Publications

Countries

Free Consultation

Purchase Webcasts

eNewsletter

Thailand Human Resources Update

By: Ames Gross
December 2001
Published in Corporate Relocation News

Introduction

The Kingdom of Thailand is a constitutional monarchy based on the British system, headed by King Bhumibol Adulyadej (Rama IX), who was born in Cambridge, Massachusetts. The country is just over twice the size of Wyoming, with nearly 80% of the population living in rural areas. Of the more than 61 million citizens, 85% are ethnic Thai and practicing Buddhists, and 10% come from Chinese heritage. Thailand is unique in Asia as the only country never colonized by Western powers, and, despite a historical rivalry with Burma (Myanmar), cold-war tensions with Vietnam, and its own bloodless coup of 1932, it has enjoyed relative peace.

Thailand enjoyed some of the worlds highest growth rates through the 1980s and 1990s, reaching an average growth rate of 10%. However, the East Asian Financial Crisis (AFC) devastated the Thai economy and growth rates were negative in 1997 and 1998. During that period, 2.5 million Thais lost their jobs, with less than 30% receiving any kind of unemployment compensation (see Table 1 below). The recession encouraged a sense of resentment against foreigners, whose speculation in the stock market many Thai viewed as responsible for the AFC.

Table 1: Thai GDP Growth and Unemployment 1996-2000

  GDP Growth Rate Unemployment
1996 5.9% 2.0%
1997 -1.7% 1.1%
1998 -10.2% 4.4%
1999 4.2% 4.2%
2000 4.5% 3.6%

Source: The World Bank and Asia-Pacific Economic Cooperation (APEC).


Since 1998, Thailand has experienced a relatively strong recovery. Although the financial sector has now recovered from the AFC, some economic fine-tuning is still needed, especially in corporate and bank restructuring. Additionally, the unemployment rate, while improving, remains high in comparison to pre-crisis levels.


Labor Trends

Thailand has a labor force of nearly 50 million people, the vast majority of which is unskilled. High unemployment, low wages, and poor working conditions in Thailand has led to increased labor union activity. In addition, many Thai have moved abroad to seek employment in other East Asian countries. Contributing to the poor employment prospects of many Thai is the fact that many companies in Thailand have begun to rely on illegal immigrants, who are willing to accept less than minimum wage. Thailand currently employs more than one million such immigrants, 90% of them Burmese.

Demand for skilled workers remains high. Although more laborers, especially women, are seeking higher education, currently less than half of the population receives secondary education. In particularly short supply are IT workers, as only 22% of university students study science or technology. A large part of the problem is the lack of qualified instructors. To tackle this problem, the government has instituted a Reverse Brain Drain Project, which seeks to attract Thai expatriates to return home to serve as desperately needed teachers and professionals. However, the program has had little success.

The lack of Thai nationals qualified for senior positions means that foreign and local companies must compete for the few candidates with experience and language skills. Those Thai who do fit the qualifications are garnering competitive salary and benefits packages, as companies in Thailand try to persuade them not to emigrate to more modernized countries.

Western companies looking for skilled workers in Thailand may look to three sources for employees: indigenous Thai, foreign-educated Thai returnees, and Western expatriates. Local candidates are generally the cheapest, however, because the majority of locally educated Thai lack necessary skills, foreign employers must often provide their own training to such employees. Unfortunately, such training also makes the Thai more marketable, increasing the risk that another company will poach the employee with offers of a higher salary. Figures from just before the AFC indicate that the finance, banking, telecommunications, and electronics industries had 20-30% turnover rates for local professionals. Such job-hopping, rampant before the AFC, is already returning to the scene, particularly among bank clerical staff and in the electronics and petrochemical industries.

Returnee candidates are often a better option. Although returnees demand better salaries and benefits, they also have a better education, experience in a Western business environment, and strong English skills. Returnees are also often preferable to expatriate candidates. Unlike Western expatriates, returnees also have an understanding of Thai business culture, language, and customs. Furthermore, the Thai government puts a number of restrictions on expatriate hiring. Foreigners working in the country must prove that no qualified Thai national is available for the job, and foreign employees are required to train a Thai co-worker to eventually replace them.


