If you’re looking to expand your company or hire employees in Thailand, it’s crucial to obey its local regulations, especially when it comes to Thailand payroll. 

However, effectively running Thailand payroll can be demanding. One reason is that Thai labor laws can be complex, and it isn’t always easy to keep up with frequent amendments. But if you flout these laws, you risk getting a penalty or other negative legal consequences.

Your best bet is to familiarize yourself with Thailand payroll processes. Hence, we’ve created this guide to help you avoid compliance issues in Thailand. Whether you’re a business owner or an HR manager, this article will help you handle Thailand payroll with information on everything from taxes to payroll software.

Preparing for Thailand Payroll

Running payroll in Thailand typically begins with these factors:

Legal entity

Before you can handle payroll activities, your business has to be a legal entity in Thailand. This process can take several months as it involves registering the company, sorting out paperwork, getting employment permits, and understanding Thailand’s employment regulations. 

To do so:

• Register your company name in Thai (not English or another language) with the Department of Business Development.
• File a memorandum of association. This document provides details about your company, including its founders and activities. 
• Choose a company type. It could be a public limited company, private limited company, partnership, or a branch office (for foreign companies).
• Register your entity with the Ministry of Commerce. 
• Register with the Thai Revenue Department for a company registration certificate and income tax number. 
• If you’re not a Thai citizen but your company has a physical location in Thailand, apply for an alien business license.
• Create a Thai bank account. It’s required to operate in the country..

However, you can skip the rigorous process by using an Employer of Record (EOR).

To put it simply, EOR is an organization that legally hires employees on behalf of an employer. They simplify the process and handle administrative and legal responsibilities, such as payroll, compliance, taxation, and employee benefits. 

However, setting up an EOR for your business can take up to six months and may be costly. It is important to assess your needs and budget to determine which way to go when registering your entity.

Tax identification number

A Tax Identification Number (TIN) is a unique identifier the government assigns to individuals and business entities for easy taxation. You need a TIN to open a business bank account. To get one, register with the Thai Revenue Department. And if your turnover exceeds the threshold of 1.8 million baht within 12 months, register for a VAT number.

Employment obligations

Thailand requires employers to provide specific mandatory benefits. Depending on the length of employment, job position, and industry, they include:

• Annual leave and public holidays

Full-time Thailand employees who have worked for a year are entitled to six days of paid annual leave. However, some employers offer workers 10 to 15 days of paid vacation every year to compete in the market. Workers who don’t use their vacation time can accumulate and carry it forward. 

Besides annual leave, workers are entitled to at least 13 compulory public holidays yearly. 

• Maternity leave

Expectant mothers in Thailand are entitled to 98 days of fully paid maternity leave. While the employer pays for the first 45 days, the government pays the remaining period through the Social Security fund at 50% of the regular salary rate.

• Sick leave

In Thailand, an employee is entitled to 30 days of paid sick leave every year after working for a year. If the sickness persists for over a month, they can use their paid vacation or take unpaid leave. And if an employee falls ill for more than three consecutive days, they are required to submit a medical certificate.

Read next: HR’s Guide to Employee Leave Management

Thailand Payroll Processing Steps

Employees in Thailand generally earn monthly in the local Thai Baht currency. However, some companies may pay employees bi-monthly or weekly, depending on their internal policies and agreements with employees. Once you’ve settled payment dates, here’s how to process Thailand payroll:

1. Calculate gross salary

Calculate the total amount an employee earns prior to any deductions. This includes their basic salary, overtime, allowances, bonuses, commissions, and any other payments they get. Gross salary does not include taxes, social contributions, or other deductions. 

Thailand operates a monthly payroll cycle with a maximum of eight working hours daily and 48 hours per week. Employees who work more than 48 hours a week should be paid overtime, which is 150% of the employee’s hourly rate.

For example, an employee’s earns:

• 30,000 baht as a basic salary 
• 5,000 baht as housing allowance
• 2,000 baht as transportation allowance

In that instance, their hourly rate is 125 baht (30,000/30/8). If they work 10 hours of overtime in a month, their overtime pay will be 187.5 per hour (150% of 125 baht). Multiplied by 10, that’s 1875 baht.

Therefore, the employee’s gross salary is 38,875 baht.    

Additional reading: Thailand Minimum Wage Guide for Employers

2. Withhold income tax

Once you’ve registered your company, you can withhold tax from your employees’ salaries. Thailand operates a progressive income tax system, and tax rates range from 0% to 35% depending on income levels. 

Employers and HR managers must calculate and deduct income taxes from employee earnings while considering the applicable tax rates. They should also remit the withheld income taxes to the Revenue Department by the 7th of the following month, alongside proper documentation and reporting.

Learn more: Understanding Income Tax in Thailand

3. Payroll contributions

When running Thailand payroll, you should also withhold and remit these other payroll taxes with income tax. 

• Workmen’s Compensation Fund

This compensation fund offers financial assistance to employees who suffer from work-related injuries, disease, disability, illnesses, or death. Employees contribute 0.2% to 1% of their earnings to this fund once a year. 

• Employees Provident Fund

The Provident Fund is a voluntary retirement savings plan that gives financial support to employees when they retire. Contributions typically range from 2% to 15% of an employee’s salary.

• Social Security Fund

As part of Thailand payroll, employers and employees should contribute to the Social Security Fund by paying 5% of their income (capped at 875 baht per month) on the 15th of every month. This fund covers employees during unemployment, disability, maternity and paternity leave, injury, illness, death, and retirement. 

4. Process authorized deductions

After withholding all authorized deductions such as income tax, social security contributions, employee provident fund, etc., process them for remittance.

First, ensure all deductions align with Thai statutory demands. And if you are withholding more than stipulated, let it be a written agreement between the employee and employer through the employment contract or a separate authorization form.

5. Calculate net salary

Net salary is the money an employee takes home after deducting tax, contributions, and other withholdings from their paychecks.

