[February 2019] Extra severance pay and more benefits for employees in Thailand in early 2019

By Florian Maier, Managing Director and Phi Ploenbannakit, Director – Antares Advisory, part of Antares Group


On 13 December 2018, the draft amendment to the Labor Protection Act (LPA) was approved by the National Legislative Assembly and is expected to come into force soon. The legislation was changed to become more favorable for employees throughout 2018 and is expected to continue to do so in 2019.

We have summarized below the major changes covered by the current Labor Protection Act and those soon to come into force, which will impact more or less the business projection.

  1. Retirement Age

The retirement age was not explicitly mentioned by any legislative or statutory regime before 2018 when it was legislated. The national retirement age is currently set at 60 years old.

Unless the retirement age is agreed in the employment contract or company’s work rules and is higher than 60 years old, the national retirement age shall prevail. This gives the right to the employee to retire by giving a 30-day notice upon turning sixty. As usual, the termination of employment contract due to retirement upon the effective date will immediately trigger the employer’s severance pay obligation towards the retiring employee.

The employer is still obliged to pay the severance despite the retiring employee’s desire to continue service after sixty. Since the law grants the right to terminate the contract solely to the employee, the cut-off date when the severance pay is due might become tricky. Given that the new higher rate will soon come into force, the employee may choose to continue service in order to enjoy a higher severance pay rate.

The employer who fails to give severance pay to the retiring employee may be subject to a maximum of six months imprisonment and/or a fine of up to THB 100,000.

  1. Extra Severance Pay Rate

Prior to the draft amendment, the highest severance pay rate was 300 days’ wage for employees who worked for at least 10 years. Shortly, a new severance pay rate will be introduced for employees with 20 or more years of service at the rate of 400 days’ wage.

We covered below the current and proposed severance pay rates, expressed as multiple of days of last wages:

LENGTH OF SERVICE CURRENT SEVERANCE PAY RATE PROPOSED SEVERANCE PAY RATE
120 days ~ <1 year 30 days 30 days
1 year ~ < 3 years 90 days 90 days
3 years ~ < 6 years 180 days 180 days
6 years ~ < 10 years 240 days 240 days
10 years ~ < 20 years 300 days 300 days
> 20 years 300 days 400 days

Furthermore, the new amendment will introduce the term “remuneration” to clarify what payments should be included and what payments should be excluded from the severance pay calculation.

Remuneration is referred as money paid by an employer to its employees as compensation for work, other than wages, overtime payments, holiday payments and holiday overtime payments. Therefore, remuneration is not considered the same as wage and should not be included in the calculation of the severance pay.

The retirement age and new severance pay rate are unarguably connected and will materially impact the liabilities and costs of companies whose employees’ age range between 35 to 40 years old and which have set in their work rules or employment contracts the retirement age at 55 or 60. The impact will be influenced by the proportion of employees who will have completed 20 years of service upon retirement.

However, early retirement is allowed in Thailand and in this case a lower severance pay rate will be paid based on a shorter length of service, resulting in a lower impact for companies.

  1. New Personal Business Leave

No personal business leave has been explicitly mentioned under the current Labour Protection Act. This type of leave has been treated as an additional, not compulsory, benefit exclusively determined and given by the employers to their employees. Furthermore, the lack of business leave was not seen as a crime nor an infringement to the employees’ rights.

However, under the new the amendment, a business leave of at least 3 days per year must be granted to all employees, along with other existing leave and holidays, and failure to do so will result in a penalty for employers. The business leave will be determined by the employers as they deem appropriate, but all employees are entitled to full payment during such leave.

  1. Longer Maternity Leave

Under the new amendment, the maternity leave period will be increased from 90 days, as currently granted, to 98 days per pregnancy. The maternity leave will include the leave taken for the medical check-up during the pregnancy period, before and after delivery, as well as the holidays that fall during such leave.

As opposed to the current maternity leave period where the employee must take all 90 days at once, the new law will allow the employee to accumulate multiple leave days throughout the full 98-day pregnancy period. Nevertheless, it is expected that the employees to be entitled to receive payment for such leave but it will not exceed 45 days, according to the current LPA provisions.

