3P Salary Structure by Grade: Formula Design and Payroll Automation

A 3P salary structure is how many Vietnamese companies move away from "whatever we agreed at hiring": one part of pay rewards the position, one part rewards the competence of the person in it, and one part rewards results. The idea is simple. The hard part is turning three Ps into formulas that run every month, tied to a grade structure, to competency scores and KPIs that have actually been signed off, and then deducting social insurance and tax correctly. This guide walks through each step with a complete numerical example.

What a 3P salary structure is: P1, P2, P3

• P1 — Pay for Position: pays for the value of the role, regardless of who holds it. Roles are scored (complexity, scope of responsibility, impact) and placed in a grade. Each grade has a pay range (min – mid – max).
• P2 — Pay for Person: pays for the actual competence of the incumbent against the role's requirements. Two people in the same grade can receive different P2 because one exceeds the competency standard and the other has just reached it.
• P3 — Pay for Performance: pays for results in the period, usually tied to KPIs or OKRs. This is the variable part.

There is no mandatory "standard" split between the three. Each company chooses based on its culture and type of work: stable operational roles usually carry a large P1, sales roles a larger P3.

Illustrative split: office staff might use P1 65% – P2 20% – P3 15%; managers P1 60% – P2 20% – P3 20%; sales staff might push P3 to 30–40%. These are reference allocations, not rules.

Step 1: build the grade structure before writing formulas

The most common mistake is writing P1/P2/P3 formulas before a grade structure exists. Each person's "base" is then still an individually negotiated figure, and 3P merely re-slices a number that was never fair to begin with.

The sequence should be:

1. List roles and job descriptions. You cannot score a role without a job description.
2. Score roles against one fixed set of criteria applied equally across departments.
3. Group scores into grades. Eight to twelve grades suit most small and mid-sized companies; more becomes hard to explain.
4. Set a pay range per grade from market data and the payroll budget you can sustain. Ranges should overlap so strong people in a lower grade do not hit a ceiling.
5. Place each person at a step within the range based on current competence.

Only after these five steps does "3P salary by grade" mean something: P1 comes from the grade's range, not from an interviewer's memory.

Step 2: write the P1, P2, P3 formulas

A compact, easy-to-audit structure uses a reference salary (base) per grade/step and splits it into three parts:

Component	Sample formula	Input variables
P1 – Position pay	base_salary × 0.60	reference salary by grade/step
P2 – Competency pay	base_salary × 0.20 × competency_coefficient	coefficient from competency review (e.g. 0.8 – 1.2)
P3 – KPI bonus	base_salary × 0.20 × KPI% / 100	KPI attainment that has been signed off

This is exactly the structure of the "3P Salary – Manager" template in XBuddy's payroll formula library, which also includes a lunch allowance and employee deduction lines for social, health and unemployment insurance.

Three design decisions to settle in writing before the first run:

• Cap and floor for P3. If KPI hits 150%, does P3 pay 150% or stop at 120%? Without a cap, a sandbagged target becomes a large bonus. A floor–target–cap curve is common: nothing below the floor, linear between floor and target, flat above the cap. The bonus & variable pay library ships these curves.
• Where the competency coefficient comes from and when it changes. Update it per review cycle (6 or 12 months), not monthly, so P2 stays stable.
• Monthly or quarterly P3. Quarterly payment smooths income but makes people wait longer.

Step 3: social insurance and PIT — the current legal basis

Mandatory insurance contribution rates

Under the Law on Social Insurance No. 41/2024/QH15 (effective 1 July 2025) together with the health and unemployment insurance rules, total contributions are 32% of the insurance salary:

	Employee	Employer
Social insurance (retirement & survivorship; sickness & maternity; occupational accident & disease)	8%	17.5%
Health insurance	1.5%	3%
Unemployment insurance	1%	1%
Total	10.5%	21.5%

The insurance salary is capped at 20 times the reference level. The reference level is linked to the statutory base salary and can be adjusted, so check the instrument in force for the pay period you are calculating rather than hard-coding a figure into a spreadsheet.

One point matters specifically for 3P: not every component automatically belongs in the insurance salary. What goes into the contribution base has to be checked against the labour contract and current regulations. In your formulas, keep a separate "insurance salary" variable instead of reusing gross income.

