Starting a Business In Laos

Payroll in Laos

Laos is a small landlocked Asian country situated in the Southeastern part of the continent. It shares borders with some of the most prominent Asian countries like Myanmar, China, Cambodia, etc., providing easy access to these markets. The country’s capital is Vientiane, one of the popular areas for conducting business in Laos. The country’s GDP is $68.573 billion, making it the 109th best country in terms of GDP. 

Laos is a member of all the essential international associations that propagate trade, like ASEAN, World Trade Organisation, etc. Hence, the country promotes trade with other countries and is desirable for setting up your business. It is ranked 154 among 190 countries for ease of business in terms of starting a business, registering property, and protecting minority investors. You can take a step-by-step approach to incorporate and run a business successfully. 

When you set up a company in the country, you must develop a payroll system in Laos. The payroll policy will address the needs of all the employees working with the organization. Read on to better understand payroll policies and procedures in Laos and how to create a compliant and effective system.

How is Payroll Calculated in Laos?

In Laos, every business employs a tool or software to compute employee payroll. Companies can also carry out the entire payroll process manually. Therefore, the payroll calculation will depend on the calculating technique that your organization chooses.

You must establish a reliable payroll in Laos before calculating the amounts for various payroll contributions.

The payroll in Laos includes calculating gross compensation, net pay, overtime, allowances, etc. Additionally, you must look up the company policy to determine how many allowances you can give workers.

For all employees, the method for calculating payroll is mostly consistent. There is no room for discrimination in the process as a result. Also, it is vital to comply with all federal laws while crafting the payroll procedures and policies in Laos for your company.

Important Elements of Salary Structure in Laos

The salary structure in Laos comprises a few critical elements. Some of these elements include:

  • Cost to Company (CTC)

The cost to the company is the aggregate amount a company bears when it hires an employee. The CTC of an employee is like an umbrella that includes all the components like gross pay, net pay, allowances, etc. It is stated on the letter of employment that an employee receives upon selection.

  • Gross salary

An employee’s annual earnings are referred to as gross pay. It includes all the compensation components before any deductions are made.

  • Net salary

The net salary is also called the employee’s in-hand salary. This is the amount that gets credited to the employee’s bank account. You get the employee’s net pay when you make all the necessary deductions from the gross pay. 

  • Basic salary

The most crucial part of any employee’s salary is base pay. Other salary components are calculated using the basic salary as a starting point. Thus, it accounts for between 30 and 45% of an employee’s overall income. Based on industry norms and internal position parity, the company determines the base compensation.

  • Allowances

The company motivates the employees by providing them with a few allowances to help them bear the expenditure over and above the base salary. The company policy will decide the kind of allowances given to a particular employee. Some standard allowances most companies in Laos offer are:

    • Food allowance
    • Mobile allowance
    • Car allowance
    • Fuel allowance
  • Bonus

There is no legal requirement for the payment of bonuses. However, several employers provide their employees with an annual bonus. The clauses for the payment of these bonuses should be stated in the employment contract.

How to Set Up a Payroll in Laos?

You must follow a few crucial steps to set up payroll policies in Laos. These steps are simple and easy to understand and will guide the payroll process. 

Step 1: Choose the company type you want to incorporate in Laos. Once you know the company type, finalize and propose a name for your company and fill it on the incorporation form.

Step 2: Create the company’s bylaws and articles of association and submit them to the Registrar. You must also obtain the employer identification number and the certificate of incorporation from the concerned authorities.

Step 3: Register the business with the appropriate tax and social security agencies so that you may make any required payments on time.

Step 4: Set up a bank account in any local Laos bank. You can use this account to make any payments on the company’s behalf.

Step 5: Ensure you check all the time logs and sheets to ascertain the employees’ gross pay. These sheets will help you calculate the overtime if any.

Step 6: Calculate all the payroll contributions and the income tax for all the employees. Once you make the tax payments, you can pay the salary to the employees.

