hanges to Thailand’s Labor Protection Act – What do you need to know?
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.
2. 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:
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.
3. New Personal Business Leave
No personal business leave has been explicitly mentioned under the current Labor 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.
4. 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 Labor Protection Act’s provisions.
5. 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.
With new leave days added and interest rates raised, this amendment brought to the current Labor Protection Act is aiming to protect the employees’ rights and welfare, improve their working conditions and decrease the number of labor 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.
We hope that the information provided was helpful to you. If you have any further questions, please do not hesitate to contact us. We will make sure that your question will be brought to the right person’s attention and we will deliver a prompt response.
The above information is intended to highlight an overview of key issues for ease of understanding and cannot substitute a personal consultation with a qualified lawyer. We highly advise you to read this update in conjunction with appropriate advice from your legal counsel to determine the legal implications this update might have on your business and how to mitigate exposures as much as possible.
Despite applying due care when selecting and producing the information published on this newsletter, we accept no liability in case such information is not accurate, up-to-date or complete.
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