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Thailand Payroll System

Thailand is full of natural beauty wherever you go. The jungle, fauna, and flora make it a tourist paradise, as do the artistic temples and friendly people. Thailand also hosts an annual monkey buffet in Lopburi province to thank its apes. The country has been able to finance itself by exporting electrical components, automotive parts, and textiles.

With a GDP of about 670 billion dollars, Thailand is the second largest economy in Southeast Asia. Emerging markets are contributing to the decline in unemployment, but companies that come to Thailand to set their international wage bill will find a somewhat uneven picture. The country has been ranked in the top 50 in the World Bank’s Doing Business Facility survey, although it is easier for some industries to do business than for others.

The registration of a company first requires the creation of a legal entity in the country, which can take up to two months. Organizations must prepare a memorandum of incorporation and have it approved by the Registrar of Partnerships and Businesses, the Department of Business Development and the Ministry of Commerce. If more than 49% of the shares are held by foreign nationals, the company must comply with the rules set out in Thailand’s Foreign Affairs Act.

Companies do not need to open a bank account in the country to process their application. Most companies choose to incorporate a joint stock company, which is subject to the Civil and Commercial Code. Once their memorandum of understanding has been approved, the company’s managers will have to complete a declaration of activity form and provide the articles of association and a list of shareholders. It should be noted that large multi-branch companies are considered as a unit under Thai law. This means that the parent company will be responsible for any dispute against the local Thai branch.

The Thai work week is generally Monday to Friday from 8:30 am to 5:30 pm, with a half-day work week on Saturday. The maximum number of working hours is 48 hours per week. Although it is normal to work on Saturdays, most companies do not hold formal meetings on Saturdays. Rest periods are usually one hour unless otherwise specified. Overtime compensation varies according to the day and the number of hours worked. Hours in excess of the standard eight hours on a normal workday shall be paid at 150% of the employee’s basic hourly rate. A shift of up to eight hours on a holiday or non-working day shall be paid at 200% of the basic rate and work performed beyond eight hours on a holiday or non-working day shall be paid at 300% of the basic hourly rate.

Contracts written in Thailand are not mandatory but are strongly encouraged. Even if written documentation is not provided, it is considered that the employer and employee have a contract with each other. Collective bargaining is generally not practiced in Thailand, although it is not prohibited. Although it is unusual to see workers’ unions, there are many social groups that advocate better treatment of all workers in the country.

The Thai currency is the Thai baht and the minimum wage is currently 305 baht per day — a record level that was reached in 2017. This is usually paid once a month, either in cash or by bank transfer.

Employees expect to receive approximately 30 days’ notice of termination, but this notice is not mandatory. Unless an employee has committed criminal activity or gross incompetence against his or her organization, he or she can expect to receive severance pay. Severance pay depends on the length of service, employees who have worked between six and 12 months receiving 30 days of severance pay, those who have worked between one and three years receiving 90 days of severance pay, and so on.

Thai tax law is quite simple. Income is taxed gradually, from 0% for those earning less than 150,000 baht per year to 35% for workers earning more than 4 million baht per year. Taxes are generally withheld from salaries before payment. Social security contributions are 5% for both employee and employer, due in the middle of each month. The corporate tax rate is 30%, although it may be reduced for some industries. In addition, payroll regulations stipulate that employers must contribute to a workers’ compensation fund.

Companies earning more than 1.8 million baht per year will have to register for VAT through the Revenue Department. In addition, if a company has its registered office outside Thailand but a branch in Thailand, it will have to pay tax on all transactions in Thailand, whether or not the Thai branch was involved.

Thai workers are entitled to six days’ leave after working in a company for one year. Thai people generally take their days off all year round, instead of taking long holidays. In addition, there are 13 national holidays in the country. New mothers are entitled to 45 days’ salary but may take up to 90 days’ leave. Up to 30 days of sick leave are granted each year. In addition, employees may take personal leave to deal with important issues, such as a sick relative. Employers are responsible for paying employees during the holidays.

The tax year runs from 1 January to 31 December in Thailand.

There are two mandatory statutory contributions in Thailand:

Social Security Fund (SSF) — Both the employee and employer have to contribute on a monthly basis. The contribution rate is usually 5% with basic salary capped at THB15,000.00. With the minimum wage being increased recently, it has been decided to extend the reduction in the Social Security contribution rate.

This is due for payment on the 15th of the next month. For late payments, a surcharge will be charged at 2% per month of the amount due.

Workmen Compensation (WCF) — Only the employer is required to contribute on an annual basis. The contribution rate is based on the total annual salary paid to employees. The contribution rate will depend on the type of company business.

Provident Fund/Welfare Fund- The payment for the provident fund must be submitted three days after payday and may vary depending on the PF trustee.

Monthly social security payments must be submitted by the 15th of the following month and must be submitted to the Social Security Department. For instance, contributions for October must be paid by November 15th, after which they will be charged an extra 2 percent of the overdue amount each month until the payment is made.

The penalty for late Social Security payment is 2% on the due amount calculated monthly.

Monthly

Employers are responsible for submitting Monthly Withholding Tax (WHT) on a monthly basis.

The deadline is by 7th (Manual Submission) or 15th ( for online submission) of the following month. The amount can be calculated using the tax table supplied by the government.

Provident Fund (monthly)

The format of this is determined by the vendor

Yearly

WHT (year-end)

A ‘PDN1 K report’ must be completed at the end of every year. It must be submitted to the Revenue Department (www.rd.go.th)

Information required in each form varies, however, the employee name and salary are always required.

Filing of all reports can be done by any party but statutory forms need to be approved by the company’s authorized signatory.

Employers in Thailand have withholding obligations to their employees, and must make income tax and social security contributions on their behalf:

Income tax rates in Thailand range from 0% for the lowest-earning employees to 35% for those earning over 4,000,001 Baht. The tax must be reported to the Thailand Revenue Department.

Social security contributions for an employer and employee amount to 5% of salaries — up to a maximum of 750 Baht per month.

Employees in Thailand must be issued with payslips for each pay period (payslips may be issued online), and payroll records must be kept for at least 7 years. Thai payroll may be handled in-house by a dedicated payroll officer or payroll team, or outsourced to a third party to take advantage of regional expertise. It may be advisable for foreign businesses setting up in Thailand to take advantage of global service providers in order to acquire valuable compliance expertise — and ensure their international employee populations are paid accurately and efficiently.

Calculate in Advance Method (CAM)

The regular income for the current payroll period is projected for the entire year and tax is calculated on this projected income. At the end of the year, there is a reconciliation to verify if excess tax has been paid, or if the employee must pay more tax.

Accumulative Calculation Method (ACM)

This is the business method that is more widely used than the CAM. In this method, the regular income for the current payroll period is projected for the rest of the payroll periods. Tax is calculated on this projected income along with the accumulated year-to-date income. The advantage of this method is that tax is distributed evenly throughout the year.

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