Step 7: Choose a compliant payroll process in Laos that will aid your company in making the proper payments.

Step 8: Check for all the payroll legalities and decide on a payroll cycle for the company.

Adhering to all the payroll rules and regulations in Laos is essential. You can also contact a PEO called Multiplier if you seek assistance.

A Step-by-step Process of Payroll Processing in Laos

Here are some crucial steps involved in payroll processing in Laos. A step-by-step approach will help you sail through the payroll procedure in Laos. 

  1. Selecting a payroll system

There are different payroll systems in Laos. Choosing one might seem challenging, but if you have a clear picture of your budget and the requirements, you can pick one easily. Some of the payroll systems offered in Laos are:

  • Manual payroll: Large companies in Laos frequently employ a manual payroll method. Employers must onboard employees to handle the manual payroll system. This choice is best for large firms with the funds to create and train a specialized HR team.
  • Outsourcing: You might even hire a different vendor to manage the entire payroll system for your business through outsourcing. However, you must ensure that the third party complies with all relevant laws and compliance requirements.
  • Software for payroll: If you want your system to manage every component of the payroll system, you can implement payroll software. Payroll software that handles the payroll with little human involvement is the best choice.

2. Crafting a payroll policy

  • A payroll policy is important if you want to stick to a standard procedure. Several laws define the payroll policies in Laos, and it is only possible to know some of them. Hence, you must try to document them. 
  • You must include every element of the payroll system in the payroll policy.

3. Onboarding employees into the system

  • Once you’ve decided on a payroll system for your business, you should add all employees.
  • You can register them in the system by providing the employees’ names, phone numbers, addresses, and other essential information.
  • You must also expand the system to include all the elements of the compensation structure.
  • Include details on the payroll cycle as well. Payroll processing in Laos occurs typically once every month. Employees are paid their salaries and other benefits at the end of each month.

4. Verification of logs and timesheets

  • To determine the employees’ overtime and pay, you must confirm their timesheets.
  • Once you know how much overtime is, you can figure out the gross income of the employee wages.
  • Add up all the deductions, then deduct them from the gross pay.

5. Reconciliation

  • Before making any salary payments, you should cross-check every piece of information entered into the payroll system.
  • Try to look for any errors and correct them before you enter the company’s ledger.

6. Pay slip distribution

  • Once you have entered the ledger, you can start creating the pay slips for all the employees.
  • You can share the employees’ pay slips through the payroll software or e-mail.

Each employee needs to have an active bank account for making salary payments. The business can assist staff members in opening these accounts by working with a Laos bank. 

Payroll Contributions

Several payroll contributions are integral to the payroll rules and regulations in Laos. All companies in Laos must meet these minimum requirements and comply with the country’s federal laws. Let’s look at some of these payroll contributions.

Minimum wages

  • Every employee in Laos must be paid an amount equivalent to the minimum wage decided by the Government as their salary. 
  • The minimum wage for all the employees in the country stands at LAK 12,00,000 per month, whereas earlier, the wage was LAK 10,00,000. 

Overtime

  • In Laos, the standard working hours for a week is 48 hours. Hence, the employees work six days a week for 8 hours or five days a week for 9 hours. 
  • If the employer wants an employee to work more than the standard hours, they need authorization from the Labor Administration Agency. 
  • Employees cannot be asked to work beyond their general hours for more than four consecutive days.

Employer contribution

In Laos, employers contribute to various social accounts to benefit their employees. The corporation makes these payments into the accounts that hold these funds.

Contribution

Rate of Contribution

Social security

6%

The total contribution made by the employer toward their employee’s social accounts is 6% of the employee’s gross wages.

Employee contribution

The employees also contribute to their social accounts to get some help post their retirement. These contributions are deducted from the employee’s gross pay and are paid directly to the authorities that manage the social contributions account. 

Contribution

Rate of Contribution

Social security

5.5%

Employees’ total contribution toward their social accounts is 5.5% of their gross wages.