Say an employee’s gross salary is 38,875 baht. You’ll have to deduct the percentages of the social security funds, employee provident fund, and income tax to get their net salary.

Payroll Payment and Records

Managing Thailand payroll involves using certain payment methods and records while adhering to labor laws and tax regulations. They include:

Payment methods

Employers must pay employees at least once a month, typically at the end of the month, via cash, bank transfer, or cheque. Furthermore, you should state your company’s specific payment dates in the employment contract so workers know when to expect their salary.

Payslips

Payslips should include employees’ gross salary, authorized deductions, and net salary. They should also include employee data, payment dates, and overtime or bonuses. Employees should receive their pay slips as hard or soft copies on or before payday.

Overtime pay

As mentioned earlier, employees who work beyond the standard 48 hours should receive an overtime fee of 150% of their hourly wages. 

If an employee’s hourly rate is 125 baht and works overtime for 10 hours a month, their overtime pay will be 1875 baht (150% of 125 =187.5 baht per hour multiplied by 10).  

Year-end tax adjustments

Year-end tax adjustments are crucial to Thailand payroll and tax compliance. They ensure employers withhold the accurate amount of personal income tax from employees’ salaries throughout the year while complying with the Revenue Department’s regulations.

Carry out year-end tax adjustments before the last payroll of the year. Furthermore, inform employees of updates while maintaining accurate records of all Thailand payroll transactions and adjustments for easy annual review.

Recordkeeping

Regular recordkeeping is essential when handling Thailand payroll. It ensures correct payroll processing and compliance with labor laws. Furthermore, it also encourages transparency between employers and employees.

Your payroll records should contain employee information, gross salary, allowances, benefits, payment dates, authorized deductions, and net pay.

Payroll software

Adhering to employment regulations and keeping records can be challenging. But with software, it becomes easier. Thankfully, many HR software exist to solve payroll problems. They automate calculations, track employee work hours, and streamline your payroll workflow.  

This helps eliminate errors, ensure accuracy, and simplify the process of processing Thailand payroll. But before choosing payroll software, ensure the pricing plan suits your company’s budget and its features align with your organizational goals. 

Read next: The HR Tools Growing Teams Need in 2024

Benefits of Payroll Software for Thailand Payroll

Enhanced accuracy and efficiency

Payroll software helps you keep and maintain accurate records of all transactions, including earnings, deductions, and payment histories. It automates the Thailand payroll process and reduces errors in computing salaries, overtime, taxes, and other calculations. The best part is that anyone on your team can easily access and retrieve relevant data, boosting efficiency and productivity.

Improved compliance

Using these tools makes it easier to follow through with labor laws. For example, it automatically calculates compulsory deductions from salaries. And when there are changes in Thai laws or tax regulations, you can easily update the tool to reflect them.

Cost savings and time management

Automating routine tasks like calculating earnings, withholding tax, and generating reports frees up space for more HR and finance duties. Also, since these tools help you process payment for multiple employees simultaneously, they save time and money that would have been spent executing the tasks manually.

Integration with HR Systems

Integrate your payroll software with other HR, accounting, and enterprise resource planning (ERP) systems to efficiently execute other administrative tasks. This improves your workflow and ensures a smooth process. It also reduces the need to duplicate efforts and creates a synchronized transition between systems.

Read next: What is HRIS? Why HR Needs Automation in 2024

Enhanced security

Many software have encryption features that secure and protect employee information and sensitive financial data from unauthorized access. This is necessary for the security of any company.

Automate Your Thailand Payroll Processes and Ensure Compliance

Navigating the ever-evolving regulations of Thailand payroll can be challenging, and staying up to date with the latest mandates is crucial for HR teams to remain compliant.

Omni helps HR teams stay up to date with the latest laws and regulations while streamlining the end-to-end employee management lifecycle. Our comprehensive payroll solution is tailored to Thailand’s specific requirements. With features like support for Thai baht, automated tax calculations, and instant payroll reports, Omni can help HR teams simplify their payroll processing while ensuring compliance.

Thailand, like elsewhere in the world, has a complex tax system designed to collect money from its residents and workers, and invest that money back into the country. The government takes it seriously—which means you and your organization need to comply and keep up-to-date with its regulations.

Every country has its own nuance to income tax collection, and Thailand is no different. In this article, we’re going to dive into everything you need to know about income tax Thailand, including Thailand income tax for foreigners, dates you’ll need to file on, and personal income tax Thailand.

What income is taxable Thailand?

Thailand’s tax system might seem a bit complex at first glance, but understanding the basics isn’t overly daunting when you break it down. Let’s start with the big question: what kinds of income are actually taxable in Thailand?

If you live in Thailand (or spend more than 180 days a year there), you’re considered a tax resident. This means you’ll be taxed on your worldwide income, not just what you earn from your work in Thailand. If you’re not a resident, you’re only taxed on the income you earn within Thailand.

Here’s a quick overview of what generally falls under the taxable income umbrella:

• Employment Income: This includes your salary, bonuses, commissions, and any other benefits you get from your job.
• Business Income: If you own a business or are self-employed, your profits will be taxed.
• Investment Income: This covers things like interest, dividends, and capital gains from investments.
• Rental Income: If you own property and rent it out, that income is taxable.
• Other Income: This can include things like royalties, pensions, and certain types of windfalls.

Thailand also has a few specific rules and exemptions that can affect your income. For example, certain types of income are exempt from tax, and there are deductions and allowances that can lower your overall tax bill. We’ll delve deeper into these in the upcoming sections.

Keep in mind that this is just a high-level overview. The specifics can get a bit more complicated, so it’s always a good idea to consult with a tax professional for personalized advice. But hopefully, this gives you a good starting point to understanding how income tax Thailand works.

Read next: Thailand Minimum Wage Guide for Employers

Who has to pay income tax Thailand?

