To pay or not to pay: Deduction of wages under the Labour Protection Act

To pay or not to pay: Deduction of wages under the Labour Protection Act

When an employee causes damage to a company, Thai employers often resort to deducting wages, holiday pay, or overtime payments as a penalty or restitution. Before doing so, the employer should know when it is permissible to do so under Thai law, and the risks they are taking by making improper deductions.

Many employers in Thailand mistakenly think that they are entitled to deduct money from employees’ wages, overtime payments, and payment for working on public holidays (whether regular wages or overtime payment), as a disciplinary measure for poor behaviour or as restitution for damage. What’s more, some employers even think that they are entitled to deduct money from payments to employees without any limits or conditions whatsoever.

However, the Labour Protection Act (LPA) contains many conditions and limitations on an employer’s ability to make deductions from payments to employees, and in fact generally prohibits them with the exception of a few specific types of payment. Violation of the LPA in this respect can even result in criminal sanctions. If an employer makes a deduction in violation of the LPA they can even face criminal penalties, including imprisonment for up to six months and a fine of up to THB 100,000.

Clearly then, this mistaken belief poses a major risk to employers, and an understanding of the true legal position can save them a great deal of trouble down the line.

Permissible Deductions

The LPA expressly allows the following payment deductions:

  1. Payment of income tax which employees are legally obligated to pay, or other, similar tax payments specified by law. Employers are entitled to make these tax deductions without the employees’ consent.
  2. Payment of labour union contributions in accordance with the rules of the labour union. It used to be common for arguments to arise between employers and employees when labour unions requested such deductions from salaries, as employers would often refuse on the assumption that they lacked the legal authority to do so. The LPA eliminated these arguments by clearly stating that employers are entitled to deduct the wages of union members in these circumstances. In practice however, to avoid any tension, employers still generally do so only with the employees’ consent.
  3. Payment of debts to a savings co-operative, co-operatives of a nature similar to savings co-operatives, or debts entered into for the purpose of employee welfare or benefit (with the employee’s consent). Anything under this category must be solely for the benefit or welfare of the employee in question, and not merely favourable to them. For example, if an employer provides a loan to employees at an interest rate below the market rate, it does not fall within this category. However, if the employer provides a loan to employees without interest, it is purely for the employees benefit and can be recovered by salary deduction.  
  4. Payment of security deposit, as requested by the employer, for any employee who has responsibility for company money or property, or compensation for damages incurred by the employer due to a wilful act of gross negligence by the employee. These only apply if the employee has consented to deductions of that nature in advance. For example, if an employee intends to destroy an employer’s assets, or steal their money, the employer is only entitled to deduct the employee’s wages if the employer has received the employee’s prior consent for that restitutionary payments of that kind.
  5. Contributions to a provident fund in accordance with a relevant fund agreement.

Limitation on Deductions

Each deduction made under points 2-5 above is limited to a maximum value of 10 percent of the income that the employee is entitled to receive at the time the deduction is made. The total deductions made under points 2-5 at any one time must not exceed one-fifth of the income to which that employee is entitled at the time the deduction is made. However, these limits can be extended with the prior consent of the employee.

The law requires any prior consent regarding salary deductions to be made in writing and signed by the employee, or to be made specifically in relation to the deduction in question. In practice however, it is advisable to exercise caution beyond this. To avoid arguments, employers should ensure that the agreement clearly states both the conditions and purpose of the deduction. 

In addition the Supreme Court has held that salary deductions under work rules must relate to the employees themselves, even if an agreement states otherwise. For example, in case no. 1458/2005, the court ruled that if an employer has an agreement with an employee stating that the employer will deduct wages from the employee if the employee’s wife or husband commits a wrongful act against the employer, that agreement is invalid.

The Supreme Court has also held that provisions of the LPA are intended to protect employees from any financial problems during the employee’s employment period, but not beyond that. Therefore, if an employee remains indebted to the employer at the time of termination, the employer is entitled to make deductions whether from wages, incentives, statutory severance pay, remuneration in lieu of advance notice, or some combination of those payments to set off the debt. What’s more, they can do so ex parte, that is, without the employee’s consent.

Conclusion

Employers should make sure that they are aware of the very limited circumstances in which deducting money from payments to employees is permissible under Thai law. Although this practice is relatively common, the legal risks associated with it are very significant, and are likely to catch employers by surprise.


Author: Chusert Supasitthumrong, partner in the Dispute Resolution Department at Tilleke & Gibbins. Please send comments to Andrew Stoutley at andrew.s@tilleke.com

Series Editor: Christopher F. Bruton is Executive Director of Dataconsult Ltd, chris@dataconsult.co.th. Dataconsult’s Thailand Regional Forum provides seminars and extensive documentation to update business on future trends in Thailand and in the Mekong Region.


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