Thailand, or commonly referred to as the "Land of Smiles," is a popular tourist destination known for its white sandy beaches, delicious spicy cuisine, and bustling night markets. In recent years, Thailand has been listed as one of the countries where businesses aim to expand their markets in Southeast Asia (SEA), according to the World Bank's Ease of Doing Business Index 2021. Thailand ranks 21st out of 190 countries, following developed economies such as Taiwan, the United Arab Emirates, and Finland.
Currently, Thailand remains a central hub in the Southeast Asian region for attracting foreign investments, thanks to its relatively stable economy, diverse culture, and high literacy rate of up to 94% of the population. Moreover, the country has strong motivating factors supported by local governments, making it unsurprising that Thailand consistently ranks among the top investment destinations in the world.
Aside from complying with regulatory requirements for conducting business, it is crucial to adhere to Thailand's regulations regarding salaries and labor laws. Ultimately, the mechanisms and business models for operating in Thailand may vary across different industries. This article provides a compilation of fundamental guidelines for payroll management when conducting business in Thailand.
Working hours
The maximum working hours in Thailand are 8 hours per day and 48 hours per week. Although employers and employees may agree on flexible working hours for certain types of work, the total working hours per week must not exceed 48 hours. Work deemed hazardous to personal health or safety, as defined by law, must not exceed 7 hours per day and 42 hours per week.
Employees in Thailand are entitled to a 1-hour break after working continuously for 5 hours. While employers may provide shorter breaks, it should not be less than 1 hour in a single day. If employees work beyond the maximum working hours prescribed by labor laws, they have the right to receive overtime pay.
Overtime pay
Employees in Thailand are allowed to work up to 36 hours of overtime per week. Employees who work beyond the maximum prescribed working hours are entitled to receive overtime pay at rates ranging from 1.5 to 3 times the average hourly wage.
If employees work overtime on regular working days, they are entitled to receive overtime pay at 1.5 times the regular hourly wage. If employees work overtime on official holidays or work on rest days, they are entitled to receive twice or three times the regular hourly wage, respectively.
Businesses need to be aware of the compensation for overtime work that employees are entitled to receive. At the same time, employee salary slips must clearly specify the total overtime hours worked by each employee and the amount of overtime compensation paid. Employees can take legal action against organizations that fail to pay overtime compensation and demand payment of outstanding compensation with an interest rate of 15% per year.
Leave entitlements
Employees who have worked continuously for 1 year are entitled to 6 days of annual paid leave. There are no limitations on sick leave, and employees are allowed to take sick leave as long as they can prove their illness. However, employees can receive payment for sick leave for a maximum of 30 working days per year.
If an employee takes more than 3 days of sick leave, the employer may request an official medical certificate from a licensed doctor or healthcare facility.
For female employees, maternity leave covers a period of 98 days, including public holidays. Employers are required to pay 100% of the salary for the first half of maternity leave, while the remaining half is paid by the employer or covered by the Social Security Fund. Female employees in the public sector are also entitled to 15 days of leave for childcare. However, employees in the private sector generally do not have paid leave for childcare, and these matters are usually dependent on the discretion of the relevant organization.
Employees working for private entrepreneurs are entitled to a minimum of 13 public holidays per year, according to the Labor Protection Act. Organizations can check the list of public holidays for the current year here.
During payroll processing, organizations often encounter situations related to employees taking leave without pay or absences. Compliance with the statutory leave entitlements in Thailand helps organizations comply with labor laws and reduces instances of non-compliance significantly.
Social Security Fund
The Social Security Fund is generally practiced in neighboring countries such as Hong Kong, Malaysia, and Singapore. The purpose of the Social Security Fund is to serve as a financial security network for individuals, helping employees have reserve funds for retirement. Although most countries require employees to participate in the Social Security Fund, it is not the case in Thailand.
In Thailand, the establishment of the Social Security Fund is voluntary and done through mutual agreement between employers and employees. Employees and employers can contribute to the fund, ranging from 2% to 15% of the monthly wages, with the employer's portion matching the employee's contribution. Employees can receive tax benefits throughout their membership in the Social Security Fund.
