January 2024
Elizabeth Pai and Sean Tang
In the era of globalization, the investment and development of foreign businesses in Taiwan have become the norm. What comes along is the need to satisfy labor demands in Taiwan in a compliant manner. Based on our experience, we hereby provide some points to note for foreign investors when they employ employees in Taiwan.
1. The employer shall enroll employees in all kinds of social insurance from the commencement date of their employment, and shall also make contributions/payments to the pension fund/account in accordance with law:
From the day of employment, the employer is required by law to enroll the employee in the Labor Insurance program, National Health Insurance program, Employment Insurance program, and Occupational Accident Insurance program. Depending on whether the employee is subject to the pension scheme under the Labor Standards Act (“LSA”)(“Old Pension Scheme”) or that under the Labor Pension Act (“New Pension Scheme”), the employer shall contribute pension to the company’s pension reserve account or to the employee’s dedicated personal retirement account. The employer will be subject to an administrative fine and may have to compensate employees for all losses incurred by them if the above requirements are violated by the employer.
2. Employees have the right to take leave; and depending on the type of leave, the employer may be required by law to provide paid leave:
Employees have the right to take leave in accordance with law. For example, employees are entitled to 8 days of paid marriage leave, unpaid personal leave not exceeding 14 days in total in one year; non-hospitalized sick leave not exceeding 30 days in total in one year, and hospitalized sick leave not exceeding one year in total in two years, in which case half wages shall be paid for leave not exceeding 30 days in one year. For paid annual leave based on years in service of the employees, corresponding wages for the annual leave days not yet taken by the employees at the end of the year (of annual leave) or upon termination of the employment agreement shall be paid by the employer.
Employers must manage “matters relevant to an employee’s leaves taken” regularly for the purpose of (i) calculating “the amount of wages that the employer is legally/contractually obliged to pay the employee concerned” and (ii) knowing whether the employee concerned is absent from work without due cause. Therefore, in addition to informing the employees of “the type and duration of leave the employer has approved and the employer’s reasons for not approving the leaves requested by the employees”, the employer should also maintain such records to avoid disputes.
3. The wages paid by the employer to employees shall not be less than the government-mandated minimum; and whether the payment made by the employer is a wage shall be determined based on the substance of the payment:
In order to protect the basic livelihood of employees and maintain their purchasing power, a minimum wage standard has been set in Taiwan. Employers should pay regular attention to the latest minimum wage announced by the Ministry of Labor.
Under the LSA, “wage” refers to the remuneration which an employee receives for his/her services rendered, including wages, salaries and bonuses, allowances and any other regular payments regardless of the name which may be computed on an hourly, daily, monthly and piecework basis, whether payable in cash or in kind. Whether a specific amount of payment made by the employer to the employee is “wage” under the law shall be determined based on the substance of the payment.
The “amount of wages” affects the basis for calculating a variety of payments that employers are legally obligated to make, such as overtime pay, pensions, severance pay, labor insurance premiums, contributions to the New Pension Scheme, and wages for annual leave not taken.
4. Employers should pay attention to the limitation of working hours and overtime hours
For employees, regular daily working hours should not exceed 8 hours, and regular weekly working hours should not exceed 40 hours. Daily working hours of employees, including overtime, should not exceed 12 hours unless due to force majeure, emergencies, or unforeseen circumstances. The total monthly overtime hours of employees should not exceed 46 hours unless the employer obtains the consent of the labor union or employee-management conference.
Employers are required under the Taiwan law to record employees’ attendance to the minute. The Taiwan law specifically provides that disputes between the employer and the employee about working hours and overtime shall be resolved based on the employee’s work time shown in attendance records. Employees are presumed to carry out their job duty with the approval of the employer within the time.
5. When an employee works overtime, the employer shall calculate the overtime pay in accordance with law:
After working overtime, employees have the right to request overtime pay from the employer pursuant to law. Even if the employer offers the arrangement of “compensatory time off in place of overtime pay,” employees have the right to choose between “receiving overtime pay or taking compensatory time off.”
Employers are required by law to calculate overtime pay for employees according to standards such as “at least one and a third times the regular hourly wage,” “at least one and two-thirds times the regular hourly wage,” “double the regular hourly wage,” “regular hourly wage plus one and a third times the regular hourly wage,” and “regular hourly wage plus one and two-thirds times the regular hourly wage.”
6. An employer may unilaterally terminate an employment agreement only if there are legal grounds for doing so:
(1) An employer may unilaterally terminate an employment agreement only if there are legal grounds to do so. These legal grounds can be further divided into two categories: grounds for “layoff” and that for “disciplinary dismissals.”
(2) The legal grounds for an employer to lay off an employee include:
A. A closure or transfer of business.
B. Losses or business contraction.
C. Work suspension due to force majeure for one month or more.
D. Change in the nature of the business, necessitating a reduction in workforce with no suitable alternative placement for employees.