The main factor involved with who pays what tax in Thailand comes down to residency. But Thailand has a unique take on what constitutes residency, and how that affects your income tax. Here’s how it works:

Resident income tax

If you live in Thailand, or you’re here for more than 180 days a year, you’re considered a tax resident. This means you’ll need to pay income tax on all your income, whether it’s earned in Thailand or overseas (if you bring it into the country). So, your salary, business profits, investment income, etc., it’s all on the table.

Non-resident income tax

If you don’t meet those residency criteria, you’re a non-resident for tax purposes. This means you’ll only pay income tax on the money you earn within Thailand. If you’re a digital nomad working remotely for a foreign company, for example, your earnings wouldn’t be subject to Thai income tax as long as they stay outside of Thailand.

What are the rates of personal income tax Thailand?

Thailand has a progressive tax system, which means the more you earn, the higher the rate you pay. This is designed to be a fairer way to tax income, so workers who make less don’t feel an unnecessary tax burden. The rates for 2024 for residents (those staying in Thailand for more than 180 days) look like this:

If you’re earning ฿ 500,000 per year:

• The first ฿150,000 is tax-free.
• The next ฿150,001-300,000 is taxed at 5%
• The remaining ฿200,000 is taxed at 10%

Of course, this is just an example and your actual tax situation could be affected by a number of different deductions and allowances. Make sure to consider your own circumstances and talk to a professional if you have any confusion.

What about non-residents?

If you’re a non-resident, the Thailand income tax for foreigners looks a bit different. For 2024 the income tax Thailand rates are:

• Employment income: Flat rate of 15% (unless your employment contract states otherwise)
• Other income: Progressive rates from 5% to 35%, depending on the type and amount of income.

What are the deductions in personal income tax Thailand?

There’s some good news when it comes to paying your income tax Thailand—you can claim deductions to lower your taxable income, and take a bit of the sting out of tax season. Here are some common deductions you should strive to take advantage of:

Social Security contributions

Everyone in Thailand chips in towards the country’s social security system. This comes straight out of your paycheck, but the good news is that you can deduct it from your taxable income.

Provident fund contributions

If your employer offers a provident fund (similar to a retirement savings plan), your contributions to it can be deducted, too. This is a great way to save for the future and lower your tax bill at the same time.

Medical expenses

You can usually deduct some of your medical expenses, including health insurance premiums and costs for certain treatments. This can be a big help, especially if you’ve had major medical costs.

Charitable donations

Giving to charity is a great thing to do, and the Thai government incentivizes it by offering tax deductions. There are specific rules about what types of donations qualify, so be sure to check those out.

Just remember, the amount you can deduct for each of these things often has a limit. For example, for social security, you can only deduct up to ฿ 9,000 per year. And for donations, the maximum deduction is usually 10% of your taxable income.

What are double taxation agreements? 

If you’re a foreigner living and working in Thailand, you might be worried about getting hit with a double tax whammy – paying Thailand income tax for foreigners and your home country on the same income.

Luckily, Thailand has signed double taxation agreements (DTAs) with over 60 countries, including the US, UK, Canada, Australia, and many others. These agreements are international tax treaties designed to prevent this double taxation issue, which can put an unfair tax burden on non-Thai workers.

How do DTAs work?

It varies from agreement to agreement, but the general idea is that a DTA will set out rules for how each country taxes certain types of income. This includes items like:

• Which country has the right to tax certain income: For example, a DTA might say that your salary is only taxable in Thailand if you’re working there.
• Reduced tax rates: Some DTAs might even offer reduced tax rates on certain types of income to make things more favorable for taxpayers.
• Tax credits: If you do end up paying taxes in both countries, a DTA might allow you to claim a tax credit in one country to offset what you’ve already paid in the other.

It’s important to note that even if your home country has a DTA with Thailand, the way it applies to you can depend on your specific circumstances. It’s always best to consult with a tax professional to make sure you’re taking full advantage of any available benefits and avoiding any unexpected tax bills.

One common question people ask is, “how do I know if my country has a DTA with Thailand?” The easiest way is to check the list of countries with DTAs on the Thai Revenue Department website or consult with a tax advisor.

When to file income tax Thailand?

Mark your calendars, because tax season in Thailand typically runs from 1 January to 31 March of the following year. This means if you earned income in 2024, you’ll need to file your tax return by 31 March 2025. Filing late might incur legal penalties, so ensure you’re on top of a timely tax filing.

However, there are a few nuances and exceptions to consider. These are:

• E- Filing: As of January 2024, new rule grants an automatic 8-day extension for returns and payments filed online, making the tax filing deadline 8 April instead. 
• Mid-Year Returns: If you own a business, you might need to file a mid-year return by 31 August for the first half of the year.
• Extensions: In certain situations, you might be able to get an extension to file your return. It’s best to check with the Revenue Department to see if you qualify.

How to file income tax Thailand?

Filing your income tax Thailand doesn’t have to be a headache—the Thai Revenue Department offers several options to make it as easy as possible:

Online submission

This is the most convenient and popular option. You can file your tax return online through the Revenue Department’s e-Filing system. It’s a secure platform that guides you through the process step-by-step. Plus, if you’re expecting a refund, you’ll usually get it faster this way.

Mobile app

Prefer to file on your phone? The Revenue Department’s RD Smart Tax mobile app lets you do just that. It’s a user-friendly app that’s available in both Thai and English, so you can file your taxes on the go.

Paper forms

If you’re more comfortable with the traditional way, you can always file a paper return. You can download the forms from the Revenue Department’s website or pick them up at your local tax office. Just fill them out and submit them before the deadline (usually 31 March for the previous year’s income).

Whichever way you choose to file, make sure you submit your tax return on time to avoid any penalties or late fees.

Things You’ll Need for Filing Personal Income Tax Thailand

Before you jump into filing your personal income tax Thailand, it’s a good idea to gather a few important documents. This will make the process smoother and help ensure everything is accurate.

1. Taxpayer identification number

This is your unique ID for tax purposes in Thailand. If you’re a citizen or resident, it’s usually your national ID card number. If you’re a foreigner, you’ll have a tax ID card issued by the Revenue Department.

