Early Retirement

Author: Mr. Worasete Phueksakon

Legal Consultant

The term “Early Retirement” is widely used in the workplace as it is one of the most common methods by which many employers terminate their employees’ employment contracts. Early retirement offers employers a means by which they can propose to certain employees to retire earlier than the company’s work regulations stipulate. Early retirement programs are often utilized to meet employers’ needs, such as cutting labor expenses or the reorganization of a business to ensure its long-term feasibility.

In many cases, employees who have worked for a long time may be tired of their job but will remain in their position until official retirement age because they need severance pay or other benefits before, they are willing to leave. The “Early Retirement” option offers a mutually beneficial solution for both employers and employees as it provides benefits for both parties given that staff will gain a monetary benefit and the employer will be able to cut costs and/or restructure operations.

The wording “Early Retirement” is not mentioned in any Thai labor laws, however, it is a widely used measure created by employers which refers to employees agreeing to retire before official retirement age subject to them receiving a special payout from their employer. According to most employers’ work rules/ regulations, retirement is often set between the ages of 55 to 60 years of age, however, instead of waiting for employees to reach such an age, an employer may decide that it is in their best interest to offer an employee early retirement.

In relation to calculating the special payout for employees who take up early retirement, an employer will usually determine this amount based on the following factors:
1. The benefits that the employees would ordinarily be entitled to receive had their employment contract been terminated by the employer without any fault on their part (i.e. according to the amount of severance pay they would be entitled to under the Labor Protection Act);
2. Accrued employee benefits. For instance, any benefits that the staff member would ordinarily be entitled to receive according to their period of work, i.e. a bonus based on the amount of time they have performed their work.
3. Additional benefits to persuade the staff to accept early retirement, in some cases the employer may provide the employee with benefits such as long-term health insurance or gold jewelry. However, this type of additional benefit is at the discretion of the employer and will depend on how much persuasion is required to convince the employee to accept the package.

It is worth noting that to encourage employees to agree to early retirement, the benefits which employees receive as part of an early retirement package are normally higher than the benefits which employees are entitled to receive should they retire upon attaining official retirement age.

If an employer officially announces an early retirement package to all of their employees, it does not mean that all employees will be eligible to participate; rather if an employee applies for early retirement it shall be determined by the employer according to their stipulated conditions. In many cases, employers often specify various conditions which must be met before an employee can apply, such as age requirements or staff having a particular job description etc. Furthermore, it should be noted that employers have the right to make the final decision on whether they will enable an employee to take up early retirement.

Employers should note that early retirement programs are particularly appealing to staff who wish to quit their work as such a program will enable them to achieve this outcome and also gain considerable monetary benefits. Therefore, if an employer chooses to implement an early retirement program it would be prudent to screen staff who wish to apply to ensure that those who have shown an intention to resign are not included as this could potentially save the employer considerably if the employee resigns without using early retirement as they won’t need to pay them any special payment(s).

The key conditions for employee(s) who wish to take up early retirement are as follows:
1. The employee(s) must be selected by their employers to take up early retirement,
2. The selected employee(s) must willfully resign from their employment (this should be done in a formally signed document); and
3. The parties must receive their benefits/ special payments according to what is agreed between them.

The reason why employers often prefer to use early retirement when removing staff as opposed to terminating them is that if they terminate a staff member without cause then they may be persecuted by the employee for unfair termination. Such a prosecution could be highly problematic and risky to the employer as section 49 of Labour Court Procedure Act provides that if the court finds that a dismissal is unfair to an employee it may award the affected staff member damages or order that they return to work.

It is worth noting that if an employee takes up early retirement and resigns from their employment, they will lose many rights including:
1. Personal Income Tax Exemption re Severance Payments – An employees’ severance payment will not be subject to personal income tax if the employee is terminated from their employment. This personal income tax exemption applies specifically to severance payout monies which do not exceed 300,000 Baht); and
2. Unemployment benefits from the Social Security Fund – Employees who are terminated are eligible to receive unemployment benefits from the Social Security Fund during their unemployment for not more than 180 days per year; these benefits are calculated at the rate of 50% of their wage but cannot exceed 15,000 Baht per month.

With regard to employees who take up early retirement by willfully resigning, they are eligible to receive unemployment benefits from the Social Security Fund during their unemployment for a period of not more than 90 days per year; these benefits are calculated at the rate of 30% of their wage but cannot exceed 15,000 Baht per month. Such benefit payments are provided on condition that if an eligible employee submits an application to receive unemployment benefits during their unemployment on more than one occasion within one calendar year, then such periods where payments are made will count towards the period for receiving such benefits and such time must not exceed 180 days. These benefit payments from the Social Security Fund are paid by means of transfer to the bank account stipulated by the employee.

As pointed out above, employees who decide to participate in an early retirement program rather than be terminated will miss out on several benefits offered by the Government such as the income tax exemption on severance pay or the money for unemployment. Therefore, some employees may request that their employer terminate them instead so that they can use their termination letter to access the abovementioned benefits. However, I would advise that employers not acquiesce to such requests given that termination of staff may lead to an employee suing them for unfair termination and claiming for damages or reinstatement at work.

The judgment in case number 4635/2541 provides some guidance on the law relating to early retirement as in this case the plaintiff (an employee) signed a letter evidencing the fact that they had received a special payment from the defendant (an employer) in consideration for their resignation. With regard to this letter, it contained a provision that stipulated that the plaintiff willfully waived his right to claim all monies, properties or other compensation as provided by law. The judgment held that the plaintiff did not have the right to receive additional compensation as the plaintiff had signed the letter of resignation which contained provisions that waived such right.

If an employee agrees to participate in an early retirement program and subsequently signs a resignation letter but then changes their mind and asks their employer to instead terminate their employment so that they can claim greater benefits under the law such as the personal income tax exemption for severance payments, then employers should be extremely careful because if they agree then such actions shall constitute a breach of the Thai Criminal Code by both parties. Such an act would breach the following sections of the Code:
Section 137 – This stipulates that whoever, provides false information to any official that is likely to cause injury to any person or the public, shall be punished with imprisonment not exceeding six months or fined an amount not exceeding one thousand Baht, or both.

Section 86 – This section provides that whoever, regardless of the reason, assists or facilitates any other person to commit an offence, either before or after the commission of the offence (even if such assistance or facilitation is not known by the offender), such person shall be deemed to be an accessory in the commission of such offence and shall be punished by two-thirds of the punishment as provided for such offence.

Therefore, given the laws mentioned above, both employers and employees should not amend a staff members’ early retirement to instead be a termination after the letter of resignation has been signed as it could lead to the imposition of significant criminal sanctions.

In summation, I would advise that there are some factors which need to be considered by both employers and employees before an early retirement package is offered or accepted. Indeed, staff should be particularly mindful of the benefits they will be waiving by accepting early retirement rather than being terminated by their employer; whilst employers should be careful of the wording in the resignation letter to be signed by the eligible staff to ensure that the letter states that the employee is willfully resigning and that they agree to waive all rights to seek additional compensation form their employer.