Legal Issues

The Labor Protection Act of 1998 delineates Thailands requirements concerning wages, work hours, compensation, and social security issues. Differences between Western and Thai business culture may affect employment practices, and are important to bear in mind to avoid legal misunderstandings. The word employer, for example, refers not simply to the Western concept of the word, but also to some individuals or firms acting under the employers direction. This may include firms providing management services, contractors and sub-contractors. Because the law is subject to revision, checking with the Ministry of Labor and Social Welfare for updates is recommended before commencing hiring in Thailand.

The following is an overview of critical labor laws, drawn from the Labor Protection Act, the Compensation Act, and the Social Security Act. 

Recruiting
Laws do not prohibit discriminatory hiring based on sex, age, physical features, or labor union status.

Wages
By default, employees must receive their salaries at their place of work. Employee agreement is required for payment at a different place or method, such an automatic bank account deposit system.

Labor unions pushed for a hike in minimum wages in 1999 to 200 baht in big cities like Bangkok, but the government has postponed the increases. Current minimum wage rates differ by region, as shown below:

Chart 1: Minimum Wage Rates by Location

Place Minimum Wage/hour US$ 
Equivalent
Bangkok, Nakhon Pathom, Nonta Buri, Pathum Thani, Phuket, Samut Prakan, and Samut Sakhon
162 baht		 $3.77
Chonburi, Chiang Mai, Nakhon, 
Ratchasima, Phangnga, and Ranong		 140 baht $3.26
All other areas 130 baht $3.03

Source: The Thailand Board of Investment


Work Hours and Holidays
Employees must receive at least 13 national holidays and six days of vacation per year once they have worked with the company for one year. In addition, each employee must receive a one-hour rest period after working for five hours. The employee may opt for less break time, but must accept at least one hour per day. The employee also must take one day off per week. Pregnant employees may not work on holidays.

Overtime
Overtime is limited to 36 hours a week. Pregnant employees may not work overtime. Professional, white-collar workers may be entitled to overtime pay, depending on their function within the company. Although management with a largely supervising function is exempt from overtime wages, this does not necessarily apply to all management-level employees. Employers should consult with legal counsel concerning the applicability of overtime pay to professional workers.

Maternity Leave
Female employees are allotted a 90-day maternity leave period, with a maximum paid leave of 45 days.

Sick Leave
There is no limit on the number of sick leave days that may be taken, but an employer is only required to pay one months wages if an employee takes more than three months leave.

Work Regulations
Employers with at least ten employees must establish and display regulations concerning work performance, written in Thai, at the workplace. In addition, employers must keep a register of employees in Thai, as well as documents relating to wage payments and overtime.

Employee Relocation
Employers must give employees thirty days notice before requiring them to relocate. If the employee is unwilling to move, the employer must pay him or her a special severance at half the normal severance rate.

Termination Procedures 
The Act outlines specific conditions for employment termination. If the employment period is not specified in the employees contract, both the employer and the employee have the right to end the contract at any time, effective at the next pay period or after one month, whichever is shorter. Conditions differ for termination based on unacceptable employee behavior, or cause. Termination for cause does not entitle the employee to severance pay, may be effective immediately, and is permitted in the following cases:

Employee is not honest in his or her work, or commits a purposeful criminal action against the employer.
Employee causes harm to the employer.
Employee abuses work rules after having been issued a written warning. For serious offenses, a warning may not be required.
Employee does not fulfill duties for three consecutive working days without viable explanation.
Employee commits a serious act of negligence that results in considerable harm to employer.
Employee is sentenced to prison.

Severance Pay
Severance pay less than 300,000 baht (US$6,900) is exempt from personal income taxes. The requirements for severance pay are as follows:

Chart 2: Severance Pay

Time Worked at Company

Severance Pay Due

120 days 1 year

30 days

1 year 3 years

90 days

3 years 6 years

6 months

6 years 10 years

8 months

More than 10 years

10 months

Source: The Thailand Board of Investment


Compensation Benefits
Under the Compensation Act, employers must provide benefits to employees who are injured, become ill, or die due to work-related activities. The employer must provide the legally prescribed compensation amount, medical expenses, work rehabilitation expenses, and/or funeral expenses. The compensation amount varies by case, but typically employers must pay sixty percent of wages every month, as long as the figure stays within a range of 2,000 baht and 9,000 baht (US$46 US$210).