2. Income documents

You’ll need proof of all the income you earned during the tax year. This could include:

P.N.D. 50: This is the withholding tax certificate your employer should provide, showing your salary, taxes withheld, and other important details.

Bank statements: These can help verify your income from interest, dividends, or other sources.

Business income statements: If you own a business, you’ll need these documents to show your revenue and expenses.

3. Expense documents

Don’t forget about deductions! Gather documents that can help prove your eligible expenses:

• Medical bills and receipts
• Charitable donation receipts
• Provident fund statements
• Proof of life insurance premiums, home loan interest payments, etc.
  

4. Tax withholding

If your employer or other payers have withheld any of your personal income tax Thailand, you’ll need proof of that. This can be found on your P.N.D. 50 or other withholding tax certificates.

5. Double taxation agreements

If you’re a foreigner and your home country has a DTA with Thailand, you might need to provide a residency certificate or other documents to claim benefits under the agreement.

Simplify Income Tax Thailand with Omni

Understanding Thailand’s tax regulations is crucial for businesses to fulfill their tax obligations accurately and timely. That’s why it’s important to have the right tools by your side to ease this complicated process.

Omni offers a comprehensive payroll solution tailored to Thailand’s specific requirements. With features like support for Thai baht and automated tax calculations, Omni can help HR teams simplify the process for personal income tax Thailand. 

With our automated payroll software, digitized and secure pay slip distribution, and dedicated support teams to guide your team and ensure compliance with income tax Thailand, Omni’s payroll processing reduces the administrative burden of your HR team and frees up valuable time to dedicate to more impactful business processes.

Book a demo today and learn how Omni can help you streamline your income tax Thailand processes to ensure compliance for your organization.

This article explains how to compute and administer separation pay in the Philippines. It details the formulas for different types of termination and outlines the legal requirements employers must follow. This guide aims to help both employers and employees understand the separation pay process.

What is a separation pay?

Separation pay, severance pay or termination pay refers to the compensation an employee receives upon leaving the company. During situations like layoffs, company downsizing, close of business or mutual agreement, employers may choose to provide separation pay.

This voluntary benefit is provided by employers to alleviate the impact of termination, to support the employee through retirement or until they find new employment. A typical separation pay package may also include benefits such as continued health insurance, outplacement services, or payment for unused vacation days.

In the Philippines, employers must provide severance pay to employees terminated with authorized causes under the Labor Code. If an employer defaults on their obligation, employees can file a complaint with the Department of Labour and Employment (DOLE). The department will investigate the complaint and may initiate conciliation or mediation proceedings to resolve the issue. If the employer fails to comply, DOLE can impose penalties and sanctions, including legal action to enforce compliance.

What is the difference between final pay and separation pay?

Final pay and separation pay are both types of compensation an employee receives when their employment ends. However, their purposes and calculations differ.

Employees are entitled to receive their final pay, regardless of the reason for leaving. It typically includes unpaid salary or wages, accrued but unused vacation or paid time off (PTO), and any other earnings such as bonuses, commissions, or overtime pay that are due.

Unless provided under employer’s discretion or stated in their employment contract, employees receiving separation pay upon termination aren’t entitled to a final pay. This is an added compensation provided to support employees during the transitions period after leaving the organization.

Separation pay is calculated based on factors such as length of service, position and reason for termination. Final pay is calculated differently. It is calculated based on the benefits accrued and whether the employee is salaried, or paid on an hourly basis. 

The timing is also different. Final pay is usually provided on the employee’s last working day or shortly thereafter, depending on company policy and local labor laws. While for severance pay, the timing and amount is outlined in the severance agreement which may be based on company policy, employment contracts, or collective bargaining agreements. For example, an employment contract might specify that severance pay is provided as a lump sum within 30 days of termination. 

Relevant reading: How to Compute Overtime Pay in the Philippines

Who qualifies for separation pay?

Eligibility is a major requirement for companies when administering severance pay. Without it, employees wouldn’t qualify for severance benefits when their employment ends. These criteria ensure fairness and protect the company from legal issues. 

Also, without clear eligibility, disputes could arise over who gets severance pay and why. Here we’ve listed common scenarios where employees typically qualify for separation pay, as well as cases where they do not:

Redundancy

There may be times when the position held by an employee is no longer necessary. This may be due to overstaffing, restructuring, technical changes or other reasons leading to a reduced need for such a position. To ease the impact of redundancy during this period, companies often offer severance pay. 

Closure or cessation of operation

A layoff can happen when a company, or a part of it, shuts down completely. This may be due to financial difficulties, or other significant changes in the business environment. Such individuals qualify for severance pay to provide financial support during the transition period as they seek new employment and to compensate for the sudden loss of their job through no fault of their own.

Reduction of workforce

This is otherwise known as Reduction in Force (RIF), which is a corporate term that refers to a situation where a company decreases the number of its employees. This can be done to cut costs, or a restructuring that leads to improved changes and adaptation to market changes. When such layoffs happen, based on the employment contract or the goodwill of an employer, employees can be let go with severance packages. 

Dismissal without cause

Another case where your workers may be qualified for a separation pay is when there is a termination of employment without any fault or misconduct by the employee. For example, an economic downturn that forces a company to let go of employees despite their satisfactory performance.

Under the Labor Code, other criteria include the installation of labor-saving devices, where a company installs new technology that makes certain positions redundant. Additionally, in the case of employees who suffer from a disease that cannot be cured within six months and continued employment is prejudicial to their health and that of their co-workers, these employees are entitled to separation pay.

Now, it’s important to note that criteria stated above are authorized cases. Authorized here refers to situations where the termination is justified under specific conditions outlined by Philippine labor laws, or company’s policy. 

However, there may be cases where employees who are being terminated from their job aren’t qualified to receive severance pay. 

This may be due to the following reasons:

Dismissal for just cause: This refers to violations done by employees that led to their termination from work. These violations include gross misconduct such as theft, fraud or serious breaches of company policy. Also, when an employee fails to meet job expectations despite warnings and support then the employee has a fair reason to layoff the employee. 

