Thailand Severance Pay: The 400-Day Schedule Under LPA Section 118

TL;DR

Statutory severance pay in Thailand is set by Labour Protection Act B.E. 2541 (1998) Section 118, as amended by Labour Protection Act (No. 7) B.E. 2562 (2019). The 2019 amendment added a new bracket: 20+ years of service entitles to 400 days of the most recent wage (up from 300 days for 10+ years previously). Severance is owed at termination unless the employee falls under Section 119 exclusions (serious misconduct). Severance is taxable but with significant reliefs under the Revenue Code B.E. 2481 (1938).

Full Severance Schedule (Section 118)

What Counts as Wage

• Base salary.
• Regular allowances tied to the work (e.g., position allowance, work-from-Bangkok allowance) — courts generally include these.
• Variable bonuses — typically excluded unless guaranteed by contract.
• Commission — included where it is the primary compensation; courts assess case-by-case.
• Overtime, holiday pay — generally excluded from "wage" for severance calculation.

Section 119 Exclusions (No Severance Owed)

Other Termination Payments

• Payment in lieu of advance notice (Section 17): one notice period of pay if termination is without statutory notice (typically one pay period in advance).
• Unused vacation pay (Section 67): accrued but unused vacation must be paid out.
• Provident Fund: if applicable per company policy, vested portion paid per fund rules.
• Special compensation for unfair termination (Labour Relations Act): may apply for unionised contexts.

Tax Treatment of Severance

Severance is taxable income. Under the Revenue Code:

• Up to THB 300,000 is exempt under specific conditions (Section 42(17) and Section 5 of Revenue Department Notification).
• Tax on remainder uses a separate calculation reducing aggregation impact — terminations with 5+ years of service get favourable separation calculation.
• Tax is withheld at termination; final reconciliation on the annual return.

Common Mistakes

Avoid these traps:

• Treating bonus and overtime as "wage" for severance calculation — they typically are not.
• Issuing a "warning letter" that does not meet Section 119(4) formal requirements — warnings expire after 1 year and must be specific.
• Terminating during pregnancy — additional Labour Protection Act protections apply.
• Failing to pay severance within 3 days of dismissal — late payment attracts 15% per year interest plus penalties.
• Mixing severance with "ex gratia" payments without clear documentation — risks tax treatment issues.

FAQs

1. What if the company closes and I am made redundant?

Statutory severance under Section 118 still applies. Bankruptcy of the employer does not extinguish severance, but practical recovery may require Labour Court enforcement and follow Insolvency Act priorities.

2. Can severance be paid in instalments?

Section 118 contemplates lump-sum payment within 3 days of termination. Instalment arrangements require written agreement and are uncommon.

3. Does severance apply to fixed-term contracts at expiry?

Generally yes if total continuous service exceeds 120 days. The 2008 Supreme Court guidance held that successive fixed-term contracts counted toward continuous service. Fixed-term contracts for specific projects may have different treatment.

4. What about foreign employees?

Statutory severance applies to all employees in Thailand regardless of nationality. Work permit considerations on termination (Section 41 of the Foreign Working Act) are separate.

5. Can I waive severance in the employment contract?

No. Section 118 is mandatory law; waiver provisions are void.

Related Reading

• Employment Termination in Thailand
• Thailand Employment Law Overview
• Labour Court Procedure in Thailand