How severance pay is calculated in Thailand: the statutory scale, the wage base, and the payments most often forgotten

Severance is its own pot and cannot be set off

Start with the definitions, because a single sentence disposes of several arguments.

The phrase “over and above any other category of money the employer has agreed to pay” is the heart of it. A bonus, a provident fund payout, a company gratuity, or unpaid wages cannot be set against severance and then described as severance paid. In Judgment 12/2532 (1989) the Court held that a gratuity under the employer’s own regulations and statutory severance are different categories, because the conditions for receiving each differ, so paying the gratuity did not discharge the duty to pay severance as well, even though it was several times larger.

“Termination” is broader than most people assume

The words “whether by reason of the expiry of the contract of employment or for any other reason” cover nearly every involuntary departure: failing probation, missing targets, restructuring, or the business closing.

The commonest misunderstanding concerns dismissal for not performing as expected. Many employers believe this is the employee’s fault and so no severance is due. In Judgment 2725/2525 (1982) the Court held that dismissal for diminished capacity, or for recurrent shortcomings in performing the work, is not a breach of the employer's rules or work regulations, and so is not a ground for withholding severance. In Judgment 12/2532 (1989), where an employee was paralysed by a stroke, the cause arose naturally and was not the employee’s fault. Severance was payable in both.

The six tiers of the severance scale

The one exception: a genuine fixed-term contract

Paragraph four draws the exception very narrowly: project work outside the employer’s ordinary business, occasional work, or seasonal work, completed within two years, agreed in writing from the first day. A rolling one-year contract for someone doing the company’s ordinary day-to-day work does not qualify, and severance remains payable when it is not renewed.

Retirement counts as a termination

Paragraph two matters greatly in practice: it lets an employee who has reached sixty declare retirement themselves where the company has fixed no retirement age or has fixed one above sixty. Such a declaration is not a resignation, and severance remains payable in full according to the service tier.

What counts as “wages”: the base people get wrong most often

Every severance figure hangs on one word: wages. If the base is wrong, the final figure is wrong.

The phrase to underline is “remuneration for work under the contract of employment for normal working time”. Salary is fully a wage, and for daily-rated staff the daily wage is the multiplier. Overtime pay and holiday pay are given their own definitions precisely because they are not remuneration for normal working time, and so they are left out of the base. Note too that the definition says nothing about what money is called, only about its character and what it is paid for.

Regular payments in a fixed amount are treated as wages

The Supreme Court’s approach is settled and long-standing. It looks not at the label but at three things together: is the payment regular, is the amount fixed, and is it paid as remuneration for normal working time?

Judgment 3562/2524 (1981) is the clearest illustration. The employee received a salary of 2,722 baht, a cost-of-living allowance of 1,013 baht a month, and a travel allowance of 1,200 baht a month. The Court held the allowance was paid every month in a fixed amount just like salary, and that although paid to help with rising living costs, this only showed the salary was out of step with those costs and had to be topped up under that name. It was therefore part of the wages used to calculate severance.

In the same case the Court held of the travel allowance that there was no evidence the employer was reimbursing costs actually incurred, since whether the employee spent more or less the figure stayed at 1,200 baht. It was paid by reason of position and, though called a travel allowance, was remuneration for normal working time. Importantly, the Court went on to hold that both sums had to be included in calculating pay in lieu of notice as well, not only severance. The same line was confirmed in Judgment 504/2525 (1982), treating a petrol allowance paid monthly by position, regardless of actual spending, as a wage.

Payments the courts do not treat as wages

Conversely, money paid subject to conditions, or intended as a reward, or given to help with the cost of doing the job, is not a wage. In Judgment 509/2525 (1982) the Court decided two points in one judgment. First, a cost-of-living allowance paid monthly and computed from the basic wage rate was regular and fixed, and so formed part of the wages. Second, an annual reward or bonus could be withheld by the company’s board in any given year and was in any event intended as a reward for good service and appropriate conduct, so it was not paid as remuneration for work and was not a wage.

Another excluded category is a housing allowance. In Judgment 1437/2524 (1981) the Court reasoned that the employer had set out to shoulder accommodation as a welfare benefit and, unable to house everyone, paid a rent subsidy instead. Even though the amount was the same fixed figure every month and employees who owned their homes received it too, it was not a wage. Judgment 172/2524 (1981) reasoned the same way: by its nature a housing allowance is not paid as remuneration for normal working time.

Per diems and travel money: the line falls on “lump sum”

The most contested category is per diems and travel money, because the same payment may or may not be a wage depending on how it is paid. Two phrases are worth holding on to: paid as a lump sum, and reimbursed against what was actually spent.

The line is drawn most instructively in Judgment 2526/2529 (1986), where the employee received a lump-sum per diem of 230 baht a day and an entertainment allowance of 15 baht a day. The Court held the per diem was a wage: it was fixed and had the character of a lump sum because no receipts were required, no surplus was returned on a day when less was spent, and no excess could be claimed on a day when more was. The entertainment allowance was not a wage, because by its nature it was paid so the employee could entertain the employer’s customers, making it help with the cost of the work rather than remuneration for it. Both were lump sums at the same daily rate, yet they were treated differently because what each was paid for differed.