Voluntary resignation: Employees who voluntarily choose to leave their work, whether due to personal reasons or to take up a new role at another company, typically do not qualify for a severance package. This is because severance pay is generally intended to support employees who lose their jobs through no fault of their own, such as during layoffs or company closures. When an employee resigns voluntarily, they are making a personal decision to leave, and the employer is not obligated to provide additional financial support beyond final pay for the work already performed.

Completion of a contract: A contractor or temporary employee whose contract ends without renewal is also not qualified for severance package. 

Retirement: When an employee reaches the company’s retirement age or retires as per the retirement policy, they typically do not receive severance pay. This is because retirement is a planned and anticipated event, often accompanied by other retirement benefits such as pensions or retirement savings plans, which are designed to provide financial support post-employment. Therefore, the need for severance pay, which is intended to support employees who face unexpected job loss, does not usually apply in the case of retirement. 

How is separation pay calculated?

As per Article 298 and 299 of the Labor Code,  separation pay is calculated based on the reason for termination and the employee’s length of service.

The Labor Code further states that in cases of installation of labor-saving devices or redundancy, the employee is entitled to receive the equivalent of one month pay for every year of service. 

Hence the formula: 

Separation pay = (one month salary) × (years of service)

While in the case for closure or cessation of business, or health reasons, the employee receives one month pay or half a month pay for every year of service. 

Hence the formula for half a month pay: 

Separation pay = (one month salary) ÷ 2 × (years of service)

How is separation pay administered?

The following are ways Philippine employers can administer separation pay that adheres to the laws: 

Notice of termination

A written notice must be provided to let the employee know about the termination of their contract. The notice should include the reason for termination, the effective date, and information about the severance package, if applicable. 

When breaking the news, communicate this with professionalism and empathy. In the Philippines, employees must provide the written notice 30 days before the termination date and the document should outline the grounds for dismissal. A copy of the notice should be provided to the Regional Office of the Department of Labour and Employment where the employer is located. 

Read next: What is a Notice Period?

Payment

The amount and conditions of separation pay are specified by the labor laws and may depend on factors such as the length of employment and the reason for termination. 

Employers can choose to provide severance pay in lump sums or in installments. Both modes of payment have different advantages, and employers should carefully consider which option is beneficial for both parties.

Severance payments should be provided in line with the company policy, or the severance agreement. 

Timing is an important factor here. It must comply with legal requirements or company policy, and outlined in the severance agreement.

Tax withholding

Severance payments are subject to federal and state income taxes, and Filipino employers must withhold these taxes. Other deductions like SSS contributions, Medicare, and mandatory withholdings also apply.

Read next: Preparing for ITR Philippines

Documentation

This is a crucial step as it provides a clear record of the terms and conditions of the separation. Proper documentation includes the severance agreement, which outlines the payment details, any continued benefits, and any conditions such as a release of claims. Both the employer and the employee should sign this agreement to ensure mutual understanding and acceptance. This helps prevent future disputes and ensures compliance with legal and contractual obligations.

Additional considerations

• Collective Bargaining Agreements (CBA): If your company has a union, you need to take into account clauses stipulated in the CBA when administering separation pay. 
• Legal consultation: Consult a legal professional to ensure you are doing everything by the books.This prevents potential legal disputes and warrants that all actions taken are fair and lawful.

Leveraging HR Tools for Accurate Pay Calculations

Ensuring accurate pay calculations when administering separation pay is crucial for both employees and employers. It not only assures that you are complying with labor laws, but also fosters trust and fairness in the workplace. 

Optimizing payroll management with HR software like Omni can streamline your processes, reduce errors, and improve overall efficiency when calculating severance pay in the Philippines.

With features like support for Philippine peso, automated tax calculations, and managed SSS, PhilHealth and PAG-IBIG contributions, Omni can help HR simplify your payroll processes and ensure compliance to the Labor Code with ease. 

Try out Omni for 14 days and see how our all-in-one HR software can simplify the intricacies and complexities of your entire end-to-end employee lifecycle and minimize the costs associated with common errors when it comes to severance pay calculations.

Regardless of which stage you are in your career, saving for retirement should be one of the priorities. Saving early and saving often is the key to a comfortable retirement, which is why Malaysia EPF contribution is crucial.

Both employers and employees are expected to make a Malaysia EPF contribution as a percentage of their salary each month, which is then kept in the fund to be returned to them in retirement (or under certain conditions we’ll get into below). 

But, like lots of bureaucratic necessities, there’s more than a few moving parts and several important legal components you’re going to need to be aware of. Here, we dive into everything you need to know about employer EPF contributions, and how you can advocate for your employees’ future financial security.

Relevant reading: Navigating Malaysia’s Employment Insurance System (EIS)

What is a Malaysia EPF contribution?

In essence, EPF contribution is like a reliable savings plan for Malaysian employees, helping them prepare for their retirement years and other major life events. 

It’s a mandatory program, meaning both your organization and employees need to contribute a portion of their earnings each month. This ensures your employees have a financial safety net in place when they retire, or if something unexpected comes up along the road.

In terms of contribution, you as an employer contribute a larger portion of your employee’s salary to the EPF than they do. This gives a boost to how fast the savings build up, and splits the responsibility between employers and employees. However, KWSP doesn’t just hold onto these contributions—they further invest them and accelerate the savings growth.

When your employees retire (or under certain circumstances like leaving Malaysia permanently, buying a home, or facing medical emergencies), they can access their EPF savings. The EPF contribution is an important part of Malaysia’s economy, allowing for financial stability and growth for all Malaysians.

Read next: Understanding Malaysia’s Employment Act: Updates & FAQs in 2023

Who is responsible for Malaysia EPF contribution?

As mentioned, EPF contribution is a team effort. Both your organization and its employees have a role to play in Malaysia EPF contribution. 

