Overtime pay from January 1, 2026 Officially becomes income exempt from personal income tax (PIT) as stipulated in Law on Personal Income Tax No. 109/2025/QH15. This is a crucial change aimed at protecting the rights and encouraging labor efforts in the new economic context. This adjustment helps increase the real income of workers while reducing the tax burden on businesses during annual tax settlements.
According to Articles 4 and 29 of the 2025 Personal Income Tax Law, the tax exemption for night shift and overtime pay will apply from the beginning of 2026. For accounting and auditing professionals at MAN – Master Accountant Network, this is a crucial point that needs to be immediately updated in their tax risk management system. Let's delve deeper into the implementation roadmap and related technical regulations concerning this income in the article below.
See the full article summary here.
Overtime pay and new legal framework from 2026.
From 2026, tax policies regarding wages and salaries for employees will undergo significant changes under the 2025 Personal Income Tax Law. Specifically, regulations on overtime and night work wages will be clearly codified, expanding the scope of tax-exempt income to ensure employee rights. Timely updates to these new regulations will help businesses adjust payrolls, accurately declare taxes, and minimize errors during tax settlement. The following content will provide a detailed analysis of the legal framework applicable from 2026.
Legal basis: Personal Income Tax Law 2025
According to Article 29 of the 2025 Personal Income Tax Law, although the law will take full effect from July 1, 2026, the regulations on income from salaries and wages of resident individuals will apply earlier, from January 1, 2026. This creates consistency with the calendar year tax period, helping businesses to implement it more smoothly.
Clause 8 of Article 4 expands the list of tax-exempt income to include night shift wages, overtime pay, and wages for days not taken as leave. This is an upgrade from previous guidelines, clearly codified into law to optimize benefits for workers.
Guidance from the local Tax authority (Official Letter 226/GLA-QLDN1)
The Gia Lai Provincial Tax Department has issued Official Document 226/GLA-QLDN1 The 2026 guidelines provide specific information on this policy. The document confirms that overtime pay earned during the 2026 tax period (January 1, 2026 – December 31, 2026) is absolutely exempt from personal income tax according to Law 109/2025/QH15.
Although the detailed guiding decrees are still being finalized, the spirit of the new law has established clear rights. Businesses need to proactively grasp the information to adjust payrolls in a timely manner, avoiding errors in the first tax reporting period of the year.
How to calculate overtime pay according to current regulations.
Accurately determining overtime pay is a prerequisite for applying the tax exemption policy. According to Article 98 of the 2019 Labor Code, this amount is calculated based on the actual wage rate for a normal working day.
Summary table of overtime pay coefficients
When employees work overtime, businesses must apply the correct wage coefficient as stipulated by labor law. The payment amount will vary depending on the time of overtime, such as normal working days, weekly days off, public holidays, or night work. Understanding these coefficients helps businesses calculate wages accurately, ensuring employee rights and avoiding errors in cost accounting. The table below summarizes the overtime wage coefficients to note.
| Overtime hours | Minimum wage coefficient | Note |
| A normal workday | 150% | Calculated based on the unit price of food paid |
| Weekly day off | 200% | Applies to Saturdays and Sundays (if applicable). |
| Public holidays | 300% | Not to mention the holiday pay. |
| Working at night | +30% | This is calculated in addition to the normal daily wage. |
| Working overtime at night | Complex | Plus 20% daily wage for that day. |
Formula for calculating overtime pay for night work
When working overtime at night, the calculation is more complex due to the addition of specific allowances. The standard formula is:
|
Night shift overtime pay = (Normal hourly wage x Overtime coefficient x 130%) + (20% x Hourly wage for that working day) |
Mastering the formula helps the HR and accounting departments at MAN avoid errors when separating taxable income. This forms the basis for accurate tax settlement, ensuring maximum benefits for employees within the company.
Conditions under which employers can mobilize overtime work.
For overtime pay to be considered valid and tax-exempt, businesses must strictly comply with the labor organization regulations in Article 107 of the 2019 Labor Code.
Employee consent
Employers may only require employees to work overtime with their voluntary consent. Any form of coercion exceeding the regulations may result in the rejection of legitimate expenses during tax audits or labor inspections.
Limits on overtime hours as per regulations.
For overtime pay to be recognized as valid, the total number of working hours must meet the following thresholds:
- Not exceeding 50% the normal number of working hours per day.
- Total working hours should not exceed 12 hours per day.
- Not more than 40 hours/month and not more than 200 hours/year (maximum 300 hours for some specialized fields).
Obligation to notify the regulatory authority
When an organization employs between 200 and 300 overtime hours per year, the business is required to notify the Department of Labor, War Invalids and Social Affairs in writing. This documentation serves as crucial legal evidence to explain to the tax authorities the legitimacy of the tax-exempt expense.
The impact of tax exemption policies on accounting and taxation.
The policy of exempting overtime pay from personal income tax starting in 2026 not only directly benefits employees but also significantly impacts the accounting and tax management practices of businesses. The change in the scope of tax-exempt income requires accounting departments to update their payroll calculation methods, separating taxable and tax-exempt income. The following content analyzes the main impacts of this policy on businesses and employees.
Optimizing real income for workers.
Prior to 2026, only the difference above the normal daily wage was tax-exempt. However, from January 1, 2026, all overtime pay will be tax-exempt, significantly increasing employees' net income.
Challenges in tax management and settlement
Tax accounting service providers like MAN need to establish a clearly separated payroll system. Tracking tax-exempt income columns separately helps avoid over-calculations. personal income tax, ensuring accurate and transparent tax reporting.
There are no limits on special overtime cases.
In emergency situations, businesses have the right to request overtime work without any limit on the number of hours. Overtime pay in these cases is still exempt from personal income tax.
- Implement the mobilization order for national defense and security.
- Protect lives and property from natural disasters and epidemics.
- Address urgent technical issues affecting the production line.
Conclude
The tax exemption for overtime pay from January 1, 2026, is a positive step in protecting workers' rights. However, businesses need a strict control process from timekeeping to accounting to avoid the risk of being subject to tax arrears due to procedural errors.
MAN – Master Accountant Network is always ready to support your business through our auditing services., tax accounting and in-depth tax consulting. We help optimize costs and ensure legal compliance in tax settlement and tax reporting. Contact MAN today for advice on the latest tax policy implementation roadmap for 2026.
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
Frequently Asked Questions about Overtime Pay in 2026
No. The old law will still apply in 2025, only exempting the difference above the normal salary from tax. The full tax exemption will only begin on January 1, 2026.
Yes. According to the Personal Income Tax Law 2025, wages paid for days not taken as statutory leave will also be tax-exempt from 2026.
It is necessary to update accounting software, payroll regulations, and ensure that timesheets are transparent to facilitate audits and tax settlements. Will overtime pay be fully tax-exempt in 2025?
Are wages paid for unused annual leave days tax-exempt?
What preparations do businesses need to make for this change?
