1. Standardize the organizational structure and build the P1 framework
A company needs to review its business strategy, standardize its organization chart, write job descriptions for every title, evaluate job value, and then convert this into a pay level for each position, graded by level such as entry, mid, and expert. This is the most important and the most time-consuming step, because an error here will carry through into every component built on top of it.
Step 2. Build the competency framework and the P2 assessment
A company needs to build a competency dictionary across the three layers described above, then assess each employee’s actual competency to determine their placement within the pay range.
Step 3. Build the pay structure by position and competency
The results of the previous two steps are combined into a specific pay range for each position, with a minimum and a maximum, aligned with the company’s overall personnel budget.
Step 4. Design the P3 system
A company needs to set strategic targets for the period and build a set of performance indicators for each position, tied to a specific bonus budget.
Step 5. Issue, communicate, and pilot the new system
This step is easy to overlook, yet it determines whether the entire project succeeds. Human resources needs to align with department managers, issue a new salary policy, and publicly communicate the pay calculation and bonus rules to all employees, before piloting the system for a period and only then rolling it out fully. When the pay structure changes, the fixed P1 component usually needs to be updated through a labor contract addendum, which falls within the scope of Vina Boueki’s labor contract drafting and management service.
6. Advantages and risks of implementing 3P salary in Vietnam
3P salary brings clear benefits, but it also carries risk if a company rolls it out without adequate preparation.
| Advantages | Risks to watch for |
|---|---|
| More fair and transparent, reduces guesswork in setting pay | Significant upfront cost and time to standardize job descriptions and the competency framework |
| Motivates individual competency development | P2 and P3 assessments can still be skewed by personal judgment without an objective tool |
| Helps attract and retain genuinely capable staff | Staff used to a stable pay structure may react negatively to the change |
| Provides a clear framework that scales easily as the company grows | Keeping seniority-based allowances or personal-relationship pay running in parallel undermines the fairness the model is meant to deliver |
One further point worth noting: 3P salary is not a one-off project. The organizational structure, the competency framework, and the performance indicators need periodic review, ideally every one to two years, so the system does not fall out of step with how the business actually runs or with changes in labor law.
7. Is 3P salary suitable for a company new to investing in Vietnam
The advantage of building the system from day one
A newly established company in Vietnam starts as a blank page. There is no entrenched seniority-based pay culture to work around, and no complicated negotiation needed to phase out long-standing allowances. Leadership can shape a performance-focused culture from the outset, which also helps position the company as a professional employer in front of high-caliber candidates.
Specific challenges for international companies
Lack of historical data for setting KPI targets: a company new to the Vietnamese market has no real revenue figures, defect rates, or customer cycle data yet, which makes it easy to set P3 targets that are either unrealistic or set too low, diluting the bonus pool.
Alignment with head office policy: many international groups apply a global grading framework that does not always sit comfortably with the strict requirements of Article 93 of Vietnam’s Labor Code on salary scales, or with local labor contract rules.
Pay structures for expatriates: foreign specialists working in Vietnam often have complex packages, including a portion of pay covered by the parent company, housing allowances, home leave flights, and children’s school fees. Folding these arrangements into a 3P structure requires a solid understanding of cross-border personal income tax and of what a foreign-invested company can legitimately deduct as an expense.
To work through these issues properly, a company can turn to Vina Boueki’s legal advisory and human resources management services for a complete design that meets international standards while staying fully aligned with Vietnamese law.
8. Frequently asked questions about 3P salary
Does a company have to apply all three P components
Vietnamese labor law does not require any company to adopt the 3P model, or any specific pay model at all. A company can apply P1 combined with P3 and skip P2, though doing so should be weighed carefully: without a competency assessment, placing employees within a pay range lacks a clear basis and becomes harder to defend if internal fairness is ever questioned.
Does the P2 competency allowance have to be included in social insurance
Yes. If the allowance is paid regularly, consistently, and is stated in the labor contract, it must be included in the social insurance base under Decree 158/2025/ND-CP, regardless of what it is called on the payslip.
Does a P3 bonus paid regularly count toward the social insurance salary base
Yes. The general principle is that the nature of the payment determines the social insurance obligation, not its label. If a bonus is paid consistently every pay period, the social insurance authority treats it as part of the salary base.
Does a company have to file its salary scale with the labor authority
No. Under Article 93 of the 2019 Labor Code, a company only needs to consult the internal employee representative organization at the workplace, if one exists, and publicly post the salary scale at the workplace before applying it. There is no requirement to file it with the state labor authority.
9. Conclusion
3P salary is an effective human resources tool, but in Vietnam that effectiveness only holds up when P1, P2, and P3 are designed to align with the Labor Code, the Law on Social Insurance, and corporate income tax regulations. Many foreign companies run into trouble not because they chose the wrong pay model, but because they skipped the step of translating a human resources framework into the specific legal language Vietnam requires.
With close to twenty years working alongside foreign companies investing and operating in Vietnam, Vina Boueki understands both sides of this problem: a firm grasp of human resources practice built on Japanese process standards, combined with a practical understanding of how to apply it within Vietnam’s legal framework. A company looking to build or review its 3P salary system can turn to Vina Boueki’s human resources and payroll services for advice tailored to its size and industry.