Taxes

In Laos, all employees are required to pay taxes on time. However, you will not have to pay taxes because the amount is directly deducted from your salary and paid to the appropriate authorities.

The income brackets of the employees in the nation determine the tax rates. The payroll process in Laos follows the following tax brackets.

Income slab

Tax rate

0 – LAK 13,00,000

0%

LAK 13,00,001 – LAK 50,00,000

5%

LAK 50,00,001 – LAK 150,00,000

10%

LAK 150,00,001 – LAK 250,00,000

15%

LAK 250,00,001 – LAK 650,00,000

20%

>LAK 650,00,001 

25%

The progressive tax system ensures that the employees pay fair taxes compared to their income. 

Bonus

There is no legal requirement for a 13th-month bonus in Laos. However, if the employer has agreed to pay any such amount, they should clearly state it on the employment letter. 

Payroll Cycle

In most cases, the companies in Laos have set timelines for paying their employees. Depending on the type of work and ease of implementation, employees in Laos are paid monthly or bi-monthly. This cycle is clearly stated in the employee’s employment contract and might differ from employee to employee. 

Laos Payroll Options for Companies

There are several payroll options available in Laos. All companies should compare these options before they select a payroll system. It is essential to decide on a budget and requirements that a payroll system should meet before you choose a payroll option for the company. Some of these options include

  • Internal payroll: In Laos, large companies with the bandwidth to onboard a dedicated payroll team opt for an internal payroll. In this system, the business takes the responsibility of managing the payroll all by itself. They hire more staff to facilitate the process.
  • Remote payroll: A remote payroll is one where the payroll system is the same for the parent and the subsidiary company. The payroll system of the parent company incorporates all the people who are a part of its subsidiaries. However, their pay is decided as per the Laos Labor Laws.
  • Payroll processing companies: You may handle your payroll in Laos with the aid of payroll processing businesses. However, you will be responsible for handling all payroll-related legal issues.
  • Global PEO: Any organization’s payroll process can be managed by a PEO firm. Contact a global PEO platform like Multiplier to relieve yourself of the responsibility of overseeing your company’s payroll system.

Entitlement and Termination Terms

The employment contract should specify the employee’s rights and include termination clauses to prevent any issues. The rights of employees cover compensation, working conditions, leave, and other benefits. The employer must give a legitimate basis for firing an employee. Employers can terminate employment on the following accounts: 

  • Mutual agreement between employer and employee
  • The employee engaged in dishonest behavior while working there.
  • If the company undergoes a substantial transformation

In the letter of termination delivered to the employee, employers must state the reason for the termination. Employees are entitled to severance pay from their company to cover their living expenses while looking for alternative employment.

Laos Payroll Processing Company

Expanding the business could be difficult if you are new to Laos and need clarification on the laws and norms that apply to firms in this landlocked country. You can ask for assistance from professionals who can walk you through the procedure.

For information on the local legislation and other standards that control the payroll systems in Laos, get in touch with a PEO business like Multiplier. If you want the best payroll aid support, keep your options open.

How Can Multiplier Help with Global Payroll?

Setting up a payroll system in Laos requires compliance with local labor laws and regulations. However, you can swiftly set up a compliant payroll system with the appropriate direction and professional assistance.

You can contact a worldwide PEO platform like Multiplier to help you with your payroll needs. Multiplier has helped businesses build compliant payroll systems in more than 150 nations. Our knowledgeable staff will help you learn about the federal requirements relevant to Laos and will work with you to establish a payroll system that complies with those rules and accommodates the demands of all employees.

Frequently Asked Questions

Salaries up to LAK 13,00,000 are exempt from any income tax. However, beyond the threshold, employees must pay the income tax per their slab.

Laos charges a flat rate of 10% as VAT on all the goods and services sold in the country.

18 days of annual leave are granted to workers who perform work hazardous to their health as described in Article 51 of the Labor Code.

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