Social Security
The Social Security Act requires employers with ten or more employees to withhold 4.5% of each employees salary for social security contributions every month. This applies to monthly salaries less than 15,000 baht (US$ 350). The employer must match this amount and submit the combined contributions to the Social Security Office by the 15 th day of the month. Employees may use their social security benefits to receive compensation for non-job related injury and illness, as well as for childbirth fees, child welfare, pensions, and unemployment compensation.


Labor Relations

The Labor Relations Act stipulates legal actions concerning employer-employee relations. If an employer refuses to pay an employee any amount of money required by the Labor Protection Law, the employee may submit a complaint to the local labor inspector. The inspector must complete an investigation of the case and issue an order within 60 days. Employers found to be in violation of the labor law may be fined up to 200,000 baht (US$4,600) and receive up to one year of imprisonment.

Employers with at least 20 employees must come to an agreement concerning labor terms and conditions. Specifically, they must agree on work periods, salaries, welfare benefits, complaint resolution procedures, employment termination and renewal, and changes in employment. The default for these conditions is the current employment regulation. The agreement will remain effective for a maximum of three years and a minimum of one year. Once the specified expiration date has passed without renegotiation, the agreement will remain in effect for an additional year.

Either party may submit a demand to change the agreement, and must also list a maximum of seven names of negotiation participants for its side. If a request on the behalf of employees is not submitted by a labor union, it must include at least 15% of all participants signatures. Employers negotiators may include partners, shareholders, directors, permanent employees, or employer association or federation committee member. Negotiators for the employees may include employees and labor union or federation committee members. Negotiations must take place within three days after the other party has received the demand.

If negotiations do not occur within this date or if the parties cannot settle the matter to the satisfaction of both sides, the situation shall be determined to be a labor dispute. The party making the demands must contact the labor dispute conciliator, who must conduct a renegotiation between the parties within five days. If no agreement is reached, then the labor dispute is considered irreconcilable. Employees then may call a strike and the employer may also affect a lockout, after having given the dispute conciliator and the other party 24 hours notice.

If the strike or lockout endangers the national economy, public order, or state security, then the Minister of Labor Protection and Welfare may order a cease to the strike or lockout, find replacement for the employees, or give the Labor Relations Committee authority to decide on the dispute and issue an opinion or an order to both parties.

Employers with at least 50 employees must set up an employees committee. The employer must meet with committee members at least every three months to discuss regulations, resolve disputes, hear complaints, and provide welfare.

Employees, the employees committee, or the labor union may appeal to the Labor Court if they believe an employer is engaging in unfair labor practice. Reports of abuses within the Labor Court, however, has led human rights and legal experts to push for reform. Because the court usually works without lawyers, and because judges must investigate the cases personally, the system is prone to corruption.

US pressure has pushed the Thai parliament to pass the State Enterprise Relations Act, granting employees in state-owned enterprises the right to unionize. Although this will introduce greater parity between public and private labor conditions, many analysts believe it will slow down the privatization process, as employees resist the painful changes necessary to streamline public companies. Among their grievances is the sale of state enterprises to foreign bidders.


Keeping Skilled Thai Employees in A Multicultural Workplace

Thailand historically has maintained a good relationship with foreigners. Thais benefited from Western experts, who introduced modern scientific theories and technology, and the Western expatriates enjoyed and often became absorbed into Thailands rich culture. Unlike most other Asian countries, Thailand has never had to significantly alter its culture or way of life because of Western influence, leading to pleasant relations.

Today, foreigners in Thailand are less interested in studying Buddhism than in high returns on their investments. As more Thai companies are joining with foreign partners, Thai managers and employees are realizing they must do more than polish their English they must adapt their business culture.

