Thailand, affectionately known as “The Land of Smiles”, is a popular tourist destination due to its sandy white beaches, delectable and fiery cuisines and bustling night markets. In recent years, Thailand has also been creeping up the list for businesses looking to expand within the Southeast Asia (SEA) market. Based on World Bank’s 2020 Ease of Doing Business Index, Thailand ranked 21st out of 190 countries, coming in just behind developed economies such as Taiwan, United Arab Emirates and Finland.
Today, Thailand continues to be a hub in SEA for attracting foreign investment. With a fairly stable economy, rich culture, 94% literacy rate within its population and strong incentives backed by the local government, it is not surprising that Thailand consistently ranks among the most attractive investment locations in the world.
On top of ensuring that businesses adhere to regulatory requirements, it is crucial to stay abreast of Thailand’s payroll and labour laws. After all, the mechanics and business model of running a business in Thailand can differ from industry to industry. Here is a guide that covers the basics of setting up payroll when running a business in Thailand.
The maximum number of working hours in Thailand is up to 8 hours per day and up to 48 hours per week. While the employer and employee have the flexibility to agree on the period of working hours for certain types of work, the total number of working hours per week must not exceed 48 hours. For work that is deemed dangerous to health or personal safety, as stipulated by law, the number of working hours must not exceed 7 hours a day and not exceed 42 hours a week
Employees in Thailand are entitled to a rest period of 1 hour after working for 5 consecutive hours. While the employer and employee may arrange the rest period to be less than 1 hour at each time, it should not be less than 1 hour in a day. If the employee works in excess of the maximum working hours according to labour laws, he or she is entitled to overtime compensation.
Employees in Thailand are allowed to work overtime only for 36 additional hours a week. If the employee works beyond the maximum stipulated working hours, he or she is entitled to overtime compensation at a rate starting from 1.5 times up to 3 times the normal average hourly wage rate.
If the employee works overtime on a normal working day, he is entitled to 1.5 times the normal hourly wage. If the employee works the duration of normal working hours on a public holiday or overtime on a public holiday, he is entitled to two times and three times the normal hourly wage respectively.
It is imperative for businesses to be aware of the overtime compensation that employees are entitled to. Concurrently, employees’ payslips need to clearly state the total overtime hours that the individual employee has clocked and the amount of overtime compensation paid to the employee. For organisations that fail to compensate an employee for working overtime, the employee can take legal action demanding payment of the overdue compensation along with interest at 15% annually.
Employees who have worked for 1 consecutive year are entitled to 6 working days of annual leave. There is no cap on sick leave – employees are allowed to take sick leave as long as the employee is able to prove that they are actually sick. However, employees are only entitled to receive paid sick leave up to 30 working days per year. If the employee takes a sick leave for more than 3 days, the employer may request for an official medical certification from a licensed physician or official medical establishment.
For female employees, maternity leave covers a period of 98 days inclusive of public holidays. The first half of the maternity leave will be 100% paid by the employer while the remaining half will be 50% paid by the employer. The remaining 50% would typically be covered by the Thai Social Security Fund, in which the employee would have made consistent contributions monthly. For employees working in the public sector, they are also entitled to 15 days of paternity leave. However, there is no paid paternity leave for employees in the private sector – these are typically left to the discretion of the respective organisations.
Employees working in private businesses are entitled to no less than 13 national holidays annually as required by the Labour Protection Act. Organisations can view the list of public holiday dates for the current year here.
During payroll processing, organisations are likely to encounter unpaid leave or leave encashment situations with employees. Staying abreast of the statutory leave entitlement in Thailand would help organisations significantly in adhering with labour laws and minimising non-compliance.
Provision of provident fund for employees is commonly practised across Thailand’s neighbouring countries such as Hong Kong, Malaysia and Singapore. The purpose of the provident fund is to act as a financial safety net for individuals by helping them set aside money for retirement. While most countries make it mandatory for employees to participate in the provident fund, it is not the case for Thailand.
The provident fund in Thailand is on a voluntary basis and jointly set up by both the employers and employees. Employees and employers can contribute between 2% to 15% of their monthly wages to the provident fund, in which the latter must match the amount that the employee contributes. Employees can enjoy tax benefits throughout the duration of their provident fund membership.
