Thai courts have confirmed the position that when calculating severance payments employers must include fixed allowances as part of an employee’s salary.
When an employee’s employment is terminated without cause in Thailand, employers are obligated to make a severance payment to the employee. Whilst employers are comfortable with calculating the severance entitlement with reference to the employee’s length of service, the definition of wages has caused some uncertainty. In particular, should the definition of wages include fixed allowances?
When calculating severance payments due to an employee under the Labour Protection Act, the definition of wages is to be construed broadly, and includes more than just the fixed monthly salary. The correct approach is to consider wages to be any sum which is paid to the employee:
- for work performed;
- periodically in a fixed amount; and
- without requiring supporting evidence.
Using these guidelines it is our view that fixed allowances (for eg housing, car or mobile telephone) are to be included in the calculation of wages if they are paid periodically to the employee.
Given the generous definition of wages in Thailand, employers should anticipate having to include fixed allowances in any severance pay calculations at the point of termination. If there is any doubt as to whether a payment should be included, employers should either err on the side of caution or seek advice; an incorrect interpretation could result in employers facing breach of contract/wrongful dismissal claims in Thailand and, if proven, extra surcharges and penalties.