Payroll management in Thailand is a crucial responsibility for every limited company operating under Thai laws. To ensure accurate employee payroll calculations, employers must be aware of the three issues involved in payroll management in Thailand. Specifically, there are important rules and regulations from each department that must be followed, especially for limited companies registered in Thailand. By understanding these guidelines, businesses can better manage payroll and stay compliant with local laws.

Payroll management in Thailand raises three major issues.

1. Employment Law & Employee Rights

Employment Contract

While a written employment contract is not legally required in Thailand, it is strongly recommended to prevent misunderstandings between the employer and employee. A written contract provides clear documentation of the terms of employment, which can help resolve any disputes that may arise.

Termination

• Employers must provide at least 30 days’ notice of termination or offer payment in lieu of notice equivalent to one month’s salary. Immediate termination is allowed if the employer provides one month’s salary in advance as compensation instead of the notice period.
•  Thai labor law does not strictly require a three-step warning process (verbal, written, parole document) before termination. However, it is common practice in many companies to issue warnings before taking further disciplinary action.
• Employers can terminate employees without advance notice or severance pay if the employee commits serious misconduct as defined under Thai labor law. Such misconduct includes theft, dishonesty, intentional damage to the employer’s property, and more. However, the law does not specify that employers must issue three warnings before termination.

Severance Payment

In Thailand, severance payment rules are governed by the Labor Protection Act. Here are the key points regarding severance payment:

• Eligibility:   Employees who have been terminated without cause or whose contract has ended (under conditions specified by the law) are entitled to severance pay. Employees who resign voluntarily or are terminated for misconduct are generally not entitled to severance pay.
• Duration of Employment: The amount of severance pay is based on the length of continuous service with the employers
  • Less than 120 days  : No severance pay.
  • 120 days to 1 year   : 30 days of severance pay.
  • More than 1 year but less than 3 years: 90 days of severance pay.
  • 3 years to less than 6 years: 180 days of severance pay.
  • 6 years or more: 300 days of severance pay.
• Calculation: Calculate severance pay based on the employee’s most recent salary.
• Notice Period: In addition to severance pay, employers generally require to provide a notice period or compensation in lieu of notice, unless the employee is terminated for specific reasons, such as serious misconduct.
• Other Benefits: Severance pay is separate from other entitlements, such as unused annual leave and benefits specified in the employment contract or company policies.

Working Period

• Thai employees can work up to 48 hours per week, usually split into 8 hours per day from Monday to Friday, with the possibility of working on Saturdays. Companies might schedule the workweek from 8:30 am to 5:30 pm, Monday to Friday, and half a day on Saturday, or they might require work on 2 Saturdays per month, depending on company policy.

Overtime Compensation

• Weekday Overtime: Overtime on weekdays at 150% of the regular hourly wage.
• Weekend Overtime: Overtime on weekends at 200% of the regular hourly wage.
• Public Holiday Overtime: Overtime on national public holidays at 300% of the regular hourly wage.

Wage and Salary

• The payment currency in Thailand must be Thai Baht, which is around 32 – 35 Baht per 1 US Dollar. Pay wages and salaries monthly by cash or bank transfer.
• Currently, the minimum wage ranges from 328 to 354 Baht per day, depending on the province. The minimum wage in Thailand varies by province, reflecting the cost of living differences across regions.
• Employers typically pay salaries once a month, including any overtime and other incentives. The amount paid usually has deductions already applied, such as social security, personal income tax, withholding tax, and any other company-specific deductions.

Leave Allowance

• Annual Leave (Vacation Days)

Thai labour law requires that employees receive a minimum of 6 days of paid annual leave after one year of service. Employers may offer more days, but 6 days is the legal minimum.

• National Holiday

Thai employees receive at least 13 public holidays per year, as designated by the government. If a public holiday falls on a weekend, the employer typically gives the following weekday off.

• Maternity Leave

Female employees receive 98 days of maternity leave, including holidays and weekends. The employer must pay for at least 45 of these days, and the policy determines whether social security can cover the remaining days or remain unpaid.

• Sick Leave

Employees receive up to 30 days of paid sick leave per year. If an employee takes more than 3 consecutive days off due to illness, the employer may request a doctor’s certificate.

• Business Leave

Thai labour law does not specifically mention “business leave” or a legal right to paid leave for dealing with personal matters such as visiting governmental offices or dealing with a parent’s illness. However, some companies may offer this as part of their internal policies. Typically, the employer and employee negotiate such leave or provide it as an additional benefit beyond the legal requirements.

For more information about employment law and employee rights, you can visit the official website of the Department of Employment. 