Income Tax and Social Security
It is mandatory for employers to withhold individual income tax from an employee every month. This is done by deducting income tax from the employee’s salary before paying them. Income tax is calculated under the assumption that the payments of employment incomes are made through the entire calendar year, which runs from 1 January to 31 December. Employers are also responsible for submitting a monthly withholding tax return to the Revenue Department by 7th of the following month. The tax due to the Revenue Department must be paid at the time of filling the return. Failure to file the monthly within holding tax return may result in incrementals depending on the number of overdue days and an additional penalty of 1.5% on the due amount.
There are two statutory social security contributions in Thailand that employers are required to contribute on behalf of the employees – social security fund (SSF) and provident fund.
Under the SSF, all employees are required to contribute 5% of their salary, up to a maximum contribution of THB750 per month. Employers and the government are also required to match this amount under the employees’ SSF. Monthly social security payments must be submitted by the 15th of the following months to the Social Security Department.
If the business has at least 1 employee aged 15 to 60, they must register and submit their employees’ SSF application to the Social Security Office within 30 days from their employment date. Foreigners who are legally working in Thailand must also register with the Social Security Office and are entitled to the same benefits as Thai employees. Employees registered under the Social Security Act are eligible to receive various benefits such as maternity benefits, sickness benefits, unemployment benefits and old-age benefits. However, there is a caveat on who is entitled to benefits under the Act:
- An employee under section 33, who is not younger than 15 years of age and not older than 60 years of age.
- An employee under section 39, who is an insured person under section 33 having paid contributions for a period of not less than 12 months and ceases to be an insured person by ending to be an employee. If the employee wishes to continue to be an insured person, the employee must inform the Social Security Office within six months and submit a contribution to the fund within the 15th of the following month.
- Any other person who is not an employee under section 33 or section 39 may apply to be an insured person under section 40 by informing the Social Security Office.
An employer or employee can terminate an employment contract by giving the other party an advance notice in writing. The most prevalent notice period among organisations is 1 month or 30 days. Employers are allowed to specify longer notice periods within the employee’s employment contract.
If the employee does not wish to serve the notice period and wishes or requires to leave the job immediately, the employer will be required to pay money in lieu of an advance notice equivalent to the employee’s wage to be paid until the effective date of the notice. This requirement, however, does not apply in cases where termination is due to misconduct, absence from service or breach of employment contract.
In cases where an employee is terminated by his or her employer, employers are required to make two types of payment: notification pay and severance pay.
Notification pay applies to all employees who are terminated at the employer’s initiative, regardless of tenure. Employers are required to pay employees their full salary for their current and the following monthly pay period. It is up to the organisation’s discretion whether employees are required to continue working up to the end date.
Severance pay only applies to employees who have worked with the employer for more than 120 days. The severance pay amounts differs based on the years of service and are as follows:
- Employees with more than 120 days of service but less than one year are entitled to 30 days severance pay.
- Employees with service of 1 year but less than three years are entitled to 90 days of severance pay.
- Employees with three years but less than six years are entitled to 180 days severance pay.
- Employees with six years but less than ten years are entitled to 240 days severance pay.
- Employees with service of 10 years but less than 20 years are entitled to 300 days severance pay.
- Employees with 20 years or more are entitled to 400 days severance pay.
Managing termination or resignation cases can culminate into a complex affair if not managed properly. Hence, it is crucial that notice periods are clearly stated in employees’ employment contract and notification or severance pay amounts are properly communicated to affected employees to prevent miscommunication and inaccurate information.
Employees in Thailand must be issued with payslips for each pay period, in which payslips can be issued in softcopy or hardcopy. Employers must keep payroll records for at least 7 years before being destroyed securely. Payroll processing is no doubt a complex affair, in which employers need to be attuned to the current payroll legislations while staying on top of the multiple payroll or tax filing deadlines. While organisations have the option of processing payroll in-house by a dedicated payroll officer, foreign businesses setting up in Thailand can consider outsourcing to a third party to take advantage of their regional expertise. At the same time, organisations can also explore the option of engaging a global payroll service provider in order to capitalise on their valuable compliance expertise and ensure that their international pool of employees are paid accurately and efficiently.
Read more about Thailand’s Labour Act here.
Learn more about i-Admin’s Thailand Payroll Outsource Services here.