A further condition needs watching: the per diem must still be in payment in the final stretch, because the Act speaks of the final wage rate. In Judgment 1197/2531 (1988) employees supervising upcountry construction received per diems while away, but on returning to the Bangkok office to await their next assignment received salary alone, and they were dismissed during that wait. The Court held the per diem was remuneration only for time spent working upcountry, that it ceased on their return, and that it therefore formed no part of the base.

Renaming it, or signing it away, does not work

A question I am often asked is whether it matters that the company’s regulations state plainly that an item is a “welfare benefit” rather than a wage, or that the employee signed up to that. On the authorities it does not. In Judgment 2895/2524 (1981) the Court put it shortly: whether a category of money is a wage is determined by the labour protection law, and no one may lay down a regulation making it otherwise. In Judgment 2891/2525 (1982), calling it a welfare payment was not material to whether it was a wage.

It goes further. In Judgment 504/2525 (1982) the employee had signed an undertaking that if sales fell short of target and employment ended, no severance would be claimed. The Court held the labour protection law had binding force and concerned public order, so an agreement stripping away the right to severance had no effect and the employer still had to pay. Put plainly, a signature waiving the right in advance does not make the statutory right disappear.

Worked examples, step by step

The method has three steps: establish the monthly wage base taking in every qualifying item, divide by thirty for the daily wage, then multiply by the number of days for the tier.

The third row is the one to dwell on: the same case, differing only in that a 5,000 baht allowance was left out, and the figure falls short by 40,000 baht. The longer the service, the wider that gap. On units, the Act fixes severance in days, not months, and the 400-day tier does not divide evenly by thirty, so the correct figure comes from the daily wage multiplied by four hundred.

Pay in lieu of notice: the most forgotten payment

Commonly nicknamed the “shock payment”, this is wholly separate from severance. Many people receive severance in full and assume the matter is closed, unaware a further sum is owed.

The mechanism is simpler than it looks. Suppose wages are paid on the last day of each month and on 30 June the employer tells the employee to leave at once. Notice given on 30 June would take effect on the next wage payment date, 31 July, so wages must be paid up to 31 July, a full month. Where people slip is the base: it is not salary alone but every qualifying item, as Judgment 3562/2524 (1981) held. Note the final paragraph too: where the dismissal is on a Labour Protection Act, Section 119 ground, no notice is required and this payment is not owed.

Wages for untaken annual leave

The difference between the two paragraphs matters. Paragraph one concerns leave for the year of termination, payable pro rata only where the dismissal is not on a Labour Protection Act, Section 119 ground. Paragraph two concerns accumulated leave carried over from earlier years, which is always payable, whether the employee resigned or was dismissed for any reason at all, including a Labour Protection Act, Section 119 ground. There is also a very short deadline many are unaware of: the final paragraph of Section 70 requires the employer to pay wages and the sums due under the Act within three days of the termination.

Special severance: relocation, and machinery replacing people

Special severance is payable on top of ordinary severance in two situations. The first is relocation of the workplace. Labour Protection Act, Section 120 requires the employer to post notice at least thirty days in advance, and where it does not, to pay special severance in lieu of notice equal to thirty days at the final wage rate. Paragraph three confers the most important right.

The thirty-day limit here is a real deadline. Staying silent, following the job to the new site, and reconsidering later makes the entitlement far harder to assert, so if the company posts notice of a distant move, photograph the notice with its date on the first day you see it. The second situation is a reduction in headcount from reorganisation or the introduction of machinery and technology. Labour Protection Act, Section 121 requires sixty days’ advance notice to the labour inspector and the employees, and where notice is not given or is shorter, then in addition to severance under Labour Protection Act, Section 118 the employer must pay special severance in lieu of notice equal to sixty days at the final wage rate. Section 122 adds a further layer.

Put in figures: an employee on 40,000 baht with twelve years’ service is made redundant because the company brings in automation. Severance under Labour Protection Act, Section 118 falls in the 300-day tier, giving 400,000 baht. Section 122 adds fifteen days per year, so 180 days across twelve years, roughly 240,000 baht more. If the sixty days’ notice was not given, another sixty days is owed, roughly 80,000 baht. The three together come to around 720,000 baht.

Unfair-dismissal damages: yet another separate pot

Many people think paying severance in full closes the matter. It does not. Paying severance discharges the labour protection legislation, but a separate question remains, namely whether the dismissal was fair, and that question lives in a different statute.

Note the five factors at the end of the section, because those are what the court weighs: the employee’s age, length of service, the hardship of the dismissal, the grounds for it, and the severance entitlement. The Act lays down no formula and no ceiling, so amounts vary with the facts. The practical effect is that an employee dismissed without fault, without notice, and without fair cause may be entitled to severance, pay in lieu of notice, wages for untaken leave, and unfair-dismissal damages all at once.

