Employee vs. contractor: How to classify workers in Thailand (quiz included) [2024]
Whenever you hire workers in Thailand, you must classify them correctly as either contractors or full-time employees. If you misclassify your workers, you may face fines and penalties.
Misclassifying employees as contractors can damage your company’s reputation—and with good reason. Misclassification harms workers, cheating them out of their statutory protections and benefits, such as a pension, child allowances, disability, and vacation time.
Learn about how to classify your workers correctly so you can stay compliant with Thai labor law and employment law. Plus, get access to Rippling’s free employee classification tool, which makes worker classification a breeze, no matter where your workers are based around the world.
Classifying workers in Thailand
In Thailand, full-time employees and self-employed contractors are categorized differently. Know the differences to keep your global team running smoothly and avoid fines and penalties (more on that below).
What is an employee in Thailand?
Employees are defined as individuals who work for an organization or employer in exchange for payment. Employees are subject to control from their employer, who may provide guidance on working times, where work should be performed, and how they should perform their work. What’s more, employees are protected under Thai employment law and are entitled to the following statutory benefits:
- Pension
- Medical treatment benefits
- Child allowances
- Disability
- Death benefits
- Workers’ compensation
- Vacation and other forms of leave, such as leave for sick leave, leave for monkhood, leave for military service, and bereavement
- Parental leave (maternity leave and paternity leave)
- Unemployment
What is a contractor in Thailand?
In contrast, a contractor provides services to an organization but is not their employee. They may be known as self-employed individuals, freelancers, or consultants. Organizations typically use contractors on a project-by-project or short-term basis. Contractors are not owed benefits, plus they pay their own income taxes and make their own social security contributions.
Thailand has a few different types of contractors (more on those below).
Worker classification overview: Employees vs contractors in Thailand
Here are some crucial differences between employees and independent contractors to keep in mind when hiring workers, drafting up employment contracts, or making employment agreements:
Contractors
Employees
High level of worker control. Contractors determine how, where, and when to complete their work. They do not have set work hours.
More direction from the employer. Employees are subject to control from their employer, who will provide guidance on how to perform their work, as well as working days/hours.
Equipment and tools owned by the worker. They also should not be reimbursed for these tools.
Equipment and tools typically provided by the company.
Less integrated. Contractors are not a part of the hiring company’s organizational structure and do not typically work on the employer’s premises. They are not a part of the company’s normal payroll.
Highly integrated. Employees are integrated into the employer's organization, and they are more likely to work on the employer's premises.
No entitlement to benefits. Contractors do not get reimbursement beyond what’s stipulated in their contract. They are responsible for paying their own taxes.
Entitled to benefits. Employees are entitled to certain protections and employee benefits, such as unemployment, time off, public holidays, sick leave, and maternity leave/paternity leave.
Length of service. Contractors are typically engaged for a specific project or period of time. They are often dismissed after their contracted work is complete. They can also refuse to perform tasks that are outside their contract.
Indefinite engagement. Employees are generally hired for an indefinite period of time and must complete tasks as assigned by their employers.
Paid for work completed. Contractors should not be paid salaries or fixed amounts. They’re also typically paid per project and are not paid extra if they work overtime.
Paid salary or set wage, regardless of the amount of work completed.
Can subcontract work to a third party.
Cannot subcontract work.
Not subject to minimum wage. Contractors negotiate their own fees and are not subject to the same employment protections as workers.
Subject to minimum wage laws, as well as any other labor protections.
Tests to classify workers in Thailand
Want to figure it out for yourself, instead of using a classification tool? You can classify workers yourself through a series of tests. Should a dispute arise, the Thai courts and tax authorities will examine both your contract agreement as well as the employment relationship in practice.
Thai courts and tax authorities look at all aspects of the working relationship, and no single test should be considered conclusive for classifying a worker. Look at the working relationship holistically.
Subordination
This is the main (but not only) factor in determining whether your worker is a full-time employee or contractor. Contractors should work independently from the company and are not subject to the same levels of control as full-time employees.
Some questions to ask include:
- Is the worker free to decide when, where, and how they complete their work?
- Does the worker receive coaching or training about how to complete their work?
- Does the worker have fixed hours of work?
- Is the worker allowed to turn down assignments not agreed upon in the original contract?
- Is the worker allowed to subcontract certain tasks?
- Is the worker subject to work rules and regulations?
Integration
Contractors should not be integrated into the hierarchy of your organization, report to a manager, work alongside employees, or have their own workers that they manage.
You should also ask how critical the worker is to your organization. Is their work…
- An integral part of the business, or
- Done on behalf of the business, but not integrated into the business.
Can your business function without their contributions? If not, they may not be classifiable as a contractor.
Independent contractors can also work for multiple clients at once. If your contractor only has the time to work for your business, they should likely be classified as an employee.
Classification factors to consider
Some other factors to consider when classifying workers in Thailand include:
- Whether the worker has their own tools and equipment, as opposed to being provided such materials
- Whether the worker is paid for completing specific projects rather than being paid a salary/fixed wage
- Whether the worker receives any remuneration aside from the agreed payment
- How much economic dependence the worker has, meaning that they pay their own income taxes and provide for their own benefits
Types of contractors in Thailand
You may either engage with contractors directly as a self-employed individual or under a business structure. In Thailand, the two most common structures for contractors are:
- Sole proprietorship
- Limited company
Sole proprietor
A sole proprietor in Thailand owns and operates a business as a single-person enterprise. This is the simplest and most common form of business organization, and it's often used by small businesses, such as consultants, freelancers, and home-based businesses. To establish a sole proprietorship in Thailand, individuals register their entity’s name and then register with the Department of Business Development.
In this case, the individual is responsible for all aspects of the business, including any liabilities and debts. The business is not a separate legal entity from the individual, so all income and expenses are reported on the individual's tax return. In other words, the sole proprietorship and the individual are considered the same legal entity for tax and legal purposes and have the same tax rate as an individual.
Limited company
In Thailand, limited companies are akin to LLCs in the United States. Limited companies have a minimum of three shareholders and one director. An independent contractor may operate under this structure, in which case their work would be commissioned through the limited company.
Penalties for misclassifying workers in Thailand
While hiring contractors can be a flexible solution, businesses misclassifying employees as contractors in Thailand face serious risks:
- Paying all due withholding taxes, plus a 1.5% penalty.
- Fines of up to THB 2,000 for failing to file the correct withholding tax return form.
- Imprisonment of six months and/or a fine of up to THB 20,000 for failing to register the employee with the Social Security Office within 30 days of the employee’s start date.
- A fine of 2% of any unpaid social security contributions per month.
- If you terminate a worker and they are found to be an employee, not a contractor, then you will have failed to issue them due severance payment upon termination. This means you risk six months of prison and/or a fine of up to THB 100,000. You could also be liable for a 15% interest on unpaid severance payments.
Employers may also suffer from legal disputes, impacts on employee morale, and increased scrutiny from the government. Moreover, your reputation is at risk. Misclassification, whether accidental or intentional, is risky and potentially very costly.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