By law, you as an employer are required to deduct a portion of your employees’ salaries each month and add your own contribution on top. This combined amount is then deposited directly into their individual EPF accounts.

The exact percentage you each contribute is set by the EPF Act 1991 and varies depending on things like your employee’s age and salary. To stay on the right side of the law, make sure to deduct your employees’ contributions from their paychecks and add your portion before sending the total amount to the EPF by the 15th of the following month. It’s important to get this right, as there can be penalties if you don’t.

Omni tip: It’s best practice to encourage your employees to check their EPF statements regularly to ensure timely and accurate contributions.

What payments are liable for KWSP deductions?

In Malaysia, several different types of payment are subject to EPF or KWSP deductions (short for Kumpulan Wang Simpanan Pekerja). Here are the main ones that you should keep in mind:

• Basic salary: This is the foundation of an employee’s income and is always included in EPF calculations.
• Wages: This covers all types of pay for work done, whether it’s hourly, daily, weekly, or monthly.
• Allowances: Most allowances like those for housing, transport, or the cost of living are generally subject to KWSP deductions.
• Bonuses: Performance bonuses or other extra payments need to be included when calculating KWSP employee contributions.
• Commissions: If your employees earn commissions, these need to be factored into their EPF contributions.
• Incentives: Monetary rewards given to employees for good performance are also included.
• Overtime pay: Payments for working extra hours are part of an employee’s overall earnings and subject to EPF.

It’s important to accurately calculate and perform KWSP deductions from these payments to keep compliant and avoid any legal issues. Stay up-to-date with the regulations and keep your payroll team in the loop to make sure any changes to regulations don’t go unnoticed.

Relevant reading: Your Guide to Malaysia Payroll

How to calculate Malaysia EPF contribution?

Figuring out Malaysia EPF contributions might seem a bit complex, but in this section we break it down into straightforward steps you can follow easily:

1. Know the rates

The percentage you and your employee contribute depends on their age and residency status. Here’s the breakdown for Malaysian citizens and permanent residents as of June 2024:

• Employees under 60 years old:
  • Employee: 11% of their monthly salary
  • Employer: 13% of their monthly salary (if they earn RM5,000 or less) or 12% (if they earn more than RM5,000)
• Employees 60 and older:
  • Employee: 5.5% of their monthly salary
  • Employer: 4% of their monthly salary

2. Figure out the total earnings

This includes their basic salary, any additional wages, allowances, bonuses, commissions, incentives, overtime pay, and service charges.

3. Calculate each contribution:

Let’s say your employee is under 60 and earns RM4,000 per month:

• Employee’s Malaysia EPF Contribution: RM4,000 x 0.11 = RM440
• Employer’s Malaysia EPF Contribution: RM4,000 x 0.13 = RM520

4. Add them up:

• Total Malaysia EPF Contribution: RM440 + RM520 = RM960

5. Submit on time

You’ll need to submit these contributions to the EPF by the 15th of the following month. You can do this easily online through the EPF’s i-Akaun (Employer) portal.

Remember, these are just the standard rates. There might be slight variations for non-citizens or under special circumstances. If you’re ever unsure, you can always refer to the official EPF guidelines or reach out to them directly.

How to make Malaysia EPF contributions?

Making Malaysia EPF contributions is a straightforward process that’s made even easier with the online tools available to you. 

Register as an employer: If you haven’t already, you’ll need to register for an account before submitting EPF contributions. You can do this online through the KWSP website or by visiting one of their branches. Once registered, you’ll receive an Employer Reference Number, which you’ll use for all your employer EPF contributions.

Enroll your employees: Make sure all your employees are registered. If they’re not, you can easily register them online or by submitting Form KWSP 3.

Calculate the contributions: You’ll need to calculate the monthly Malaysia EPF contributions for each employee. This depends on their age, salary, and the current contribution rates. We covered how to do this in the previous section, but the KWSP website also has helpful resources and calculators.

Prepare the contribution data: You have two main options for this:

• Form A: This is the traditional paper form you can fill out with each employee’s details, salary, and the calculated contributions.
• i-Akaun (Employer): This is the EPF’s online portal where you can easily generate and submit contribution data electronically. It’s a much more convenient option!

Submit the Contributions and Payment: You need to submit the contributions by the 15th of the following month to avoid any late fees. You can do this through:

• i-Akaun (Employer): Upload your data directly through the portal.
• Internet banking: Many banks offer EPF payment options through their online platforms.
• Bank counter: You can submit Form A and pay at designated banks.
• EPF branch: You can also visit any EPF office to make the payment.

Maintain accurate records: Always keep copies of any forms you submit and receipts for your payments. It’s a good practice to have these records on hand in case you need them later for an audit, or simply to look up data.

Reconcile and report: Double-check your records regularly to make sure everything matches up. The i-Akaun portal is a great tool for tracking your contributions and making sure everything is in order.

What are the Malaysia EPF contribution responsibilities as an employer?

Knowing and performing your employer EPF contribution responsibilities isn’t just a good idea—it’s the law. Here’s what your organization will need to consider as it administers EPF deductions for its employees:

Registration

First things first, you’ll need to register yourself as an employer with the EPF. You can do this online through the KWSP website or at any EPF branch. They’ll give you an Employer Reference Number, which is like your ID for all things EPF.

Next, make sure all your eligible employees are registered with the EPF. If they’re new hires who haven’t been registered before, you can do it for them using Form KWSP 3.

Contributions

Your organization is responsible for figuring out the exact amount to contribute for each employee every month. This includes both your portion as the employer and the portion deducted from your employee’s salary. The exact amount depends on factors like their age and salary, noted in the section above.

Timely payment

It’s important to submit your Malaysia EPF contributions by the 15th of the following month. For instance, January’s contributions should be paid by February 15th. If you miss the deadline, you could face penalties, so set up reminders before the deadline each month.

Record keeping

Keeping track of all your data is key. Make sure you keep copies of all the forms you submit, payment receipts, and any communication you have with the EPF. It’s considered a best practice to keep these records for at least seven years.