When no severance is owed at all

Now the other side. Where the employee commits misconduct of a kind the Act specifies, the employer may dismiss without paying severance. There are six grounds and the list is closed: these are not examples but the whole of what the law provides.

Sub-section (4) repays slow reading, because it works on two levels: for a non-serious breach a written warning must have come first, and a warning letter is good for only one year from the date of the breach, while for a serious breach no prior warning is needed. Sub-section (5), with its words “three consecutive working days, whether or not there is a holiday falling in between”, means an intervening holiday does not break the run. And a frequent misconception is that missing targets or failing probation fall within these exceptions. They do not, because neither appears among the six.

A ground not stated in the letter cannot be raised later

The final paragraph of Labour Protection Act, Section 119, quoted above, is a provision capable of changing the outcome of a case, and I think it is the most overlooked part of the section. Its application is plain in Judgment 7560/2544 (2001), where the employee took a great deal of sick leave and was frequently late, did not comply with the leave rules, was warned both orally and in writing, and was disciplined by probation and salary deductions several times, any of which the employer might have relied on to dismiss without severance.

The letter of termination, however, said only that the employee’s conduct amounted to diminished capacity in performing their duties, behaviour unsuited to the position, and shortcomings in the role. The Court therefore treated the employer as no longer pressing the dismissal on those disciplinary matters, and held that misconduct not stated in the letter could not be invoked to avoid paying severance. The lesson is clear: the letter of termination is among the most important documents there is, because its wording locks in what the employer can later rely on, so keep the original with the envelope and the date of receipt.

Interest and surcharges where payment is short or absent

I close with what makes a miscalculation costlier than expected. Labour Protection Act, Section 9, paragraph one, provides that where an employer fails to pay severance under Section 118, special severance under Labour Protection Act, Sections 120 to 122, the sum due under Section 17/1, or other money payable under the Act, it must pay the employee interest during the period of default at fifteen per cent per year, far above ordinary civil default interest. Paragraph two adds a further layer.

Read that again slowly, because the fifteen per cent surcharge runs for every seven-day period, not per year. It applies only where the failure to pay is intentional and without reasonable cause, but once it applies the total grows very quickly. As to routes for a claim, Labour Protection Act, Section 123 lets the employee file with the labour inspector for the locality where the employee works or where the employer is domiciled, and where the employee has died the statutory heirs may file. Labour Protection Act, Section 124 then requires the inspector to investigate and issue an order within sixty days of receiving the claim, extendable by not more than a further thirty days where necessary.

Frequently asked questions

In summary

Reduced to what is worth remembering, this comes down to three things. First, the six-tier scale in Labour Protection Act, Section 118, from thirty days once one hundred and twenty days have been worked up to four hundred days at twenty years, which are floors only because the Act says “not less than”. Second, the base, set by the definition of wages in Section 5, where the Supreme Court looks to the character of a payment rather than its name, as in Judgments 3562/2524 (1981), 504/2525 (1982) and 2526/2529 (1986) on what counts, and Judgments 1437/2524 (1981), 172/2524 (1981) and 509/2525 (1982) on what does not. Third, the other pots standing apart from severance: pay in lieu of notice under Labour Protection Act, Sections 17 and 17/1, wages for untaken leave under Section 67, special severance under Sections 120 to 122, and unfair-dismissal damages under Section 49 of the Act on Establishment of Labour Courts and Labour Procedure B.E. 2522 (1979), with Section 119 as the other face of the coin, removing the entitlement in six cases, and Labour Protection Act, Section 9 fixing interest and a surcharge where payment falls short.

Understanding this changes only small habits: keep several months of payslips so that every regular item is visible, read the letter of termination closely before signing anything, and add up all the pots before accepting the figure offered. Because in the end, severance is not decided by whether severance was paid, but by what base it was calculated on and whether every pot was counted.

What to do next

1. List every item received monthly, then separate those paid in the same amount without receipts from those received only in some months or claimed against receipts.
2. Count the service accurately to the day and match it against the six tiers, because falling either side of a year boundary changes the number of days considerably.
3. Work out the daily wage from the complete base by dividing the monthly figure by thirty, then multiply by the tier’s days.
4. Add in every separate pot: pay in lieu of notice, wages for untaken leave, and special severance where there has been a relocation or the introduction of machinery.
5. Keep the original letter of termination and read closely which ground it states, and do not sign a waiver or a receipt worded as full and final settlement before all the pots have been added up.
6. If the figure received does not match your own calculation, or you are unsure whether an item counts as a wage, you are welcome to ask, bringing your payslips and the letter of termination so the base can be checked. An initial discussion carries no obligation and everything is kept confidential under our professional duties.

This article is general information, not advice on any specific case. A small change in facts can change the entire legal outcome, and the law may be amended, so please consult an attorney before acting.