Traditionally, the Thai people have had little to worry about. They lived in an agrarian society that benefited from a surplus of natural resources and insulation from natural disasters. Their modern attitude is characterized by a strong sense of individual freedom, patience, and hospitality, but also by resistance to rules, acceptance of failure, and lack of planning. Bolstering these traits is the nations overwhelming belief in Buddhism, a religion that emphasizes patience, acceptance, and a positive outlook. Some Thai point out, however, that the Buddhist cosmic outlook can also lead to complacency at one extreme, and superstition at the other. In 2000, more than 50,000 people in Bangkok changed their names at their monks advice, in the hopes it would prove luckier.

The Thai language captures the core of their beliefs. Maipenrai (no problem, its okay) is a daily phrase that is applied to every problem, from bad weather to stock market crashes. Similarly, sabai-sabai (take it easy) denotes the Thai accent on relaxation. They work best when they do not feel rushed and when they are given a sociable environment. Many Western executives find the sabai effect an enervating countercurrent to modern business practice. Employees may gossip when they should be working, smile even in serious situations, and say what they think the boss wants to hear rather than their true opinions.

Like many other Asian societies, Thais are accustomed to a paternalistic hierarchical system. They have great respect for age and authority, preferring obedience and tolerance to conflict. This respect is expressed through face, or haikiat. At home, work, and school, they avoid correcting their superiors for fear of insulting them. Issues of face can be even subtler, such as an employee offering an excuse after being criticized. Not wishing to appear to be challenging the boss, most Thai employees will remain silent rather than explain the reason for a problem. Unused to asking questions or disrupting their environment, Thais often do not discuss or ask questions to clarify their instructions, but nod and appear to understand, and then are unable to do their work. They prefer to talk about issues in an informal way, such as at lunch, rather than at a meeting.

Even more important for the foreign employer, Thais expect face to be given to subordinates as well. Direct criticism, visible loss of temper, and refusal to compromise are all considered rude to a much greater degree than in the West. Superiors are expected to be considerate and polite, even when reprimanding an employee. Although this is the ideal, Thai managers traditionally have an authoritarian attitude, and show little respect for their employees ideas or opinions. Therefore, establishing a work place with a friendly reputation can be helpful in hiring and retention efforts.

The Thai educational system also emphasizes skills and thinking patterns that are inappropriate to Western business. Lessons are taught by rote, and teachers do not encourage independent or creative thinking, nor are students taught analytical skills. Some Thais are making the transition to these new ways of thinking, but the pace is slow and cautious. In addition, English language training focuses on formal writing skills, leaving most Thai-educated citizens uncomfortable with verbal expression and unaccustomed to listening to normal conversations.

Finally, indigenous Thai business culture is vastly different from contemporary Western business management theory. Managers typically give orders and a deadline, and the employee is expected to not bother him or her with questions or comments. Until recently, employees were not fired for incompetence or laziness, only for actually committing a crime at the workplace.


Conclusion  

Hiring returnees in management positions can solve many of the cultural barriers between Thai and Western culture. Because of their ability to work in both societies, returnees are uniquely positioned to not only bridge cultural misunderstandings, but prevent them as well.

Foreign managers working with indigenous Thai, however, must work to create an environment that will allow Thai employees to work within a Western business environment. Because most workers are used to authoritarian management, empowering Thai workers requires patience and consideration. An open door policy, for example, will likely not yield results due to Thai reticence to bother the boss with questions. Managers may find taking employees out to lunch or planning individual discussion meetings works better and puts them more at ease. Similarly, writing important points down during a meeting can solve language problems, and maintaining a friendly and relaxed relationship with staff can encourage them to be more open with their ideas.

As Thailand grows stronger, foreign companies will find it an increasingly profitable place to do business. The government has proved receptive to IMF reforms, and its economy has recovered to a healthy level. Thai authorities realize that they must carve a delicate balance between satisfying increasing labor demands and retaining an attractive business climate, and its new Labor Protection Law strikes a middle path between the two. The shortage of well-educated and skilled laborers, especially in the IT sector, has prompted the government to focus its attention on raising its education standards and attracting Thai expatriates. Although the country will experience important reforms that may affect its economic outlook in the short term, Thailands future prospects promise a gradual but certain change for the better.

Go back to HR Issues & Recruiting Publications for Thailand

Go back to the Pacific Bridge Homepage


References