Hire in Thailand with Confidence

Any business hiring in Thailand should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties may be issued to businesses hiring independent contractors under the guise of employment. 

Understanding the distinction between an employee (Phnạkngān or ลูกจ้าง) and an independent contractor (P̄hū̂rạb h̄emā xis̄ra or ผู้รับเหมาอิสระ) is critical to compliantly engaging workers in Thailand and thereby avoiding severe legal, financial, and other penalties, including imprisonment. It is important to work with a partner like Worksuite to ensure you put in place an engagement framework that accurately classifies freelancers as independent contractors for you and lets you know when freelance talent must be engaged as an independent contractor or employed directly. As of 2019, around half the working population in Thailand was estimated to be self-employed.

Thai law distinguishes independent contractors from employees based on the two main types of contract they are rendering the services under. A “contract of services” (S̄ạỵỵā brikār or สัญญาบริการ) involves an individual performing work under close supervision and regulation from the hiring company and is typically used for employment contracts. A “contract for work” (Ĉāng thảngān or จ้างทำงาน) involves an individual being hired for a specific job and is typically used for working with independent contractors. That said, while an employee is defined as “a person who agrees to work for an employer in return for wages regardless of the name used”, there is no corresponding definition of the independent contractor or another kind of worker in Thai labor or commercial legislation. 

As in many other countries, the degree of subordination is the primary factor when determining the relationship between the individual and the hiring company. Ultimately, if the real substance of the relationship between the individual and the hiring company proves to effectively be an employment relationship, the hiring company may suffer legal and financial penalties (including payroll taxes). It is therefore important to leverage an employment service partner like Worksuite when hiring in Thailand in order to ensure that independent contractors fall under the correct working relationship with your business.

Who is an Independent Contractor?

While legal subordination is a crucial criterion in distinguishing between an employee and an independent contractor, in reality, this can be difficult to determine, and therefore a range of factors are looked at. Individuals are generally considered to be independent contractors if they:

• Are subject to relatively little control by the hiring company, which means they are free to decide when, where, and how they complete their tasks.
• Do not have fixed hours of work that are determined by the hiring company.
• Can  choose the location from which to undertake their work.
• Provide their own equipment rather than receive it from the hiring company.
• Can be (or are expected to be) dismissed once the contracted work is complete. 
• Are not integrated into the hiring company’s organizational structure.
• Are paid for a specific project or task rather than on a recurring basis.
• Can refuse to perform a task (unless that task is part of their contract).
• Can subcontract the work to another party (although they maintain liability). 
• Are not entitled to a minimum amount of work or a minimum amount of pay.
• Are not listed on the hiring company’s normal payroll.
• Do not receive reimbursements for expenses beyond what is explicitly stipulated in the contract.

There are two main categories under which independent contractors operate in Thailand: 

• Sole proprietorship (Cêāk̄hxng tæ̀ pheīyng p̄hū̂ deīyw or เจ้าของ แต่เพียงผู้เดียว): Sole proprietorships are a popular option due to low administrative overheads and low setup costs. To establish a sole proprietorship, individuals need to register their entity’s name and then register with the Department of Business Development (DBD). Sole proprietors are subject to the individual income tax regime rather than Corporate Income Tax (CIT). They are also not required to register for VAT if their income is below THB 1.8 million (USD 50,300).
• Limited Company (Bris̄ʹạthcảkạd or บริษัทจำกัด): The Thai Limited Company is equivalent to the Limited Liability Company (LLC) in the US, and can be either private or public. Limited Companies have at least three shareholders and at least one director. There is no minimum capital requirement. Establishing a limited company involves registering a name with the Department of Business Development (DBD), registering with the Ministry of Commerce (MOC), creating the articles of association, and ensuring all shares are paid up, along with filing tax ID and VAT documentation. All limited companies must have the word “limited” at the end of their name. 

There are two main types of contracting model for working with independent contractors in Thailand.

A. Direct engagement of the contractor as self-employed or registered via their own company. Under this model, the hiring company engages directly with the independent contractor – either as an individual sole trader or as a limited company (see above) – and establishes a direct contract for the provision of services. The hiring company then pays the independent contractor directly in accordance with the terms of the contract.

B. Third party. These firms come in two forms, and both are specially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.

• Temp agency: Here, the hiring company engages with a staffing agency, which in turn supplies one of its own independent contractors to deliver the contracted services. The hiring company pays the staffing agency directly in accordance with the terms of the contract. The contract is, therefore, between the hiring company and the staffing agency, while the agency pays the independent contractor through a separate contractual arrangement.
• Umbrella company: Independent contractors can also work through an umbrella company. This turns a ‘self-employed’ individual into a legal ‘employee’ of the umbrella company itself. The contractual relationship is between the umbrella company and the client, with the umbrella company running payroll and administration for the independent contractor. The umbrella company invoices the client directly while paying the contractor via PAYE as a standard employee. Umbrella companies levy a fee on the contractor to cover their costs.
• Hiring partner: The hiring company can also work with a hiring partner that helps them vet potential independent contractors, set up contracts, ensure the contractor is properly classified, onboarded, managed, and paid. 

Companies hiring independent contractors in Thailand should avoid making payments directly through their payroll system. Beyond these guidelines, there are no specific legal requirements related to paying contractors in Thailand. The contract should stipulate the preferred payment method agreed upon by both parties.

In Thailand, the tax year aligns with the calendar year (1 January to 31 December). Employers remit the employees’ income tax, social security, and public health insurance at source via the PAYE (pay-as-you-earn) system. Employees are subject to a progressive tax rate, ranging from 5% on incomes of THB 150,001–300,000 (USD 4,200–8,380) to 35% on incomes of THB 5 million (USD 140,000) and above. However, employees are still required to file their income tax return with the revenue agency and thereafter pay any remaining tax. The deadline is 31 March for the preceding year for paper forms and 8 April for online forms. Beyond the national income tax regime, there are no local or regional income taxes in Thailand. 

Independent contractors must file and pay their own income taxes. Contractors operating as a company are typically subject to the country’s Corporate Income Tax (CIT) with a rate of  20%. However, companies whose paid-in capital is THB 5 million (USD 140,000) or less pay a progressive tax rate of 15% for a net profit of THB 300,001–3 million (USD 8,380–83,800) and 20% for a net profit of more than THB 3 million. Half-year CIT returns are filed and paid within two months following the first six months of the tax year, while the final CIT return and payment are due within 150 days of the end of the tax year. Contractors will typically be subject to the standard VAT rate of 10% (although this has been reduced to 7% until September 2023) and may also pay an additional business tax depending on the nature of commercial activities.

Social security contributions are mandatory for all employees and are set at 5% of the employee’s salary, up to a maximum of THB 750 (USD 21) per month. Employers also contribute 5%. Independent contractors are not subject to mandatory social security contributions. They can, however, obtain social security cover voluntarily via the Social Security Office (SSO) (S̄ảnạkngān prakạn s̄ạngkhm or สำนักงานประกันสังคม).