2. Social Security Fund and Provident Fund 

Social Security Fund

The Social Security Office of Thailand is a government institution that provides social security benefits to employees, including migrants holding temporary passports. These benefits, funded by the Social Security Fund (SSF), cover a range of protections, such as old-age benefits, unemployment benefits, child allowances, death benefits, injury or sickness coverage, maternity benefits, and workmen’s compensation. The Workmen’s Compensation Fund (WCF) specifically covers injuries, illnesses, disabilities resulting from work, and death or disappearance related to work activities.

Both employees and employers contribute to the Social Security Fund (SSF) on a monthly basis. The key regulations are as follows:

Registration: Every limited company must register for the Social Security Fund within 30 days of hiring its first employee. The company must include all employees in the initial registration and ensure their contributions to the fund.

Contribution Rate: The standard contribution rate is 5% of the employee’s salary, capped at a maximum salary of 15,000 Baht per month. Contributions do not increase beyond this cap, regardless of salary.

Payment Deadline: Pay contributions by the 15th of the following month. Late payments will incur a surcharge of 2% per month on the overdue amount.

Workmen’s Compensation Fund (WCF): The employer must make this annual payment. The contribution rate is based on the total annual salary paid to employees and varies according to the type of business.

For more information about Social Security Fund, you can visit the official website of the Social Security Office

Provident Fund

The Provident Fund is a voluntary savings programme that employers can establish for their employees. It aims to offer long-term financial security for employees, especially for retirement. Here are the key regulations and features of the Provident Fund in Thailand:

Establishment and Registration:

Employers can voluntarily establish a Provident Fund for their employees. Once established, they must register the fund with the Securities and Exchange Commission (SEC) of Thailand. They must also set up a fund committee, including representatives from both the employer and employees, to manage the fund.

Contributions:

• • Employer and Employee Contributions: Both the employer and employees contribute to the Provident Fund. Contribution rates are typically specified in the fund’s rules, with the employer’s contribution often matching or exceeding the employee’s contribution.
  • Minimum and Maximum Contributions: Contribution rates typically range from 2% to 15% of the employee’s salary, depending on the agreement between the employer and employee. However, the total contribution must not exceed 15% of the employee’s salary.
  • Tax Benefits: Contributions to the Provident Fund are tax-deductible for both the employer and the employee, up to certain limits. Employees can deduct contributions from their taxable income up to 500,000 Baht per year

Vesting Period

• • Vesting: The vesting period is the time an employee must work for the employer to qualify for the employer’s contributions to the Provident Fund. This period is usually outlined in the fund’s rules.
  • Forfeiture: If an employee leaves the company before completing the vesting period, they may lose some or all of the employer’s contributions.

Withdrawal

Conditions for Withdrawal: Employees can withdraw their Provident Fund savings upon retirement, termination of employment, disability, or other conditions as specified in the fund’s rules. Some funds also allow partial withdrawals under certain circumstances, such as serious illness or home purchases.

3. Tax Requirements Relating to Payroll management

Personal Income Tax (PIT)

PIT is a direct tax on an individual’s income, calculated annually based on the calendar year (January 1 to December 31). Both residents and non-residents of Thailand are subject to PIT, but the tax base differs:

• Residents (living in Thailand for more than 180 days in a tax year) are taxed on worldwide income, including income brought into Thailand.
• Non-residents (living in Thailand for less than 180 days in a tax year) are only taxed on income earned in Thailand.

Taxable Income

Assessable income includes salaries, benefits (e.g., rent-free housing, employer-paid taxes), and other compensation. Income is subject to allowances (such as life insurance, child allowances, mortgage interest, provident fund contributions, and donations) and deductions (based on the type of income).

Withholding Tax (WHT)

Certain income categories require tax withholding at the source. Employers must withhold tax and submit it to the Revenue Department.

Tax Payment Process

Monthly WHT Submission: Employers must submit WHT by the 7th (manual) or 15th (online) of the following month.

Annual Reporting

Employers must complete the ‘PND1 K report’ at the end of each year and submit it to the Revenue Department, along with the required documentation.

Employee Responsibility

Employees must file their own PIT returns by the last day of March following the taxable year. The employer provides a summary of salary and WHT payments to each employee.
Withheld taxes can offset the employee’s annual tax liability. For more information, visit the Revenue Department’s official website.

Given the complexities involved, payroll management in Thailand demands expert handling to ensure accuracy in calculations and compliance with documentation. We at SMEBAAS are pleased to provide you with free consultation regarding payroll-related issues, such as the Social Security Fund and individual income tax. Beyond that, we are your go-to advisors for navigating employment law and protecting employee rights, ensuring your business runs smoothly and in full compliance.

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