Accurate calculation of statutory payments in Thailand,such as overtime pay, holiday pay, severance pay, and social security contributions (“Statutory Payments”), depends on correctly identifyingwhich payments to employees legally qualify as “wages” under Thai labor law. Inpractice, many employers in Thailand attempt to separate “welfare” or“benefits” from “wages” in order to reduce the amount of Statutory Paymentscalculated from the wage base.

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However, whether such separation is legallyvalid depends on the actual nature and regularity of those payments. If theseparation is not compliant with the law, it may result in miscalculation ofStatutory Payments, exposing the employer to liability for additional payments,interest, surcharges, and even potential criminal penalties under Thai laborlegislation.

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Understanding the Legal Definition of “Wages”

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Under Thai labor statutes, including the Labor ProtectionAct B.E. 2541 (1998), “Wages” are defined as remuneration paid by anemployer to an employee in return for work performed, whether calculated on anhourly, daily, weekly, or performance basis, during normal working hours.

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In essence, any payment made in exchange for work performed, regardless of its title or description, falls within this legaldefinition. However, payments made as incentives or welfare benefits that arenot directly tied to the return of an employee’s work are not considered wagesand therefore may be excluded from the base for calculating Statutory Payments.

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For example, allowances granted to promote morale,encourage attendance, or assist with living expenses rather than compensate foractual work performed are typically classified as non-wage benefits.

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How the Courts Distinguish Between Wages and Non-Wages

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In practice, determining whether a payment qualifies aswages depends largely on its purpose, conditions, and factual context. The classification is not always straightforward and often rests on the discretionof the courts, which examine the substance of each payment rather than its nameor label.

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The following examples illustrate how Thai Court judgments have approached the issue in different circumstances. These examples areintended as guidance to help employers understand how similar payments may betreated, rather than as absolute rules.

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Diligence Allowance

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Whether a Diligence Allowance qualifies as wages dependson its purpose.

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The Supreme Court has held that fixed monthly payments made uniformly to employees are wages, while those conditional on perfect attendance are non-wage benefits. If the allowance is paid unconditionally, withoutdeductions for lateness or absence, it will still be regarded as wages,regardless of its name.

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Position and Language Allowances

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The Supreme Court has held that allowances granted based on an employee’s qualifications or special skills, such as position or foreign language allowances, constitute wages under Thai labor law.

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Transportation Allowance

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Whether a Transportation Allowance qualifies as wages depends on its purpose.

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If paid as a fixed monthly lump sum without proof of expenses, it is considered wages, as confirmed by the Supreme Court. If paid as reimbursement for actual commuting costs or in place of a company shuttle, itis a non-wage welfare benefit.

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Telephone Allowance

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Fixed monthly Telephone Allowances paid regardless of actual usage or expenses are considered wages under Thai labor law.

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However, if employees are reimbursed based on actual bills, the allowance is designated solely for business-related communication, or the company provides a mobile phone, the payment is treated as a non-wage benefit and excluded from Statutory Payment calculations.

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Legal Risks of Misclassification

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Failure to correctly include wage components in statutory calculations can expose employers to significant liabilities.

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Violations under the LaborProtection Act

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Underpaid amounts for overtime, holiday pay,severance, or advance notice may result in:

1. Labor Inspector orders with 15%     annual interest from the due date.
2. Additional 15% surcharges every     seven days for intentional non-payment.
3. Criminal penalties, including imprisonment of up to six months or fines of up to THB 100,000. Where the offense arises from a company’s act or omission, directors or responsible  officers who authorized or permitted the violation may be held jointly liable.

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Social Security and Workmen’sCompensation Contributions

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Under-contributions to these funds are subject to a2% monthly surcharge.

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However, contribution bases are capped at THB 15,000 forthe Social Security Fund and THB 20,000 per month for the Workmen’s Compensation Fund, limiting exposure for higher-earning employees.

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Key Takeaway

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The classification of payments as wages or non-wages directly affects how employers calculate Statutory Payments under Thai labor law. To ensure compliance and minimize legal risk:

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·      Identify the purpose of each payment or allowance.

·      Require supporting documentation such as receipts for welfare-type benefits.

·      Conduct periodic reviews of payroll and HR practices to confirm compliance.

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The distinction between wages and non-wages is often sensitive and complex, as Thai courts determinethe classification based on the totality of facts and circumstances rather than rigid definitions.

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Since there is no definitive rule or bright-line test, eachcase depends on its unique factual context. To ensure lawful and transparent employment practices, employers are strongly advised to consult expert legal counsel before finalizing compensation structures or implementing new payment schemes.

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For businesses navigating these complexities, ILAWASIA offers comprehensive legal services providing practical guidance and strategic solutions to help employers comply with Thai labor law while optimizing compensation structures in accordance with government regulations.