It was reported that Thailand’s Ministry of Labour has confirmed that it will raise the minimum wage for 2024, with a high likelihood that the hike will be announced in December 2023.
The new minimum wage is expected to be set at above the rate of inflation, but is unlikely to be raised to 400 baht (US$11.12) per day as originally proposed, due to fears of the adverse effect on small and medium-sized enterprises (SMEs).
Thailand last raised its minimum wage in October 2022. The current daily minimum wage ranges from 328 baht (US$9.12) in the provinces of Narathiwat, Yala, and Pattani to 354 baht (US$9.84) in the provinces of Phuket, Rayong, and Chonburi.
Raising the daily minimum wage to 600 baht by 2027 is a core tenet of the ruling Pheu Thai party’s campaign promise, which recently formed a coalition government following the general election in May 2023.
However, the government has since indicated the minimum wage may not reach 600 baht by 2027 but will be “close to that rate” as it implements hikes every year.
How much will the minimum wage be raised?
Previously, the Thai government had said it would increase the maximum minimum wage to 400 baht for 2024. However, it has since walked back this promise amid concerns that the proposed rate hike of almost 20% would substantially increase costs for businesses and lead to the exodus of production to neighbouring lower-cost countries in ASEAN.
The National News Bureau of Thailand reports that calculations from the Federation of Thai Industries and the Chamber of Commerce show that if the minimum wage is set at 400 Baht, SMEs may have to gradually shut down more than 50% of operations, with some possibly relocating their production bases to neighboring countries.
Thailand already has one of the highest minimum wages in ASEAN. The previous minimum wage hike in 2022 was only a 5.02% increase.
Minister of Labour Phipat Ratchakitprakarn has instead stated that the wage increase would be determined by skill and increased according to the inflation rate.
He also said that the wage increases will vary by province as they are determined “according to the economic structure” of each region.
The Ministry of Labor conducts an annual survey to determine which provinces request a minimum wage increase and how much the increase should be.
However, the ministry does not set the rates itself; rather, they are determined by a tripartite committee, known as the “Wage Committee”, consisting of employers, employees, and government representatives.
This committee will determine the local minimum wage based on a variety of factors, including the cost-of-living index, annual inflation rate, price of goods and services, production costs, labour productivity growth rate, business capabilities, and other macro and microeconomic and social conditions.
Thailand’s inflation rate was 0.3% in September 2023, dropping from 0.88% in August, with an annual average of 2.8%. Core inflation reached 0.63% in September.
Considerations for companies operating in Thailand
The decision of the government not to raise the minimum wage to 400 baht will come as welcome news for companies operating in Thailand, in particular those employing large numbers of low-wage workers.
Nonetheless, companies should prepare for a substantial wage hike at the beginning of next year, as the government has vowed to improve living conditions for Thai workers, and has committed to raising wages at a rate above inflation.
Companies are advised to monitor developments from the Ministry of Labour, and stay informed on the actual minimum wage rates that will be implemented in the different provinces in which they have operations.
It is also important to begin evaluating the potential impact of a wage increase on the business, taking into consideration both the direct increases to labor costs and potential increases in operational expenses.
Other strategies to prepare may include changing hiring and labour practices to accommodate the increase in labour costs and looking for opportunities to optimize operational costs in other areas to balance the budget.
It may also be beneficial to invest in the development of the existing workforce’s skills and capabilities in order to improve productivity and maintain good relations with workers.
It is also important to note that the government’s commitment to raising wages is a long-term one, and the minimum wage will continue to increase on a yearly basis until at least 2027.
Companies should therefore adopt a proactive long-term approach, and strategic approach to manage these changes effectively and ensure continued business success in Thailand. (Source – Asean Briefing)