Learn more about Severance pay in Thailand

◊ What is it?

Severance pay is also referred to as a severance package or redundancy pay. Severance pay is a type of financial compensation an employer offers to an employee when they are leaving a company. The payment is made in case of layoffs, termination, downsizing, or business closure .

The purpose of severance pay is to help workers during the challenging financial period when they change jobs. The compensation is often made as a lump sum to the employee to support while they are looking for a new job.

The amount of severance pay depends on the employment contract, the period an employee has worked at the company, local labor laws, and the company’s policies, among other factors .

Severance pay may include the following payments:

Basic Compensation paid based on the employee’s last salary; the additional compensation, payment for unused vacation days or pro-rated bonuses; continuation of benefits, such as health insurance provision or pension contributions for a given period after termination

Outplacement Services : Some employers provide outsourcing services that help employees find a new job and provide assistance with resume writing, career counseling, and job searching; and other non-monetary benefits.

◊ What is the law on severance pay in Thailand?

On May 5, 2019, the new Labor Protection Act No. 7 B.E. 2562 was put into action. This Act provided for a change in the severance pay rates calculated based on the employee’s period of service.

An employee may be terminated by the employer if one of the following conditions is satisfied: fulfillment of the agreed employment period; mutual agreement of the parties; fulfillment of the duties of the job on the part of the employee or sending a notice from either party to terminate the employment contract .

Termination is also possible in some other cases, such as an employee’s severe violation of an employer’s demands or when an individual employer passes his or her business to another employer without the employee’s consent.

Outlined below are the entitlements employees are eligible for concerning :

◊ How can employers successfully terminate employees in Thailand ?

Thailand regulates private-sector employers and firms not related to government organizations and state employers through the Thai Labor Protection Act of 1998. Similar to earlier discussed situations, the employer to employee or vice versa call for the written notice before termination. Unless money mentioned separately in the employment agreement, such a notice ought to be given one month before the termination was planned.

Moreover, in case the parties intend to terminate the agreement promptly, the company should provide the employee with the payment equal to the money they would earn within that month.

Dismissal of the employer without the reasonable cause or denial of compensation also offers the good reason for the employee to address the labor court with the claim for unfair termination.

Most of these cases can lead to the hefty fine, which might outweigh the costs of the initial severance. At the same time, in case an employee’s contract was terminated by the gross misconduct, prior notice without compensation does not apply.

◊ How to terminate a permanent contract in Thailand ?

Most commonly, advance notice of termination is mandatory in the case of dismissal from indefinite contracts unless the dismissal was due to reasonable cause.

In Thailand, the valid reasons for such exit might include severe misconduct or well-supported breaches of the employment agreement. Nonetheless, sound judgment should be pursued while making a decision based on this information.

Further, under the currently enacted Labor Protection Act , if the employer terminates an employee for the reasons above, termination without notice can be conducted with payment in lieu of notice.

The law also covers a requirement for the employer to make an advance notification to the employee about the payment installment on the termination date. The process of how to terminate an indefinite contract in Thailand is as follows:

• Review the contract and circumstances above.
• Reasons must be legally valid.
• Consult guide.
• Legal advice is recommended for intricate cases.
• Payment in lieu of notice may come in us.
• Notice of the payment installment must be conducted.

◊ When must the employer pay severance ?

The Labor Protection Act stipulates that employers in Thailand must pay the severance to the eligible employees in several circumstances. The time at which the employer must pay the severance differs depending on the reason for termination and the employee’s length of service. Here are a few points to consider with regards to the timing.

• When an employment contract expires: If an employee’s employment is terminated by expiration because the time frame of the contract has arrived, or the employment period properly ends, the employer shall pay the severance to the employee on the date that the employment terminated.

• By agreement of both parties: When both the employer and the employee decide to terminate the employment, then the effective severance time shall be the date of termination as agreed upon by both parties.

• By Dismissal of the employer: If an employer dismisses an employee where such dismissal is due to restructuring, downsizing, business closure of 20 persons or more, then the employer must pay the severance to the dismissed employee at the time of termination, which may be a notice period, the last working day, or another time specified.

• Whenever an employee notifies the employer that they are resigning: If the employee terminates their employment, no severance is due. This is because severance takes the place of notice and gracefully, including financial support that might be necessary for a transition to a new job or position.

• Immediate Payment: The Labor Protection Act enforces that the employer should pay the severance immediately within seven days from the employee’s termination.

It is essential to recognize that the employment contract, company policy, and labor laws can influence the time-frame at which the severance is paid. Both the employer and the employee must be concerned with complying sequence of events that attend on their labor laws and contracts. They must know when the “Severance” is due.

◊ What are the exceptions ?

According to Section 119 of the Labor Protection Act, an employer is exempted from providing it  to an employee whose employment termination falls under any of the subsequent circumstances:

• The employee engaged in criminal activities against the company.
• The employee conducted their duties with dishonesty.
• The employee intentionally caused damage to the employer.
• The employee’s negligence resulted in significant harm to the employer.
• Having received prior written notice, the employee breached the company’s lawful regulations and directives.
• The employee absented themselves from work for three consecutive days without valid cause (regardless of intervening holidays).
• The employee has received a prison sentence.
• A fixed-term contract binds the employee’s service, and the contract’s duration has naturally concluded.

◊ What are the special severance ?

Thailand has a special category of such compensation referred to the “special severance pay” . It is paid when employers fire the employees, but their termination is determined by unique circumstances. The following are situations that eligible an employee to receive special severance pay in Thailand:

• Relocation : According to section 120 of the Labor Protection Act , relocation is a special arrangement stipulated as a situation that a firm can pay special severance pay when employers fire their employees if it is concerned with transferring its establishment. The employer must notify his employee 30 days prior to the relocation. If the location is not pleasable by the employee, he has the right to terminate, cancel his contract within 30 days before the date of the change-over, and become eligible for special severance payment. If the employer does not give the notice on time, he should pay 30 days of the employee’s ordinary wages. This special severance is payable after seven days from the date of contract cancelation.

• Improvements in service, production, distribution, or processes : According to section 121 of the Labor Protection Act , the Thai labor inspector shall also be made aware of any improvements of service, production, distribution, or unit processes resulting from the introduction of new machinery or technology that is reducing the required number of workers if an employee is deemed terminable on those grounds. The notification must be made 60 days before the terminable date, and the information to be provided by the employer to the Labor Inspector should cater to: terminated employee and his post, the last working day, and the legitimate reasons of termination. If the workers do not receive ample notice, ” the employer must pay the employee the regular severance pay and an additional special severance pay of 60 days wages at the notice time’s average rate” .

For the employees who have worked for an unbroken six years and above, they can be paid the ordinary and special severance severally .The special is based on the current wage and should not be less than pay for 15 days for the year worked. The total sum should be the sum that does not exceed the individual’s one year average wage. Those who have worked for less than 160 days, but more than a year are considered to have worked for one year.