More companies than ever are looking to overseas freelancers in Thailand to fill in the gaps in their workforce. It’s simpler to onboard contractors than full-time employees, and there are many benefits in terms of flexibility and operations. However, even when working with self-employed contractors, it’s essential to follow Thai labor laws and tax laws to make sure you’re fully compliant.
Before onboarding your first contractor, check out this step-by-step guide to everything you need to know about classifying, onboarding, and paying contractors per Thailand’s employment laws.
Step #1: Classify your workers
Hiring contractors can be a flexible solution for global companies of all sizes. However, misclassifying an employee as a contractor can result in serious penalties. These include:
- If you have failed to issue severance pay upon termination, you could be subject to 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.
- 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.
Fortunately, there are a set of rules to help employers determine whether their new hire meets the criteria for a contractor or employee. The Thai courts will look at both the contract agreement, as well as how the employee-contractor relationship plays out in practice, to determine whether there has been a misclassification.
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 more control from their employer, who will provide guidance on how to perform their work, as well as working 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, maternity leave/paternity leave, and pension.
Time-bound engagement. 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 not a part of 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 per month.
Paid salary or hourly wage, regardless of the amount of work completed.
Can subcontract work to a third party.
Cannot subcontract work.
Step #2: Determine the best way to pay your contractors
In your contract agreement, outline how you’ll pay your contractors. With the rise of global workforces and remote work, there are many choices for making international payments. Here are some options:
- Bank wires. In this scenario, you’d open a Thai bank account and use that to deposit funds into your contractors’ accounts. Alternatively, you might use your bank to send a global wire transfer.
- International money orders. While this is a long-standing payment method, it can be slow. The employer must physically purchase the money order, and then the contractor must physically deposit it upon receipt. What’s more, money orders also come with unfavorable exchange rates and fees.
- Digital wallets or payment platforms. Not every digital payment platform is available in Thailand. For example, Venmo, Zelle, and CashApp only work within the US. While some employers use platforms like Wise to transfer money across borders, exchange rates can change regularly, making your outgoing amounts unpredictable.
- Global payroll services. Contractors usually aren't included in payroll. They typically send an invoice for their services, which is then processed by accounts payable.
Step #3: Use global payroll software to process payments
While there are a variety of options to pay contractors in Thailand, the fastest and simplest is using global payroll software.
Rippling lets you pay contractors across the world, all in a single pay run. Here’s how our global payroll system works:
Step #4: Managing taxes
You won’t be responsible for tax withholdings. Independent contractors in Thailand file and pay their own income taxes. Contractors are also not required to make social security contributions, nor is their employer/client.
While you aren’t required to withhold and pay taxes for your contractors, if your company is US-based, have your international contractors fill out an IRS Form W-8BEN, which certifies their foreign contract status for the US government.
FAQs about paying contractors in Thailand
Do you need to withhold taxes when paying contractors in Thailand?
No, foreign companies don't have to withhold payroll taxes when paying contractors in Thailand. Contractors must pay all of their own income taxes.
Foreign companies are also not responsible for making social security contributions on behalf of their contractors.
Does Thai minimum wage apply to independent contractors in Thailand?
No, minimum wage laws don't apply to independent contractors in Thailand. Contractors are responsible for agreeing to or setting their own rates.
The minimum wage in Thailand depends on the province, and ranges from THB 328 to THB 354 per hour, or 9,840 to 10,620 baht per month. Thailand’s minimum wage is considered high compared to other parts of Southeast Asia.
Do Thai contractors get benefits?
No, independent contractors in Thailand are not entitled to benefits or any other remuneration not outlined in their contract. Offering benefits to independent contractors may increase the risk that the courts will consider the contractors to be misclassified employees.
Can you pay contractors in Thailand in your home currency?
If your contractor agrees to this, you may pay them in your preferred currency. However, it’s standard to pay them in their local currency, which is the Thai baht.
Can you manually pay contractors in Thailand?
Small business owners may opt to manually process contractor payments to cut costs. While the overhead may be low upfront, this process can be time-consuming, particularly for growing businesses working with multiple contractors in Thailand or other areas.
Manually processing payments also brings risks and complications:
- Compliance. Manual input runs the risk of human omission and errors.
- Security. If you use spreadsheets or paper records, your sensitive employee information is more likely to be lost, stolen, or misused.
How do you turn a contractor into an employee in Thailand?
Hiring independent contractors has financial benefits, but you may want to bring that worker on full-time to avoid misclassification, retain their services for a longer period of time, or because you simply want them to be a part of your team. However, as with hiring any full-time employee in Thailand, converting contractors is not as simple as just drafting up an employment contract. Thailand enforces payroll deductions, social security contributions, benefits, workers’ compensation, and other protections for full-time employees.
You must also establish a foreign business entity in Thailand by either creating a local entity or using an employer of record (EOR). Forming an entity is a long, complicated process. EORs, on the other hand, make things easy. On paper, an EOR is your worker’s employer. In practice, it means that the EOR handles tax withholding, benefits administration, and compliance on your behalf.
EORs also help collect the following information that you need from employees to process their payroll:
- Name (matching the account where you’ll deposit their pay).
- Date of birth and date of hire.
- Contact information, including their mailing address in Thailand.
- Taxpayer ID number (TIN).
- Bank account information.
- Amount to be paid in Thai baht (including any bonuses).
Hiring and paying Thai contractors can seem complicated—but, with Rippling, it doesn’t have to be.
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.