  1. Mandatory Notification in case of Business Premises’ Relocation

When an employer is planning to relocate its place of business and such relocation materially affects the normal living of its employees or their families, such employer must notify the employees at least 30 days in advance, as mentioned under the current law.

Under the new amendment, the employer will be obligated to notify the employees of the relocation of its place of business, either to a new location or to other existing location, all the time not only when the relocation is affecting the employees or their families. With at least 30 days before the proposed relocation date, a notification must be visibly posted in the current place of business and must clearly specify the new business premises and the date on which the relocation will actually take place.

If an employee determines that the relocation will materially affect his ordinary course of living or his family’ course of living, he has the right to refuse to be relocated. The employee must notify the employer in writing of his refusal within 30 days of the date the employer’s notification has been posted.

As a result of such notification, his employment contract will be considered terminated as of the date of relocation and the employee will be entitled to special severance pay. The special severance pay is equal to the rate offered in case of normal termination.

  1. Payment Date and Place in case of Temporarily Suspending Business Activity

 An employer who temporarily suspends his activity, whether completely or partially, must pay to its employees wages at a rate of at least 75% of the employees’ latest wage. However, the current LPA does not mention any specific due date or location for paying these wages.

The new amendment sets that these wages are to be paid at the employer’s place of business or other location as agreed with the employee and the payment must be made at least once a month.

     7. Payment in lieu of Advance Notice

The new amendment brings clarification to the current provision concerning the employer’s obligation to pay for his failure to give advanced notice of termination to the employee and the moment when this payment must be made.

To avoid disputes, when an employer wishes to terminate an employee who has an employment contract that does not specify any duration and fails to notify the employee with at least one payment cycle in advance, such employer will be required to pay to the dismissed employee wages in lieu of advance notice from the date the employee is effectively dismissed. Such payment must be equal to that which would have been paid if notice had been given.

  1. Increased Interest Rate for Employers Failing to Make Payments

Currently, an employer must pay severance pay immediately upon termination. However, an unpaid wage or other money could be paid within three days from the employment contract termination date. The employer failing to disburse such payments on time may be subject to an interest rate of 7.5% per year, as mentioned in the Civil and Commercial Code.

While it is not clear enough, the term remuneration introduced by the new law might also cover the severance pay. It is possible that the employers be allowed to pay the severance pay at the same time with all the wage, meaning within three days from the termination date. In addition, the interest rate will be increased to 15% per year under the new law.

Final Thoughts

With new leave days added and interest rates raised, this amendment brought to the current LPA is aiming to protect the employees’ rights and welfare, improve their working conditions and decrease the number of labour disputes that have often been raised in the Thai courts, especially in case of termination of employment.

We highly recommend the employers to carefully review the new agreement and duly revise the company’s internal policies, processes and work rules to be in accordance with these new regulations.

phi
Florian is the Managing Director of Antares Advisory. He joined Antares in 2014. Prior to that, Florian has been working for a German-owned law firm in Bangkok and, subsequently, for 5 years for a law firm in Stuttgart, Germany, advising mid-sized German companies with respect to international contract law.
He speaks German, English and French and he has an extensive experience in all legal matters, including tax law.
He can be reached at florian@antaresgroup.com or +66 (0) 83 669 0834.
maier
Phi is the Director of Antares Advisory. He holds a LL.B. and subsequently a LL.M. in Business Laws, program held in English, from Thammasat University. He is a member of the Lawyers Council of Thailand and the Thai Bar Association. Phi is a Thai licensed lawyer and Notarial Services Attorney.
His area of practice covers corporate & commercial law, M&A, legal due diligence, labor law, property law, family law, litigation and arbitration. He has extensive experience in assisting corporate and individual clients in identifying the root cause, finding the best solutions and alternatives to mitigate the exposure and take the right decision.
He can be reached at phi@antaresgroup.com or +66 (0) 98 824 4186.

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