Sudden unemployment does happen – even to those who don’t expect it could happen to their role. Many things affect employment, including the economy, improvements to systems, increases in costs, and (as we’ve seen in recent years) global pandemics. When an employer ends an employee’s employment, they are required to give a written termination notice and issue severance pay.
When you live and work in Thailand, it’s important to be aware of severance pay and what it means for both employers and employees. The amount of severance pay a person is due depends on their circumstances and employment period. Let’s find out more about this important work-related issue.
What is Severance Pay?
Severance pay is the money an employer pays in compensation to an employee on their termination of employment. The termination could be due to the job being eliminated, through a mutual agreement, because the business is closing down, or for many other reasons.
In Thailand, both Thai nationals and foreign employees have a severance pay entitlement, and it can be a considerable amount in some cases.
The Law on Severance Pay in Thailand
On the 5th of May 2019, the new Labour Protection Act (No. 7) B.E. 2562 became effective. This Act increased the rates of severance pay based on the employee’s employment period.
Due to the Labour Protection Act, employees are protected. Their employment can only be terminated when the agreed employment period has ended, both parties agree with termination, the work has been completed, or when either employer or employee notifies the other of wanting to end the contract.
Of course, it may also be ended in cases like gross misconduct on the employee’s part or when an employer transfers their business to a third person without employee consent.
Here are the employee entitlements with regards to severance pay:
Period of employment
Severance pay rate
|120 days but less than 12 months||30 days|
|12 months (but less than three years)||90 days|
|Three years (but less than six years)||180 days|
|Six years (but less than ten years)||240 days|
|Ten years (but less than twenty years)||300 days|
|Twenty years and above||400 days|
Exceptions to Severance Pay Rules in Thailand
Section 119 of the Labour Protection Act states that a company doesn’t have to give severance pay to someone who has had their employment terminated due to one of these reasons:
- The employee acted in a criminal capacity against the company
- The employee performed his or her duties dishonestly
- The employee caused damage to their employer willfully
- The employee was negligent in a way that caused serious damages to their employer
- The employee violated the company’s lawful rules, regulations, and orders and has already received a written notice
- The employee has neglected his or her work duties for three consecutive workdays without a reasonable excuse (and whether or not there is an intervening holiday)
- The employee has been sentenced to imprisonment.
- The employee was employed with a fixed-term contract and it is the end of said contract.
Special Severance Pay
As well as standard severance pay, Thailand has special severance pay. This is money paid to an employee when an employer terminates the employee owing to special circumstances.
Special circumstances that pay special severance pay
Here are the circumstances with which an employee would receive special severance pay in Thailand.
In section 120 of the Labour Protection Act, relocation is a special circumstance that could allow an employee to be awarded special severance pay.
This means that if a company relocates its place of business and this affects the employee’s ordinary course of living, the employee must be given notice of 30 days or more of the relocation.
If the relocation means an employee no longer wants to work for the company due to the location, the employee is able to terminate their contract within thirty days. This means the employee is allowed to receive special severance pay.
If the employer doesn’t notify the employee with the required thirty-day time scale, they also need to pay this special severance pay in lieu of the advance notice at a rate of 30 days of the person’s most recent wage rate.
The employee should receive their special severance pay within seven days of the contract terminating.
Improvement to service, production, distribution, or unit processes
Section 121 of the Labour Protect Act stipulates that if an employee is terminated because of changes to the service, production, distribution, or unit process due to the utilization of technology and machinery meaning fewer employees are required, they need to notify the Thai Labour Inspector sixty days before the date of termination.
The employer would need to provide the following information to the Labour Inspector:
- Which employees are being terminated and their roles
- When the termination will occur
- Why the termination is happening.
If they don’t give notice to the affected employees that are at least sixty days, the employer must pay ordinary severance pay as well as special severance pay equal to the 60-day wage of the employee at their current rate.
If the employee has worked for the company for six consecutive years or longer, the employee is entitled to special severance pay as well as ordinary severance pay. The special severance pay is paid at the employee’s current wage and is equivalent to 15 days’ pay for every year of employment. The total amount of the severance pay can’t, however, exceed the person’s annual salary.
If the employee has not worked for the company for a year yet but has worked for more than 160 days so far, they are considered to have been employed one year for special severance pay calculations.
Severance Pay in Thailand: Final thoughts
Thai employers are strongly advised to exercise great care when they terminate employees. This is because labour laws in Thailand generally favour the employee. As such, careful practise should be undertaken to make sure that an employee’s termination complies with the law. Otherwise, there will be a knock-on effect in terms of reputation but also in finances. For those who are unfamiliar with Thailand’s labour laws and their nuances, it’s always advisable to seek advice from an appropriate headhunter and recruitment expert.