Usually when an employer fires an employee, there are two kinds of payment that the employer is required by the Thai labor law to pay the employee for termination of employment.
- Payment in lieu of advance notice
If an employment contract does not specify any duration, either party can terminate the contract by giving an advance notice in writing before or at the date the wage payment is due, to take effect on the following wage payment due date. If the employer terminates an employee and wants the termination to take effect right away, the employer has to pay the employee all the wages that should have been owed if the termination would take effect on the following wage payment due date. This is called payment in lieu of advance notice.
- Severance pay
An employee terminated without a valid cause as stipulated by law is entitled to receive the following severance pay:
- 30 days’ wages where the employment period is at least 120 days but is less than one year.
- 90 days’ wages where the employment period is at least one year but is less than three years.
- 180 days’ wages where the employment period is at least three years but is less than six years.
- 240 days’ wages where the employment period is at least six years but is less than ten years.
- 300 days’ wages where the employment period is ten years or more.
The payment in lieu of advance notice is considered the employee’s income from work. If the employer is a juristic person (limited partnerships, companies, etc.), which normally has to withhold tax from employees’ income, it has to include this payment to the withholding tax calculation to determine if there is any more tax to withhold from this employee.
Severance pay is tax exempt for the employee if the amount is not more than Baht 300,000 and not more than 300 days’ wages. The portion over Baht 300,000 or the portion that is more than 300 days’ wages has to be included in the withholding tax calculation by the employer.
Note for employees: If you worked for more than 5 years, when you prepare your personal income tax return of the year, you can claim more deductions on the severance pay’s portion over Baht 300,000 or the portion that is more than 300 days’ wages.
If you want to ask us questions on Thailand labor law, please visit www.msna.co.th for more information.