Accounting for the employee benefits obligation
The amended Labour Protection Act, which became effective on 1 September 2017, states that employers may set the retirement age for employees, or an employer and employee may make an agreement on the retirement age, or employee representatives may make a collective agreement on the retirement age. Retirement at the set age will be considered termination of employment.
Keywords: Mazars, Thailand, Accounting, Labour Protection Act, Retirement, Employee Benefits, Obligation, TFRS
18 October 2017
If there is no agreement on the retirement age, or if the retirement age has been set at more than 60 years old, an employee who is 60 or over may notify the employer of his intention to retire 30 days in advance. Retiring employees are entitled to severance pay at the same rate as for termination.
This amendment of the Labour Protection Act indicates that a company has a present legal, constructive obligation to provide employee benefits, and it is probable that an outflow of economic benefits will be required to settle the obligation.
As a result, where there is an employee benefits obligation, an entity must recognize this obligation in the financial statements as at the end of the reporting period, using the ‘best estimate’ method to determine the provision required to settle the obligation.
Employee Benefit Obligation
Is an Entity Required to Provide for an Employee Benefit Obligation? Yes. TFRS for NPAEs requires an entity to recognise its obligation for employee benefits, using the “best estimate method” of calculating the provision required to settle the present obligation as at the end of the reporting period.