Read next: Employee Data Management: How HRIS Can Help Achieve Accuracy and Security

Reporting

Each month, you’ll need to report the Malaysia EPF contributions you’ve made. You can do this using Form A or, more conveniently, through the i-Akaun (Employer) portal. Make sure your employees track their EPF statements regularly as it shows them how much is being saved for their retirement.

What are the EPF contribution responsibilities for an employee?

We’ve stressed about your responsibilities for employer EPF contributions, but your employees play an important role as well. Here’s what will be expected of them:

Understanding your contributions

It’s a good idea for your employees to be familiar with the current contribution rates, both for their share and yours as the employer. This will help them understand how much is going into their EPF account each month.

Encourage them to regularly check their EPF statements through the i-Akaun portal. This way, they can make sure everything is accurate and spot any mistakes early on. These statements show them a breakdown of their contributions, any dividends earned, and their overall balance.

Maintaining accurate records

It’s helpful for employees to keep copies of their payslips, since these show how much is being deducted for EPF. If there are any discrepancies, they’ll have the information they need to discuss it with you.

Remind your employees to let the EPF know if they change their address, contact details, or beneficiaries. This ensures they receive important information and that their account is properly managed.

Voluntary contributions

If they’d like to save even more for their retirement, your employees can make additional voluntary contributions to their EPF. It’s a great way to boost their savings and have more financial security down the road.

Even if an employee becomes self-employed or works in the informal sector, they can still contribute to their EPF. This helps them continue saving for their retirement. The i-Saraan program is specifically designed for self-employed individuals and even offers some incentives from the government.

Can employees pay less than 11% for Malaysia EPF contribution?

The standard employee Malaysia EPF contribution is 11% of their monthly salary. However, there are a few situations where they can contribute less. These include:

Temporary rate reductions: Sometimes, the government lowers the mandatory contribution rate to give employees a bit of financial relief. This usually happens during economic downturns, like the recent pandemic when it was reduced to 7%. Keep an eye out for announcements from the government to see if these reductions are in effect.

Things to keep in mind:

• Even if employees choose to lower their rate, there’s still a minimum they have to contribute. The exact percentage may vary, so it’s best to check the current EPF guidelines.
• Lowering contributions means they’ll have less saved up for retirement. It’s a trade-off between having a bit more money now and having a more comfortable retirement later.
• If your employee reduces their contribution, it doesn’t affect yours as the employer. You’ll still need to contribute the standard 12% or 13%, depending on their salary.

Going back to the standard rate: If an employee decides they want to go back to contributing the full 11%, they can do that at any time. They simply need to let the EPF know.

Learn more: Navigating HR Compliance in Malaysia

Automating Payroll Processes with Omni

It’s clear that the Malaysia EPF contribution process is an ever-evolving yet mandatory process for all businesses. Navigating it can be challenging, and staying up to date with the latest regulations is crucial for HR teams to remain compliant. 
Omni helps HR teams stay up to date with the latest laws and regulations while streamlining the end-to-end employee management lifecycle. Our comprehensive payroll solution is tailored to Malaysia’s specific requirements. With features like support for MYR, automated tax and EPF calculations, and instant payroll reports, Omni can help HR teams simplify their payroll processing while ensuring compliance.

Start your 14 days free trial today and see how Omni can simplify the intricacies and complexities of Malaysia EPF contribution process and minimize the costs associated with common errors.

As an employer in Singapore, the tax law mandates you to prepare and submit employment income details for all employees every year. Understanding the intricacies of an IR8A form and its submission process is important to maintain compliance and avoid potential penalties. 

This guide will explore what the IR8A form entails and how you can file it for your employees to the Inland Revenue Authority of Singapore (IRAS), including the crucial Auto-Inclusion Scheme (AIS).

Relevant reading: Understanding the Singapore Employment Act

What is Singapore IR8A Form?

The Singapore IR8A form documents and reports an employee’s income to the Inland Revenue Authority of Singapore (IRAS). 

As part of taxation in Singapore, every employer in Singapore must complete this document for every employee and state their earnings or income for the year. Due to its mandatory nature, the IR8A form should be a crucial component of your employee data management to ensure compliance with regulations. 

The IR8A form is then submitted to the IRAS each year along with supporting documentation if applicable.

The supporting documents to the IR8A form include: 

• Appendix 8A
• Appendix 8B
• Form IR8S (if applicable).

When is the deadline for Singapore IR8A Form?

The IR8A form must be filled out for every employee before 1 March of the year. Failing to submit before the deadline may lead to fines under Section 94 of the Income Tax Act. 

A company can be given a fine of up to $1,000 or imprisonment of up to 6 months if found defaulting in the submission of the Singapore IR8A form. 

What information is included in the Singapore IR8A Form?

Some of the information on a typical IR8A form are:

• Gross Salary
• Leave Pay
• Wages and Overtime Pay
• Bonus 
• Others like: director’s fees, allowances, pension and gratuity

The parts to be filled out depends on whether it applies to each employee. 

As mentioned earlier, you may also need to provide supporting paperwork with the IR8A form. This can be Appendix 8A, Appendix 8B, or Form IR8S, depending on various reasons. 

Appendix 8A

As a Singaporean employee receiving non-monetary perks, you’re required to complete Appendix 8A. The purpose of this form is to declare any “in-kind” or “non-cash” benefits outside employee salaries. The benefits can include fringe benefits like insurance, gym memberships, free parking, or educational aid, separate from your salary.

Appendix 8B

You’re required to attach Appendix 8B to your IR8A form if you’re a Singaporean employee who has participated in Employee Stock Option Plans (ESOPs). The same rule applies if you’re enrolled in other forms of Employee Share Ownership (ESOW) plans. If an employee has ESOP or ESOW plans, it means they can buy or own company stock. Any profits or gains derived from the stock option must also be taxed.

