What global businesses need to know about payroll in Thailand

Thailand is known globally for stunning beaches, the hustle and bustle of its capital Bangkok, and some truly delicious food. But it can be just as good a place to do business, too. 

Now standing as one of the largest economies in Southeast Asia, Thailand and its population of just over 70 million have experienced a financial boom in recent years. Its current annual GDP of around US$500 billion is around four times what it was at the turn of the millennium. The COVID-19 pandemic did have a negative impact more recently, especially as tourism is a major economic driver in the country. However, the fact that its unemployment rate is back below 1% shows that it’s a solid bet for successful international expansion.

This guide gives you all the key facts about Thailand from a payroll and employment perspective. As you’ll read, there are several key issues to be aware of, especially as foreign businesses and workers are treated differently to Thai ones.

Getting Started

There are three types of business entities that foreign enterprises can set up in Thailand: partnerships (ordinary or limited); offices (regional, branch or representative); and limited companies (public or private). Companies may need to apply for a Foreign Business License (FBL) in order to operate. 

It’s also important to note that foreign companies are banned from operating in certain industries in Thailand, as set out in the Foreign Business Act. These include (and are not limited to): newspaper publishing, livestock farming, fishing, forestry, rice farming, and more. Make sure your business is eligible before starting your Thai expansion project.

Registering a business requires establishing a legal entity in the country first, which can take up to two months. Organizations must put together a Memorandum of Association and have it approved by the Partnerships and Companies Registration Office, the Department of Business Development, and the Ministry of Commerce. Once their MOA is approved, company leadership will need to fill out a Declaration of Business form and provide Articles of Association and a list of shareholders. It should be noted that large businesses with several branches are seen as one unit by Thai law. This means the head office will be liable for any litigation against the local Thai branch.

Minimum start-up capital requirements are relatively high: two million baht (approximately £45,500; $58,000; €52,500) for a limited company, rising to three million baht (approx. £78,000; $87,000; €78,500) if an FBL is required. However, there is no requirement to open an in-country bank account to process payroll.

Employment Considerations

There is no legal requirement for written employment contracts to be issued in Thailand. However, they are recommended, and agreements between employers and employees are considered contracts anyway. Collective bargaining and labor unions are not prohibited in Thailand, but they are relatively rare.

In line with most Western countries, Thai employees generally work eight hours per day, Monday to Friday, with a one-hour break for lunch (the one-hour break is a legal requirement after five consecutive hours of work). However, many companies also work half-days on Saturdays. Overtime counts as any hours worked over and above 48 hours per week, and is paid at a minimum of 150% of salary on normal working days, 200% for normal working hours on holidays, and 300% for overtime on holidays.

There are stringent rules around the hiring of foreign workers in Thailand. Foreign-owned companies must have at least three million baht (approx. £78,000; $87,000; €78,500) in registered capital for each foreign employee they wish to hire. Across your entire workforce in Thailand, you must have no more than 20% foreign employees.

Notice periods are a minimum of 30 days, but can be longer than this through agreement in the employment contract; payment in lieu of notice is permitted. There is no statutory probation period requirement, although most Thai companies will include one in employment contracts of anything up to around four months.

Compensation and Severance

The national minimum wage in Thailand has consistently risen in recent years, and varies slightly between different regions. As of the beginning of 2024, the minimum hourly rate is between 330 baht (approx. £7.50; $9.50; €8.60) and 370 baht (approx. £8.50; $10.70; €9.70); businesses should keep abreast of any new increases that may be introduced in years to come. Thai employees are normally paid monthly, either in cash or by bank transfer. Unusually for an Asian country, there is no requirement to pay a 13th-month bonus in Thailand.

Severance pay depends on the time served, starting at 30 days’ pay for those with more than four months of service, and moving up through six bands to 400 days’ pay for those with at least 20 years’ service.

Tax and Social Security

Thailand has a relatively simple income tax system that applies to residents and non-residents alike, and employers withhold employees’ tax contributions from their salaries. As of the start of 2024, the first 150,000 baht per year (approx. £3400; $4300; €3900) is exempt, with seven bands of progressively higher income tax rates applied for earnings above this, rising in 5% increments. The highest band of 35% is applied to all earnings over five million baht (approx. £114,000; $145,000; €131,000). 

Social security rates are relatively low in Thailand and run as follows:

• Pension (3% employer, 3% employee)
• Health insurance (1.5% employer, 1.5% employee)
• Unemployment (0.5% employer, 0.5% employee)
• Workmen’s Compensation Fund (between 0.2% and 1% employer, depending on the type of work, level of risk involved, and the previous safety record of the employer)

It’s also important to note that foreign employees will need their own private medical cover.

The corporate tax rate is 20% and the VAT rate is 7% (temporarily reduced from 10%), with some exemptions for certain industries. Companies making more than 1.8 million baht a year (approx. £41,000; $52,000; €47,000) will need to register for VAT through the Revenue Department. 

Holiday and Leave

The statutory minimum holiday entitlement in Thailand is six working days per year after the first year of service, although it’s common for employers to offer between ten and 15 days. Employees are also entitled to be paid for public holidays each year: there are around 20 each year (variable depending on region), and holidays that fall on weekends normally have the day off transferred to the following Monday.

Paid leave can be granted for national service, training or exams, or for sterilization procedures. Maternity leave entitlement is 98 days: 45 paid by the employer, 45 paid by the government through social security payments, and eight unpaid. Only public-sector employees are entitled to paternity leave (15 days) by law, although some private-sector companies will voluntarily make provision for it in employment contracts.

Paid sick leave can run for up to 30 working days per year, and is paid by the employer. Absences of longer than three working days have to be certified medically.

In Summary

As this guide demonstrates, Thailand is a country that welcomes foreign business and investment up to a certain point. Restrictions in activities and hiring of foreign labor, and very severe penalties for transgressions, mean that it’s vital to establish compliance right from the start of your Thai expansion, and to keep it that way. The best approach is to partner up with a global payroll expert and solution provider, who can lend you all the experience and know-how you need.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.