An employee assigned to work overtime over the specified number of hours (8 hours per day) is still a practice in many companies’ operations. In this case, accounting for employees’ wages is a matter that companies should pay attention to.
1. The scenarios of work overtime
The Labor Code stipulates that companies must ensure that the number of overtime hours of an employee does not exceed 12 hours/day; not more than 30 hours/month and not more than 200 hours/year, except in some special cases prescribed by the Government, overtime must not exceed 300 hours/year. In practice, this operation of the companies will arise in two following scenarios:
- Companies assign employees to work overtime within the stipulated hours.
- Due to the production and business needs of companies, employees are assigned to work overtime, but the said duration exceeds the allowed hours.
2. Corporate income tax (CIT)
Accordingly, a legal issue is that when determining taxable income to corporate income tax (CIT), companies’ expenditures on the employees’ wages in the above two scenarios are handled as follows:
- For the employees’ wage where the number of overtime hours is within the permitted framework (in the usual case, not exceeding 200 hours/year or in special cases 300 hours/year), according to regulations, if this amount is an actual expense incurred on the operation of the company with full valid invoices, this expense is considered reasonable expenses and included in the deductible expense when determining income subject to CIT.
- For the amount paid for employees who work overtime beyond the permitted framework, there are 02 possible cases as follows:
- Companies are only allowed to organize employees to work overtime not exceeding 200 hours/year, but due to the needs of production and business activities, they have arranged for employees to work overtime beyond the above framework (but not exceeding 300 hours/year).According to Official Letter 2323/TCT-CS dated 15/6/2015 of the General Department of Taxation, “If the company due to objective reasons has to work overtime, the Tax Department shall coordinate with the Department of Labor, War Invalids and Social Affairs to consider the actual situation at the company. In case for legitimate reasons, the company has to increase overtime duration, if the overtime expenses paid to the employee and have sufficient documents as prescribed shall be included in the deductible expenses when determining CIT income”.Thus, depending on each specific case, the Tax Department will consider and evaluate whether the company is to be accounted for the said amount or not. To correct handling in this case, companies should assess their production and business situation and then seek instruction from the tax department where their business operates.
- The company organizes employees to work overtime over 300 hours/year
In this case, according to the provisions of clause 2 Article 6 Circular 119/2014/TT-BTC dated 25/08/2014 and clause 2.5 Article 6 Circular 78/2014/TT-BTC dated 18/06/2014, in case the overtime work exceeds the level prescribed by the Labor Code, that overtime expense is not determined as a deductible expense when determining income subject to corporate income tax.On the other hand, the Ministry of Labor, War Invalids and Social Affairs also expressed its consensus with the above regulations in the Official Letter 5014/LDTBXH-LDTL dated 31/12/2009 as follows: “The employer organizes employees to work overtime over 300 hours in a year is contrary to the State’s regulations”– accordingly the wages paid to employees when overtime exceeds 300 hours per year will be must not be excluded when determining income subject to CIT due to the nature of this overtime work is contrary to the law.
Based on the above-mentioned, a look at practice shows that overtime and overtime wages are not all the time accounted for in the reasonable expenses of the enterprise. Whether accounting and its relevant permission will depend on the time frame that the company is allowed to organize for employees to work overtime and the demand from its own production and business activities.