Income Tax and Social Security
Employers are required to deduct personal income tax from employees' salaries every month. This can be done by deducting the income tax from the employee's salary before payment. The income tax is calculated based on the assumption that the income is earned throughout the calendar year, from January 1st to December 31st. Employers are responsible for submitting the tax withholding statement to the Revenue Department every month by the 7th of the following month. Failure to submit the monthly tax withholding statement may result in penalties and additional fines of 1.5% of the amount due.
Social Security Contributions
According to the laws in Thailand, there are two types of social security contributions that employers must make on behalf of their employees: the Social Security Fund (SSF) and the Retirement Fund.
Under the regulations of the Social Security Fund, all employees must contribute 5% of their monthly wages, with a maximum of 750 baht per month. Employers and the government are required to match this amount under the employees' Social Security Fund and must remit the monthly social security contributions to the Social Security Office by the 15th of the following month.
If a business employs at least one person aged between 15 and 60 years old, they must register and submit an application for the employees' social security fund to the Social Security Office within 30 days from the date of employment. Foreign workers employed legally in Thailand must also register with the Social Security Office and are entitled to the same benefits as Thai employees. Registered employees are eligible for various benefits, including maternity benefits, sickness benefits, unemployment benefits, and old-age benefits. However, there are conditions for eligibility under the Social Security Act:
1. Employees under Section 33 must be between 15 and 60 years old.
2. Employees under Section 39 must have paid social security contributions for at least 12 months and have terminated their employment. If an employee wishes to continue being covered, they must notify the Social Security Office within 6 months and pay the contributions by the 15th of the following month.
Other individuals who are not employees under Section 33 or Section 39 can apply to be covered as voluntary insured individuals under Section 40 by notifying the Social Security Office.
Termination of Employment
Employers or employees can terminate an employment contract by providing written notice in advance to the other party. The most common notice period within organizations is 1 month or 30 days. Employers may be allowed to specify a longer notice period within the employment contract.
If an employee does not wish to fulfill their duties according to the specified timeline or needs to resign immediately, the employer must pay compensation equal to the wages the employee would have received until the effective date of the termination notice. However, this provision does not apply in cases where termination arises from misconduct, poor performance, or breach of the employment contract.
In the event that an employer terminates an employee, they must make two types of payments: notice pay and severance pay.
Notice pay is given to employees who are terminated by the employer without considering the duration of their employment. The employer must pay the full salary to the employee for the current pay period and the next pay period, depending on the organization's discretion on whether the employee should continue working until the end date.
Severance pay applies to employees who have worked for the employer for at least 120 days. The amount of severance pay varies based on the length of employment and is as follows:
Employees who have worked for more than 120 days but less than 1 year are entitled to 30 days of severance pay.
Employees who have completed 1 year but less than 3 years of employment are entitled to 90 days of severance pay.
Employees who have completed 3 years but less than 6 years of employment are entitled to 180 days of severance pay.
Employees who have completed 6 years but less than 10 years of employment are entitled to 240 days of severance pay.
Employees who have worked for 10 years or more are entitled to 300 days of severance pay.
Employees who have worked for 20 years or more are entitled to 400 days of severance pay.
Handling terminations or resignations can lead to complex situations if not managed properly. Therefore, it is essential to clearly specify the notice period in the employee's employment contract and communicate the appropriate compensation amount to mitigate miscommunication and inaccurate information.
In Thailand, employees must receive payslips for each pay period, which can be in paper or digital format. Employers must keep records of salary payments for at least 7 years before securely destroying them.
There is no doubt that payroll processing is a complex matter. Employers must adapt to current labor laws and consider the deadlines for submitting various tax forms. Companies may choose to process payroll internally through a team of payroll specialists or consider outsourcing payroll services to benefit from regional expertise. Moreover, international organizations established in Thailand can explore options for hiring external payroll service providers to ensure compliance with local regulations and provide confidence that their international workforce will receive accurate and efficient remuneration.
For more information about Thai labor laws, you can read further here.