13th month bonus and severance pay in Thailand: what the law actually requires

Thai Labor Law does not require a 13th-month bonus. It does require severance pay once an employee crosses 120 days of service, calculated on a fixed statutory scale tied to tenure and final wage under Section 118 of the Labour Protection Act[1]. Foreign employers setting up in Thailand often treat the two as one obligation, and that mistake shows up in payroll policies and employment contracts.

Key takeaways

About the Author: Settlr Global is part of WOWS Global, a Singapore-incorporated corporate advisory and investment banking group, and runs payroll and Employer of Record services for companies operating in Thailand, with clients from 15+ countries. Its HR and payroll team, led under Managing Director Gagan Ajmani, who brings 15+ years of regional experience across Southeast Asia, manages statutory compliance including severance calculations and bonus structuring for clients who hire with or without a Thai entity.

Legal status of 13th month bonus in Thailand

Thai Labor Law has no statutory requirement or legal definition for a 13th-month bonus, so paying one is entirely at the employer's discretion. Many employers pay it anyway because it has become customary in certain industries, particularly manufacturing, finance and multinational subsidiaries that import the practice from regional HR norms.

Founders moving into Thailand often assume that if every competitor pays a 13th-month bonus, the law must require it. Where the obligation exists, it comes from the employment contract, a company policy or a collective agreement, and the Labour Protection Act plays no part in it.

If a 13th-month bonus is written into an employment contract or stated as a condition in the employee handbook, it becomes a contractual obligation enforceable like any other term. If it is paid informally year after year without being documented, an employee can still argue in a dispute that it has become an established employment condition. A company should decide deliberately whether to offer it and document that decision, so the practice does not drift into an undocumented default.

13th month pay calculation when offered

Because there is no statutory formula, 13th month pay calculation is whatever the employer defines in its contract or policy. A common structure mirrors the name: one month's base salary, paid as a lump sum, typically around year-end or before a major holiday period.

Some employers prorate it. An employee who joined in June, for example, might receive six-twelfths of the full bonus. Others tie it to performance, department budget or a minimum tenure before the first payout. Statute governs none of these structures, so any of them works as long as it matches the contract and is applied consistently.

Paying a full 13th-month bonus to some staff and a prorated amount to others without a documented policy explaining the difference invites disputes. We advise clients to put the calculation method in writing before the first payout cycle.

Statutory severance pay under the Labour Protection Act

The Thailand Labour Protection Act sets a mandatory severance scale under Section 118, triggered once an employee has worked 120 days or more and is terminated without cause[1]. Employees terminated for cause as defined under Section 119, such as dishonesty, serious misconduct or a criminal offense against the employer, are generally not entitled to severance[1].

The scale is based on tenure and sets a floor: an employer can pay more than the statutory minimum but not less.

Severance is calculated on the employee's final wage. That means the last wage rather than an average, and it includes allowances that were consistently paid as part of regular compensation. Employers terminating staff below the 120-day threshold owe no statutory severance at all[1]. The threshold is fixed in law, so it belongs in any termination decision from the outset.

Tax treatment of severance pay versus 13th month bonus

The two payments are taxed differently, and payroll planning should account for that before year-end. As of July 2024, under Ministerial Regulation No. 394, statutory severance pay is exempt from personal income tax up to the value of the employee's last 400 days of wages, capped at 600,000 baht, whichever is lower, for income received from 1 January 2023 onward[3][4]. The exemption does not cover severance paid on retirement or at the end of a fixed-term contract[4]. Anything paid above the threshold is taxable.

A 13th-month bonus has no equivalent exemption. It is treated as regular employment income and taxed the same way as a normal monthly salary payment[5]. A company budgeting total compensation for an employee needs to separate the two components early, because the tax treatment changes the net amount the employee receives and the liability the employer records.