Form IR8S

Completing this form is mandatory if you’ve overpaid CPF on your employees’ salaries or if you plan to claim a refund for such excess contributions. For the latest contribution rates, please refer to the official CPF website.

Who needs a Singapore IR8A Form?

The Singapore IR8A form must be completed for all employees to report to the IRAS on the income/earnings of each employee. 

This includes:

• Part-time employees who are Singaporean or permanent and full-time resident employees.
• Employees who are not based in Singapore but were required to render service in Singapore during the year.
• Employees who are receiving a pension while they are working for the company.
• Employees who no longer work in the company but are still owed money from the year to be filled.
• Company director of non-resident corporations.
• Board members who are receiving Board/Committee Member Fees.
• All local business owners and managers.

Who are those excluded from filing the IR8A form?

• Post-clearance foreign employees who didn’t provide employee services in Singapore for the year that the form is filled.
• Non-executive directors, not classified as employees, must be informed by AIS (Auto Inclusion Scheme) employers to report their income separately on their tax returns.
• Employees who were based outside of Singapore for the year and supplied their services strictly outside of Singapore.
• Those who have left the company and/or the country (a Form IR21 is sent to IRAS in this situation).

How to file the Singapore IR8A Form?

Due to the confidential nature of IR8A form to both employers and employees, it must be filed accurately. Here’s what you need to consider when filing for the Singapore IR8A form:

But before we begin, we must understand the Auto Inclusion Scheme.

What is the Auto Inclusion Scheme (AIS)?

The Auto Inclusion Scheme (AIS) was created to make income and tax filing for Singaporean employees convenient. With AIS, IR8A information for employment income can be electronically submitted, processed, and approved automatically, ensuring accurate filling of IR8A forms. 

While it is optional for businesses with five or fewer employees, AIS is mandatory for those with more than 5 employees. Providing employees with a copy of their IR8A forms is advised for record-keeping purposes.

Steps to File Your Singapore IR8A Form

1. Join the Auto Inclusion Scheme (AIS)

To register your business for AIS, head over to the My Tax Portal. You will need the UEN (Unique Entity Number) of your business or your SingPass.

2. Link your CPF data with AIS

Linking your employees’ CPF data with AIS streamlines the submission process, authorizing IRAS to retrieve both employment income and CPF information from the CPF Board. This allows IRAS to automatically get the salary details when you’re submitting Employment Income Records via AIS, simplifying the process for you.

To link your CPF data with AIS:

• Register for linking CPF data at the ‘CPF Data Link-up Service’ section on myTaxPortal.
• Connect your payroll system to AIS.
• Transfer your employees’ CPF data into AIS.
• Generate an employer submission form in AIS and submit the form with your CPF details.

3. Gather income records 

To avoid mistakes, keep all the income records you need for submission in handy. Here are some things to remember: 

• If you’re the owner of a business or part of the partnership, your salaries are taxed differently because you own the company. So, your income details aren’t included in AIS.
• If an employee leaves and comes back within the same year, you need to combine their income records to show this.
• If you have non-resident directors, you need to include their income details when you submit to AIS.
• If your company hires trainees under an employment contract, include their income details in AIS. But if you only provide them with allowances for travel and meals, you don’t need to include that in AIS.
• You are required to submit income details for any foreign employees on your payroll, regardless of how long they’ve worked or how much you paid them.

4. Report employee earnings

At this point, you should have filled out your IR8A form and other forms where applicable. You can do it all electronically because you have registered for AIS. No physical copies are needed, and the AIS system will automatically fill in all the data in your employees’ electronic Income Tax Returns.

5. Submit the employment income records 

The IRAS has several ways of submitting employment income records. You can choose to submit directly at the myTaxPortal or via the Provident and Tax (PAT) system.

IRAS also works with HR management software to help employers submit employment income information. To easily submit records to IRAS, you can use payroll software integrated with the AIS API service. 

Can I make changes after submission? 

It is best practice to thoroughly review all details before submitting the Singapore IR8A form and its supporting documents. However, errors may occur. If you notice mistakes in employee IDs, income deductions, or other fields, promptly submit amendment files.

For this process, you should: 

• Include income records of the affected employees.
• Specify any differences in amounts, if applicable.
• Fill in only the fields you wish to change.
• If amendments affect figures in the IR8A form, submit an IR8A amendment file along with amendments to IR8S, Appendix 8A, and Appendix 8B.

Omni Tip: To update employee identity or demographic details (like date of birth, and nationality), simply send an email to myTax Mail to get it sorted.

What are the scenarios requiring supporting documents for the Singapore IR8A Form?

Supporting documents may be required for the Singapore IR8A form in cases like:

Employment benefits

For additional perks provided to employees beyond their salary, such as housing allowances, stock options, or bonuses. Supporting documents including official letters detailing the benefits or receipts for expenses covered by the employer might be required. 

Tax deductions

In cases of expenses that can be subtracted from an individual’s taxable income, supporting documents such as receipts or invoices may be required. 

Special allowances

There are specific payments or allowances provided to employees for particular purposes like transport or meal allowances. Documents will need to be provided showing the utilization of the allowances. 

Omni for Secure Singapore Tax Compliance 

Undoubtedly, Singapore taxation is a complex and detail-oriented process that requires a deep understanding of the region’s unique regulations and a commitment to accuracy and compliance. This is especially the case when it comes to preparing and filing the Singapore IR8A form. That’s why it’s important to have the right HR technology to make things easier. 

Omni offers a comprehensive payroll solution tailored to Singapore’s specific requirements. With features like support for SGD, automated tax calculations, and managed CPF contributions, Omni can help HR teams simplify their payroll processing and ensure easy preparation of the IR8A form. 

With secure and centralized employee records, HR teams can swiftly access employment contracts and essential documents that support the preparation and filing process for the Singapore IR8A form.

If you’re ready to take your Singapore tax compliance to the next level, start your 14 day free trial today and experience how Omni can transform your HR processes, saving you time, reducing administrative burdens, and enhancing overall efficiency.