Leading the Way is a column written by PwC's professional staff. It appears in the Business section of the Bangkok Post twice monthly. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the May 29, 2012 issue of the Bangkok Post.
By Somchai Sathiramongkolkul
On April 1, in accordance with an announcement by the Central Wage Committee, the daily minimum wage was increased to 300 baht in seven provinces Bangkok,Nakhon Pathom, Nonthaburi, Pathum Thani, Phuket, Samut Prakan and Samut Sakhon. Elsewhere, the rate varies from province to province.
This article examines the minimum wage, discusses the effects of the change and finally analyses what can be done to moderate this new burden on employers.
General concept of the minimum wage announcement:The minimum wage report was initially prepared by the tripartite Central Wage Committee,which has employee, employer and government representatives.
The announcement established a rise in the daily minimum wage nationwide by an average of 30-40%, with the minimum in Bangkok and Phuket increasing from 215 baht and 221 baht,respectively, to 300 baht.
As for the rest of the country, the rate increased by 8-17 baht.
Employers are legally obligated to abide by the new rates. They cannot pay employees less than the rates. If they do, then they will be liable to imprisonment for a term not exceeding six months, a fine not exceeding 100,000 baht or both.
The consequences:Supporters say the increase will boost the buying power of employees and help to alleviate the difficulties associated with inadequate income. Opponents argue the result will be an unsupportable burden on businesses, particularly small and medium-sized enterprises (SMEs).
A group of SMEs has filed a petition against the Central Wage Committee at the CentralAdministrative Court claiming misuse of power and economic loss.Recently, the court rejected a request by the claimants for an injunction to suspend the effective date of the new minimum wage. Nevertheless, the overruling of this request will not have any effect on the outcome of the main trial.
Employers await the Central Administrative Court's decision on the aforementioned case. If the claimants succeed, then the minimum daily wage announcement will automatically be annulled.What can be done to lessen the burden?One of the questions most asked by business owners is:"What can be done to get around it?"
The answer might lie within the definition of wages. Under both the announcement and Section 5 of the Labour Protection Act of 1998, it is clear that wages refer only to compensation paid in money. Is it possible to regard other expenses as wages?
The Supreme Court has ruled that service charges and benefits such as accommodation, food and transportation and vacation trip awards are not wages.
It therefore seems there is no possible way employers can avoid paying the full 300 baht. However, what if the employees were to be paid the required daily minimum wage in full, at 300 baht, but at the same time the employer reserves some discretion as to how this is to be implemented?
Instead of paying for welfare benefits and vacation trips for employees, what if the employer does not offer these benefits to the employees but instead structures compensation packages in such a way as to give the employee the choice of whether to pay for other services provided by the employer?
For instance, if an employer also owns the company canteen and there are only a few alternative eating places nearby,then employees will more or less be obliged to eat at the company canteen.It can be seen that some of the money paid as wages will then return to the employer in another form. Could this example be applied to other benefits such as employee uniforms or companyprovided transportation?
Ideally, the employer would have an initial agreement with the employees regarding such expenses, stating right from the beginning that these items are not part of their wages but instead a service separately provided. Will the employer have to obtain the prior consent of employees in order to recover these expenses directly from their wages?
To sum up, employers cannot escape this new burden, but what possibilities might there be for them to get around it? This is the burning question whose answer they all await.
Somchai Sathiramongkolkul is a senior manager of legal services at PwC Thailand.For questions and comments, please contact firstname.lastname@example.org