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Minimum Wage Increase and Business Sector Adjustment

On 2 November 2011, the remuneration committee issued a notification increasing the minimum wage to 300 Baht effective 1 April 2012. With an approximate 40% raise for employment wages in Bangkok, NakhonPathom, Nonthaburi, PathumThani, Phuket, SamutPrakan and SamutSakhon, this action has prompted an outcry among those in the business sector who foresee this surge of minimum wage as negatively impacting business costs, especially in businesses where a large labour force is required. This shift has also brought about a growing concern in regard to future foreign direct investment as this newly-increased pay rate will no longer make investment attractive in Thailand. As a consequence, some of those affected have filed claims against the remuneration committee to the Administrative Court stating that such minimum rate increase is unlawful and that interim measures of protection are needed in order to suppress or minimize the impact of the minimum pay rise.

Apart from utilizing their rights in the judicial system, some business owners have restructured their employees’ salary arrangement in order to fulfill this 300-Baht minimum wage requirement. For example, service charges (not formerly considered basic pay), position allowance, incentive pay and food allowance will be taken as part of the wage in order to meet the requirements of the soon to be enacted law. The question now is whether or not the employer has the right to take such action, and if so, will that pay be deemed to be the amount required by law.

To answer the above questions, certain factors of each business unit need to be considered, i.e. the nature of a company’s labour administration, its work rules and each employment contract. Moreover, what must principally be taken into account is the definition of “wage” according to the Labor Protection Act, B.E. 2541 (the “Act”).

The Act essentially states that wage means the money which the employer and the employee mutually agree upon as payment to be paid in return for work done in accordance with an employment contract during normal working periods. Consequently, no matter what names are given to the remuneration paid by the employer to the employee in return for work done by the employee, the remuneration can be regarded as wage, e.g. a position allowance or incentive pay.

However, the remuneration previously paid as allances, when altered to be part of the wage, must correspond with the company’s work rules and employment contracts. If there is any violation, the work rules and contract terms must be amended so that they conform to the wage restructuring. However, any change in work rules and employment contracts that may be unfavorable to the employee cannot be made without the employee’s consent.

Remuneration paid not for the work done for the employer but to facilitate employment, such as transport and food allowances, can not be considered as part of an employee’s wage.

To include service charges in wage, the definition of wage, work rules and employment contracts must also be considered. Additionally, such service charges must be firstly recognized as the employer’s income. Moreover, the employer must determine a minimum rate of service charge that the employee shall receive (guarantee minimum service charge rate) no matter how small the amount the service charge may be. (See Supreme Court decisions no. 7287/2537 and 6349/2541)

The employer must acknowledge that when including some types of remuneration in an employee’s wage, the counterpart fund paid to the social security fund will accordingly increase. This is important because business owners in the past defended their practices with the Social Security Office that some allowances are not considered wage and that the contribution must be calculated from wages and not included in the allowances.

It is important for the employer to understand that there is no certain formula to follow when it comes to wage restructuring and their legal obligation to pay those wages, but rather it falls heavily on the employer’s labour administration, work rules and employment contracts. And in many cases, if any changes in work rules or employment contract terms are to be made, an employee’s consent is required by law.

By Rawat Chomsri, Partner © March 2012
Khun Rawat can be reached at rawat@siampremier.co.th