Retailer group tallies costs of wage rises

Economy January 27, 2018 01:00

By THE NATION

THE THAI Retailers Association (TRA) says the government’s proposed increase in the minimum wage – applied in a range that differs by area – will increase the cost burden of businesses.



The government had announced its backing for an increase in the minimum wage to Bt308 to Bt330 a day, for an average of Bt315.97. In 2017 the range had been Bt300 to Bt310, for an average of Bt305.44. 

The TRA says the average increase of 2.6 per cent will increase costs for retailers by 1.68 to 2.25 per cent.

TRA president Jariya Chirathivat said that the 2018 rate was unequal in different regions of the country, with provinces grouped in seven levels, rather than the four levels of previous years. Jariya said the 2.6 per cent average increase has had four major impacts:

l Labour shortages in the Bangkok area, as most workers have returned to their home towns.

l An increased hourly rate, with the costs of part time staff working for four hours increasing from Bt77 to Bt82.50 per hour, as the minimum wage law specifies a minimum daily rate, and that a part-time shift of just four hours is counted as a full day.

l Increased costs on top of wages, such as various employer contributions including social security, compensation funds, mutual funds, and disability funds.

l Impacts on the entire structure of the labour market, both in terms of increasing wages up the scale, which despite being more than the minimum wage, need to be likewise increased to maintain pay differentials, and increasing the wages of skilled labour in the same way.

These four impacts have meant that operators are facing unavoidably increased costs. Larger enterprises with over 500 workers under the former system had labour costs of Bt300 to Bt500, the TRA chief said.

The new regulations specify a minimum wage of Bt308 to Bt330 per day, causing operators to increase pay by Bt5 to Bt22 (from a base of Bt300) and increase wages up the ladder to give increased expenses of Bt3.39 million.

This does not include contributions to the social security fund increasing by 11.83 per cent, contributions to the compensation fund increasing by 1.87 per cent, and contributions to the disability fund of Bt58,035 per person.

In the retail sector, the former basic wage averaged at 6 to 9 per cent of sales. However, under the new specifications, retailers face a wage bill increased by an average of 2 per cent, together with increased contributions to social security and the compensation fund of 10 per cent and 1.83 per cent respectively, totalling 11.83 per cent, Jariya said.

This has increased wages to a new basis of 7.09 per cent to 10.64 per cent of sales, or an increase of approximately 1.68 per cent to 2.25 per cent of sales. That means operators must increase sales by a minimum of 8.61 per cent to 13.33 per cent, to have the profits to pay the increased minimum wage.However, the impact on various businesses may differ according to the fundamentals of each company. Large retailers who are able to pay in excess of the minimum wage may not be impacted in the initial phase, but SMEs will be the group most impacted by the minimum wage increase, as it will affect their business viability from increased operating costs, and particular from lacking liquidity, on which companies may see an increased annual impact of 18 percent reduction in liquid cash.Proposals from TRA for the government’s consideration:

 

1. This minimum wage increase will have a direct impact on SME businesses in the trade and services sector which are labor-intensive, such as retail and wholesale, construction and restaurants, where pay is mostly benchmarked to the minimum wage. The government should issue short-term measures to help the liquidity of these businesses.

 

2. Retail and wholesale sectors are more greatly impacted than other sectors in terms of limited alternatives to replace labor with technology and machinery. If the government measures can assist operators by allowing them use their entire labor costs to reduce taxes and additional 1.5 times, this may alleviate some of the cost burdens on operators from the increased minimum wage.

3. There should be a Ministerial Regulation to announce a legal minimum hourly rate, to increase employment of the elderly and part-time staff

 

4. Promotion of employment in a sustainable bilateral system with cooperative education.

 

5. Secure low-interest domestic financing for SMEs