Many companies budget their salaries in detail, but never budget for the day their first generation of employees retires — and are often surprised to learn that retirement requires severance pay.
Thai labour protection law states clearly that retirement is considered a termination of employment, whether the retirement follows what was agreed in the contract or the company's regulations. An employee who retires therefore receives severance pay based on length of service, just like any other employee who is terminated.
Retirement Age: The Company Can Set It, but the Law Draws a Line
A company can set its own retirement age in the employment contract or the work rules. But if it is not specified, or it is set at more than sixty years, an employee who has reached sixty years of age has the right to state their intention to retire on their own. The retirement takes effect upon the completion of thirty days from the date the employer is notified, and the employer must pay severance pay as well.
The practical consequence is that a company that has never written anything about retirement age will not know in advance when a large severance payment will arise.
How is retirement severance calculated?
Severance is calculated from the final wage rate multiplied by the number of days corresponding to years of service. The rate steps up in tiers according to length of employment, and the maximum tier is 400 days of the final wage for employees who have worked continuously for 20 years or more — the group most often relevant when retirement is discussed.
Two points that make the actual figure higher than companies expect:
- The final wage includes additional payments that count as wages, such as a position allowance or a cost-of-living allowance paid regularly — not just the base salary. See which payments count as wages
- Years of service are counted continuously from the first day, including the probation period and periods where the contract was renewed year by year.
Continuing Employment After Retirement
Many companies want to keep experienced employees on after retirement. This can be done, but it should be handled in two clearly separate steps:
- A genuine retirement, with severance paid in full for the previous period of service.
- A new employment contract stating the position, wages and term, which may be a fixed-term contract. See 1-Year Employment Contract: Must Severance Be Paid When the Contract Ends?
If the first step is skipped and the employee simply keeps working, the period of service will continue uninterrupted, and severance will fall due on the actual date of termination at the wage rate applicable on that date.
Things Not to Do
- Pressuring an employee to resign before the retirement date in order to avoid severance pay. A resignation brought about by pressure may be argued to be a termination, and may amount to unfair termination.
- Demoting or reducing wages before retirement in order to lower the final wage. A change to the conditions of employment that is less beneficial to the employee requires consent.
- Using provident fund money in place of severance pay. These two are separate rights; provident fund money does not automatically offset severance pay.
Employer Side: Be Prepared
- Set a clear retirement age in the work rules.
- Prepare a list of employees who will retire in the next few years, together with an estimate of severance pay based on wages that include additional payments.
- Set aside accounting reserves for employee benefit obligations together with the accounting team.
- Put guidelines for continued employment after retirement in writing.
Read more
- How is severance pay calculated when employment is terminated?
- Work rules: which company sizes are required to have them?
- Which payments count as wages?
📌 See more: Employment contracts, salary structures and employee handbooks · Labor cases
If your company has not yet set a retirement age, or if you would like to estimate the severance pay burden for employees approaching retirement, consult our legal team. We review the work rules and calculate the figures together with the accounting team.
This article is general information and does not constitute legal advice for any specific case.