Personal income tax from 2026

• Family deductions: Resolution 110/2025/UBTVQH15 (adopted 17 October 2025, effective 1 January 2026, applying from the 2026 tax year) raises the taxpayer deduction to VND 15.5 million per month and VND 6.2 million per month per dependant.
• Tax schedule: the PIT Law No. 109/2025/QH15 replaces the 7-bracket progressive schedule with 5 brackets; the provisions on salary and wages of resident individuals apply from the 2026 tax year. The first three brackets: up to VND 10 million of taxable income per month at 5%, over 10–30 million at 10%, over 30–60 million at 20%.

A timing note: December 2025 salary paid in January 2026 falls in the 2026 tax year, according to Ministry of Finance guidance.

Illustrative example: one complete 3P pay period

Illustrative example — assumed figures for checking formulas, not tax advice.

Minh, a team lead in a manager grade, has a reference salary of VND 30,000,000. This period his competency coefficient is 0.9 and KPI attainment is 110%. Lunch allowance is VND 730,000. His insurance salary under the contract is assumed to be VND 24,000,000. He has one dependant. For simplicity, all income is treated as taxable.

Line	Calculation	Amount (VND)
P1	30,000,000 × 0.60	18,000,000
P2	30,000,000 × 0.20 × 0.9	5,400,000
P3	30,000,000 × 0.20 × 110 / 100	6,600,000
Lunch allowance	fixed	730,000
Gross income		30,730,000
SI 8% + HI 1.5% + UI 1%	24,000,000 × 10.5%	2,520,000
Family deductions	15,500,000 + 6,200,000	21,700,000
Taxable income	30,730,000 − 2,520,000 − 21,700,000	6,510,000
PIT	6,510,000 × 5% (bracket 1)	325,500
Net pay	30,730,000 − 2,520,000 − 325,500	27,884,500

The employer also contributes 21.5% × 24,000,000 = VND 5,160,000, so the true cost of this role for the period is VND 35,890,000. That is the figure that belongs in the headcount budget.

Common mistakes when running 3P in Excel

1. Drifting cell references. Add a new KPI column and half the list's P3 formulas still point at the old column. No error appears; only wrong numbers.
2. Unapproved KPIs flowing into payroll. A manager sends a "draft" KPI file, payroll enters it, the KPIs change later and nobody recalculates.
3. Insurance rates and deductions hard-coded in formulas. When rules change, as the family deduction did for 2026, someone has to hunt through every file and tab.
4. Nobody can explain a pay line. An employee asks why P2 dropped, and the payroll officer has to trace three files.
5. No dry run. Errors surface after payment and must be clawed back or topped up next period.

Automating 3P payroll: what the software must do

Whatever tool you use, check for these five capabilities:

• Formulas as data with named variables, not spreadsheet cells: base_salary, kpi_achievement_pct, completion_coefficient, bhxh_base.
• Blocking the run when inputs are unapproved (KPIs not signed off, leave requests pending).
• A dry run that writes nothing, for comparison before creating the real period.
• An explanation for every pay line showing which variables produced it.
• Posting and tax filing from the same source, so PIT on the return matches the payroll.

In XBuddy Payroll, the 3P template is copied from the library and its ratios adjusted; the Payroll Simulation page runs a preview and lists inputs that need review, such as KPI periods not yet signed off; each pay line carries a variable-level explanation. The Payroll Assistant checks readiness before each run and flags anomalous lines, while approval and payment stay with people. See how a C&B team runs the whole process in the Payroll & benefits solution.

Frequently asked questions

Is a 3P salary structure required by law?

No. 3P is a method for designing a pay system, not a legal requirement. Companies still have to respect regional minimum wages, maintain salary scales and pay insurance and tax under current rules, but the P1/P2/P3 split is the company's own decision.

How should P1, P2 and P3 be split?

There is no standard split. Roles whose results are hard to measure monthly should carry a large P1 (around 60–70%), while sales roles can raise P3. More important than the ratio is that P3 has a cap and a floor and that KPIs are signed off before payroll runs.

Is P3 included in the social insurance salary?

Check how the component is written into the labour contract against the current rules on insurance salary. In your formulas, keep a separate insurance-salary variable so this decision is visible, instead of defaulting to gross income.

What are the family deductions for 2026?

Under Resolution 110/2025/UBTVQH15, effective 1 January 2026, the deduction is VND 15.5 million per month for the taxpayer and VND 6.2 million per month for each dependant. These amounts apply from the 2026 tax year.

Where should we start when moving payroll off Excel?

Start with the grade structure and the list of input variables, not with copying Excel formulas. Then run one or two periods in parallel, compare line by line with the old spreadsheet, and switch over only when every difference can be explained.