Severance pay versus gratuity and provident fund payouts

Founders new to Thailand often use these three terms interchangeably. Severance pay is mandatory employer-paid compensation under Section 118 of the Labour Protection Act, owed specifically at termination without cause. Gratuity is not a term the Labour Protection Act uses. In Thailand it usually refers to old-age benefits from the state Social Security Fund or payouts from a voluntary employer provident fund, and the employer does not owe either directly as a termination payment.

The mechanisms differ too. Severance is a one-time obligation calculated at the moment of termination and funded entirely from the employer's own balance sheet. A provident fund, where one exists, is built from ongoing employer and employee contributions over the employment relationship and paid out on exit under the fund's own rules, which can hold back part of the employer's contribution[6]. An employee can be entitled to both at once: statutory severance from the employer and a separate payout from an accumulated provident fund balance. In our experience, a common source of termination payout errors is a company tracking both obligations in the same spreadsheet without separating the legal basis for each.

Budgeting severance and bonus obligations in payroll planning

The practical question for founders is how to plan for both costs without overcommitting cash. Severance is a contingent liability that generally becomes due only on termination without cause, so it should be modeled as a risk reserve tied to headcount and average tenure rather than a fixed monthly line item.

A 13th-month bonus, where offered, is a known annual cost and should be budgeted that way, prorated across twelve months for cash flow purposes even though it pays out once. Companies running payroll across Thailand for distributed teams often build both into a single compensation model from the first hire. With Settlr Global's payroll processing, for example, severance exposure and bonus policy can be modeled together as part of ongoing compliance management.

Employer of Record and severance pay responsibility

For companies without a Thai entity, severance handling is often the deciding factor in whether to set up locally or use an Employer of Record structure. Under an EOR arrangement, the EOR is the legal employer of record for compliance purposes and the client company directs the work. Statutory obligations, including severance calculation and payment, generally run through the EOR's payroll and compliance infrastructure, so the client does not need to build its own HR and legal function in Thailand.

The Labour Protection Act still applies to the employment relationship, and the EOR administers it. For a company testing the Thailand market with one or two hires, this is usually faster than incorporating a subsidiary first. With Settlr Global's EOR service, a first hire can generally be onboarded in around two days, available from a single employee, which is much shorter than the incorporation and registration process required for direct employment.

Frequently asked questions

Is a 13th-month bonus mandatory in Thailand?

No. It is a market custom in some industries and is not required under Thai Labor Law.

At what point of employment does severance pay become mandatory?

Once an employee has completed 120 days of continuous service and is terminated without cause[1].

How much severance is owed for an employee with five years of service?

180 days' wages, based on the statutory tier for 3 years to less than 6 years of service[1].

Is severance pay taxable in Thailand?

As of July 2024, under Ministerial Regulation No. 394, it is exempt up to the value of the employee's last 400 days of wages, capped at 600,000 baht, whichever is lower. Amounts above that are taxable[3].

Can an employer pay less than the statutory severance amount?

Generally no. The Section 118 scale sets a mandatory minimum. Employers can pay more but not less, except where termination is for cause under Section 119.

Is severance the same as a provident fund payout?

No. Severance is an employer-paid termination obligation. A provident fund payout is built from accumulated contributions and is a separate entitlement.

Does an Employer of Record remove the need to calculate severance correctly?

No, but it typically shifts the administrative work to the EOR's payroll and compliance team, which generally handles the calculation as part of payroll outsourcing in Thailand.

About Settlr Global

Settlr Global is the operating arm of WOWS Global, a Singapore-incorporated corporate advisory and investment banking group, and an all-in-one platform for company setup, accounting and tax, payroll, visas and Employer of Record in Thailand. It brings those services under a single team, so founders do not have to coordinate separate local vendors for each compliance obligation. The leadership team, including Managing Director Gagan Ajmani with 15+ years of regional experience across Southeast Asia, handles statutory compliance work including severance calculations and bonus structuring. For companies weighing severance exposure, bonus policy or whether to hire through an entity or an EOR, Settlr Global's payroll and HR team builds the compliance model before the first payroll run.

To review severance exposure, bonus policy or EOR options for a Thailand hire, visit Settlr Global.

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