Understanding Payroll in Thailand: What Global Companies Need to Know About Thailand Payroll System
Thailand is renowned as one of the world’s most popular (and beautiful) tourist destinations, but in recent years, its potential for international businesses looking at expansion opportunities has become just as attractive.
Now the second-largest economy in Southeast Asia, Thailand and its 70 million citizens have experienced a boom recently. Its overall GDP has risen by more than 50% over the last ten years, and the unemployment rate stood at an exceptionally low 0.75% as of 2019. Additionally, the country was relatively unaffected by the initial impact of the COVID-19 pandemic, putting it in a strong position compared to many other nations.
Thailand ranks highly in the World Bank’s Ease of Doing Business Index, sitting in 21st place in 2020. However, experiences of setting up and running a business in Thailand can vary hugely from one industry to another. This guide covers the basics with regards to setting up payroll for a Thai operation.
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.
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 £50,000; $65,000; €55,000) for a limited company, rising to three million baht (approx. £75,000; $96,000; €82,500) if an FBL is required. However, there is no requirement to open an in-country bank account to process payroll.
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 uncommon.
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 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. Companies must have two million baht (approximately £50,000; $65,000; €55,000) in registered capital for each foreign employee they wish to hire.
Compensation and Severance
The national minimum wage in Thailand has consistently risen in recent years, and varies slightly between different regions. As of 2020, the minimum hourly rate is between 313 baht (approx. £7.70; $10.00; €8.60) and 336 baht (approx. £8.30; $10.80; €9.20); 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.
Employees will expect approximately 30 days of notice for termination, though it is not mandated. Unless an employee committed criminal activity or gross incompetence to their organization, they can expect severance. Severance compensation depends on the time served, starting at 30 days’ pay for those with more than 120 days 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 2020, the first 150,000 baht per year (approx. £3700; $4800; €4100) is exempt, with seven bands of progressively higher income tax rates applied for earning above this, rising in 5% increments. The highest band of 35% is applied to all earnings over five million baht (approx. £125,000; $160,000; €137,500). Social security rates are 5% for both employee and employer, due in the middle of each month.
The corporate tax rate is 20% and the VAT rate is 7%, with some exemptions for certain industries. Companies making more than 1.8 million baht a year (approx. £45,000; $58,000; €50,000) will need to register for VAT through the Revenue Department.
In addition, payroll regulations stipulate employers will need to contribute to the Workmen’s Compensation Fund. Contributions vary between 0.2% and 1% of salary for each employee, depending on the level of risk of each job role and the employer’s previous safety record.
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 15 days of public holidays each year.
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. There is no legal provision for paternity leave in Thailand. Paid sick leave can run for up to 30 working days per year.
While Thailand has lots to offer multinational businesses looking for expansion opportunities, it does have its fair share of complexities, especially around protections for Thai workers and interests over foreign ones. To steer a course past those challenges, and make the most of doing business in Thailand, partnering with a global payroll provider can equip you with vital expertise to get you up and running.
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.