Is an Employer Obliged to Facilitate an Annual Salary Raise or Bonus to its Employees?

At the beginning of every calendar year, many companies consider increasing their employees’ salaries. However, due to uncertainties arising out of the impact from COVID-19, they might be reluctant to do so. Therefore, the questions arise as to whether there is any law requiring the employer to give a pay rise on an annual basis; and is bonus a statutory payment under Thai labour law? 

In general, despite general market practice regarding annual salary increase, Thai labour law is silent on this issue. Therefore, the employer is not legally obliged to give an annual pay rise. There have been court decisions affirming the notion that giving a raise is a supervisory power of the employer - meaning that the employer alone should be entitled to decide whether or not to give a pay raise. The employer deciding not to give a pay raise to its employees in any particular year is not considered as to change the employment conditions to the extent that they are less favourable to the employee, and thus it is not considered as violation of the Labour Relations Act BE 2518 (1975). To illustrate this point, the following summary of Supreme Court’s decision no. 1906/2531 should be noted:

Determining the gratitude or appreciation towards an employee is the Defendant (employer’s) power alone for the benefit of efficient business management, according to the rules and regulations of the Defendant. Salary increase is not an absolute right that the Plaintiff (employee) would always be entitled to. It must be at the discretion of the supervisor to consider whether or not the salary should be increased. The Defendant’s consideration that annual salary increase in line with the criteria based on the Plaintiff’s performance was lawful and was not a change in employment conditions in violation of the Labour Relations Act BE 2518 (1975).

However, the answer to the question explained above may be changed if a contract between the employer and the employee, work rules or any other applicable policy states otherwise. According to Section 5 of the Labour Relations Act BE 2518 (1975), “employment conditions” means conditions of employment or work, working days and hours, wages, welfare, termination of employment or other benefits of the employer or employee which are related to employment or work. It is possible that in some cases, the employer may have expressly promised the employees, either in the contract or in any other employment documents, to give a certain amount of money or percentage for a salary raise. Such condition for salary increase will be constituted as an agreement relating to employment conditions which the employer must fulfil.

The above explanation also applies to bonus payments. Likewise, bonus is not a statutory payment as the law does not require the employer to pay bonus to the employee. Therefore, whether or not an employee is entitled to bonus payment will be in accordance with an agreement between an employer and employee, work rules or other applicable policy, if any. Supreme Court’s decision no. 4032/2561, as summarised below, states clearly about said legal concept:

There is no law requiring an employer to pay bonus. Criteria and conditions of bonus payment or employee’s entitlement to bonus shall be in accordance with an agreement between an employer and an employee. In such regard, the Defendant (employer) issued its announcement on 2014 bonus payment. One of the bonus payment conditions was that an employee must maintain his/her status (of being an employee) until the date on which the annual bonus was paid. Said criteria and conditions of bonus payment were in line with normal organisational management, were not considered as taking advantage of or discriminating against the Plaintiff (employee) , and were therefore enforceable. The Plaintiff shall be bound by this condition. Since the Plaintiff retired before the payment date, he was therefore not entitled to annual bonus.

There is another interesting legal issue that should be noted about bonus payment. According to Thai Labour Court’s interpretations, bonus may be legally interpreted as ‘wages’, as opposed to a mere ‘incentive’, if it is made in a fixed amount, on a regular basis, without any conditions of payment. Should this be the case, provisions stipulated under labour laws for the protection of employee’s wages will also apply.

This Newsletter is intended merely to provide a regulatory overview and is not intended to be comprehensive; it is NOT a provision of legal advice. Should you have any questions on this or on any other areas of law, please do not hesitate to contact the following:

Chanakarn Boonyasith
Partner                                                                         

Pitchabsorn Whangruammit
Attorney-at-Law