Expanding into Thailand presents foreign companies with the challenge of setting up payroll and remaining compliant with complex regulations. To successfully manage payroll, businesses must understand labor laws, calculate salaries and mandatory benefits accurately, pay taxes on time, and consider outsourcing to an expert payroll provider.
Foreign companies, with the right strategy, can leverage Thailand’s skilled workforce, avoid costly penalties, and focus on growing their Thai operations. Read on to learn how payroll outsourcing works and how to outsource payroll.
Payroll Options for Foreign Businesses Entering Thailand
Foreign companies have four main options for handling payroll.
Remote Payroll
With remote payroll, foreign businesses process Thai employees’ payroll through the parent company’s existing system. It enables maintaining operations on a single unified platform. However, the multiple regulations Thai employees must adhere to often lead to complications. Foreign companies struggle to stay compliant with the country’s complex payroll laws while using an overseas system not designed for the Thai context.
Internal Payroll
Setting up an internal payroll department within the new Thai subsidiary is another option. It allows for localized operations that align with the Thai workforce. The only thing is that it requires dedicating HR staff familiar with Thailand’s employment and compliance landscape. The company must also establish internal processes for calculating taxes and benefits in line with Thai requirements. This option works best for larger companies willing to invest time into learning the nuances of Thai payroll.
Outsource to a Thai Payroll Processing Firm
Alternatively, foreign companies can choose to outsource payroll administration to a Thai firm while they are retaining compliance responsibilities in-house. Outsourcing payroll tasks like salary payments, tax filings, and reporting can save time. But it still requires an understanding of Thailand’s payroll compliance landscape. The foreign company must clearly communicate requirements and deadlines to the vendor. Without compliance expertise, outsourcing administration alone may result in penalties.
Outsource to a Professional Services Firm
For the most comprehensive solution, partnering with a professional services firm facilitates handling both payroll and compliance. It can manage the entire payroll process, including labor law compliance, documentation, calculations, reporting, and tax payments. This option reduces administrative workload so the company can focus on the core business.
For foreign companies entering Thailand, fully outsourcing payroll and compliance to an expert is the most strategic approach. Their localized expertise and services allow foreign businesses to operate payroll legally and efficiently.
Requirements for Setting Up Payroll in Thailand
Foreign companies must set up local operations that meet regulatory requirements to manage payroll for employees in Thailand legally.
Forming a Limited Liability Company
Most foreign companies opt to establish a limited liability company incorporated under the Foreign Business Act. This entity allows processing payroll for both Thai and foreign workers. After obtaining a Foreign Business License, the company can be registered with the Department of Business Development. The company name must be reserved, and founding documents filed.
Obtaining Necessary Licenses and Permits
The subsidiary must obtain a taxpayer identification number, Value Added Tax registration, signboard permit, and other required licenses. Specific business activities may necessitate additional permits and certifications. Foreign companies must also submit registrations and legally required post-incorporation documents within the timeframe mandated by the Thai government.
Meeting Minimum Capital Requirements
Non-restricted businesses typically require registered capital of at least 2 million THB while restricted businesses need at least 3 million THB. This demonstrates the company’s financial capacity to operate over the first three years. The initial three shareholders must each hold at least 5 THB worth of shares.
Hiring Local Staff
Foreign companies must hire locally and comply with labour regulations when employing staff. This includes implementing local employment contracts vetted to confirm alignment with Thai laws. Hiring through a local recruitment firm can help identify qualified candidates efficiently.
Setting Up Local Office and Bank Accounts
A local office address must be registered and established along with company bank accounts. The company’s physical office space, utilities, equipment, and other assets enable formally commencing operations in the country.
Managing Payroll Processing and Compliance
Once established in Thailand, foreign companies must then address ongoing payroll and compliance responsibilities.
Understanding Payroll Taxes
Thailand has specific requirements regarding income tax, social security, and other taxes on both employees and employers. Understanding tax rates, minimum thresholds, filing procedures, and deadlines is essential. Companies must deduct income tax and social security contributions from employee salaries.
Calculating Salaries, Benefits, and Deductions
Complex calculations are required to determine Thai employees’ taxable income, deduct taxes and contributions, and calculate mandatory benefits like severance pay and annual bonuses. Formulas must factor in allowances, overtime, leave, and other elements per Thai regulations.
Producing Payslips and Reporting Documents
Companies must produce detailed, compliant payslips and year-end summaries for each employee. Reporting formats should follow Thai laws and language requirements. Maintaining accurate records is critical for annual audits and inspections.
Making Regular Social Security Contributions
Employers must make social security contributions for employees to the Social Security Fund on a monthly basis. This mandatory program provides healthcare, child benefits, pensions, and other coverage. Delinquent or inaccurate payments can incur penalties.
Filing Taxes and Returns on Time
Payroll taxes and returns, including income tax, value-added tax, and social security filings, must be submitted per Thailand’s schedules and deadlines. Any compliance issues or delays can lead to fines or sanctions.
Benefits of Outsourcing Payroll and Compliance
Outsourcing to experts offers foreign companies the following key advantages:
- Avoiding complex regulatory requirements
Outsourcing transfers the burden of staying current on Thailand’s nuanced payroll laws, forms, calculations, and filings to a provider well-versed in the regulations. Rather than studying rules or hiring more HR staff, foreign businesses can rely on an experienced partner to manage compliance. - Accessing local expertise and HR support
Outsourced payroll providers understand the employment regulations and HR best practices. Their localised knowledge and systems enable foreign companies to overcome compliance and payroll challenges when expanding into the Thai market. - Focusing on core business activities
Handling payroll and compliance in-house requires significant time and focus from the foreign management team. Outsourcing these non-core functions to payroll services providers allows foreign businesses to dedicate resources to growing their Thai operations, serving customers, and driving the success of their expansion. - Reducing risks and responsibilities
Attempting to navigate Thailand’s complex payroll systems without experience exposes foreign companies to financial, regulatory, and legal risks. However, payroll outsourcing professionals serve as a liability shield, taking on the responsibilities and risks of payroll and compliance on the client’s behalf. Their expertise reduces compliance gaps. In addition to mitigating risks, outsourcing payroll enables foreign companies to operate more effectively in Thailand’s rapidly evolving regulatory climate.
Key Considerations and Best Practices
Following the best practices helps foreign companies effectively set up and manage payroll in Thailand.
Adapting Parent Company Policies
Rather than duplicating the parent company’s policies, establish tailored HR procedures and handbooks adhering to local regulations. Thai labour law often differs from foreign norms.
Communicating Payroll Details
Clearly explain Thai payroll policies, taxes, leave accruals, bonuses, and deductions to employees. Ensure they understand how salaries and benefits are calculated and paid.
Integrating Thai Payroll
Aim for centralized systems that consolidate Thai payroll data with the parent company’s wider HR and ERP platforms. This visibility enables coordinated workforce planning and analysis.
Monitoring Regulatory Changes
Stay on top of new requirements through government websites, legal circulars, and advisors. Being agile helps quickly adapt processes to new regulations.
Leveraging Automation
Automate repetitive payroll tasks where possible, like timesheet approvals, tax calculations, and report generation. This boosts efficiency and consistency.
Evaluate cloud-based payroll systems that allow secure information sharing across regions and departments. Scalable solutions make it simpler to manage payroll across international offices.
Conclusion
International businesses can implement payroll smoothly and remain compliant by leaving payroll and compliance to the hands of the experts. Their team is experienced in providing your needed services – on your behalf.
For end-to-end payroll outsourcing and services in Thailand, partner with a professional firm like Reliance Consulting.