E. Incompetence of the employee for the assigned job.
According to judicial practice in Taiwan, when employers seek to lay off employees for the above-mentioned reasons, they must also adhere to the “ultima ratio grundsatz,” meaning that employers can only lay off employees when, despite various efforts, it is still difficult to continue employing the employees. In addition, before laying off, employers must provide advance notice to the employees based on their years in service (or pay wages in lieu of notice).
(3) Legal grounds for an employer’s disciplinary dismissal of employees include:
A. False representation by the employee upon the execution of the employment agreement, to the extent that the employer is misled and is likely to suffer damage.
B. Assault or significant insult by the employee towards the employer, employer’s family members, employer’s agents, or co-workers.
C. An employee who has been sentenced to a term of imprisonment and has not been advised of probation or has not been permitted to pay a fine in place of imprisonment.
D. Violation of the employment agreement or work rules in material aspects.
E. Deliberate damage to machinery, tools, raw materials, products, or other property owned by the employer, or intentional disclosure of the employer’s technical or business secrets to the extent of causing damage to the employer.
F. Unjustified absence from work for three consecutive days or six days within a month.
It is important to note that if an employer intends to terminate the employment of an employee based on grounds specified in Subparagraphs A, B, and D to F above, the employer must do so within 30 days from the day the employer becomes aware of such circumstances. Furthermore, for terminations on these grounds, the employer is not required to provide advance notice to the employee or pay severance pay.
7. Upon termination of the employment relationship, the employer is legally obliged to pay severance pay to employees under certain circumstances:
An employer should provide severance pay to the employee in the following circumstances:
(1) The employer lays off the employee.
(2) The employee terminates the employment agreement pursuant to law for reasons attributable to the employer, including:
A. The employer makes a false representation upon the execution of the employment agreement, to the extent that the employee is misled and is likely to suffer damage.
B. Assault or significant insult is engaged by the employer, employer’s family members, or employer’s agents towards the employee.
C. The job specified in the contract poses a health hazard to the employee, and notification requesting improvements to the employer proves ineffective.
D. The employer, employer’s agents, or co-workers suffer from a notifiable infectious disease, posing a risk of transmission to the employee and potentially causing significant harm to his/her health.
E. The employer fails to pay wages pursuant to the employment agreement or to provide sufficient work for piece-rate employees.
F. The employer violates the employment agreement or labor laws or regulations, to the extent that the employee’s rights and interests are likely to be undermined.
The calculation standards for severance pay vary depending on the employee’s service period (years in service) under either the Old Pension Scheme or New Pension Scheme. For the employee’s service period under the Old Pension Scheme, the severance pay is calculated based on one month’s average wages for each full year of service, the portion short of one year (remaining months) is calculated on a prorated basis, and the portion short of one month is calculated as one month. For the employee’s service years under the New Pension Schem, severance pay is calculated by half a month of average wage for each full year of service and the portion short of one year is calculated on a prorated basis to the extent that the severance pay is capped at six months’ average wage.
8. The employer must meet statutory requirements for the effectiveness of “minimum service period clause”:
In practice, some employers would opt to include an clause in employment agreement where “the employee commits to provide services for a specified period and is liable to the employer for compensation if the employee leaves before the agreed time.” Such clause will be effective only if the conditions set forth under the LSA are met.
9. The employer must meet statutory requirements for the effectiveness of “post-employment non-compete clause”:
Given that a “post-employment non-compete clause” affects the employee’s right to work, the LSA explicitly provides that such clauses must meet all of the following conditions to be effective:
(1) The employer has a legitimate business interest worthy of protection.
(2) The position or duties held by the employee allow access or use of the employer’s trade secrets.
(3) The duration, area, scope of professional activities, and employment targets of the non-compete clause are reasonable. (Note: The non-compete period should not exceed two years).
(4) The employer provides reasonable compensation to the employee for the losses suffered as a result of not engaging in competitive activities.
10. Employers who wish to hire foreign nationals to work in Taiwan may be required to obtain relevant approval in advance:
Depending on whether the foreigner’s employment in Taiwan is “white-collar” (e.g., managerial or professional roles) or “blue-collar” (e.g., manufacturing employees), recruitment requirements and procedures differ.
For the employment of white-collar employees, the employer must first sign an employment agreement with the foreign national. Subsequently, the employer generally applies to the competent authority for a work permit for the foreign national, who then works in Taiwan according to the content specified in the permit. However, foreign nationals who meet certain conditions may apply for a work permit from the competent authorities on their own, without having to be applied for by a specific employer (e.g. those who have obtained permanent residency). In addition, qualified foreign nationals can apply for the Taiwan Employment Gold Card (integrating “work permit,” “residence visa,” “alien residence certificate,” and “re-entry permit”) on their own, and those who have obtained the Taiwan Employment Gold Card may freely seek job, work , and change employment in Taiwan within the validity period of the card.
For the recruitment of blue-collar employees, the entire process is generally divided into “recruitment” and “employment.” Due to the complexity of the relevant procedures, employers often delegate the process to manpower intermediaries in practice.
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