Companies often turn to international hiring to enter new markets and achieve their growth goals. Independent contractors can be a helpful resource to carry out short- and long-term projects. If you’re considering hiring independent contractors in Thailand, you should understand the details of this classification other important responsibilities.
Hiring independent contractors in Thailand
While independent contractors can be a valuable asset, it’s vital to understand this worker type to avoid misclassification risks.
Independent contractors vs. employees
The government in Thailand considers 2 defining factors when differentiating independent contractors from employees:
- Pay schedule: In an employee-employer relationship, payments are hourly, daily, weekly, monthly, or on another recurring schedule, regardless of whether the employee has completed the work. Independent contractors receive lump sums upon the completion of a project or milestone. While this element can contribute to the worker classification, it is not a defining factor on its own.
- Supervision: The ability to supervise working hours, performance, and other tasks related to the job are indicative of an employee-employer relationship. Contractors should have independence and flexibility to complete tasks according to their schedules and preferred approach.
Courts generally treat classification issues on a case-by-case basis to determine whether a worker is a contractor or employee. The above factors carry the most weight, but they may not be the only characteristics examined in court.
Penalties for misclassification
Classifying an employee as an independent contractor leads to penalties for employers. If an independent contractor files a complaint with the Ministry of Labor, companies may face fines and back payments on social security contributions with surcharges.
In addition to these penalties, companies may be required to formally incorporate in the country if they’ve been acting as a nonnational entity.
How to hire independent contractors in Thailand
Hiring independent contractors should include these 3 essential steps.
1. Carefully conduct interviews.
When advertising your need for a contractor, make sure to clarify this designation in the job postings. During the interview process, you’ll want to approach questions carefully. Focus on the skills and experience needed to complete the project rather than personality traits. Contractor interviews are more similar to business transactions.
2. Create a service agreement.
Instead of creating an employment contract, companies should draft a service or consulting agreement. This document clarifies the terms of the contractor relationship. These agreements should include information such as:
- Pay rates and arrangements
- Description of the project and due date
- Termination conditions
3. Introduce necessities.
While contractors work independently, they may need to interact with some key team members or get familiarized with certain workflows. Briefly introduce these necessities, so they can complete the project with ease.
How to pay independent contractors in Thailand
Remuneration plays a role in a court’s determination of worker classification. It’s best practice to provide a lump sum for a project upon completion to make the independent contractor designation clear.
Thai Civil and Commercial Code governs independent contractor relationships. Employers are not required to withhold income taxes or social security contributions from these lump sum payments.
Terminating independent contractors
Independent contractors do not have termination protections like employees. The service agreement should outline any termination procedures, such as notice periods. Termination terms may also include payment requirements should the contract end before the project is complete.
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