Publications

Introduction

In September 2006, the unemployment rate in Taiwan reached its lowest level since 2001, with estimated unemployment at only 3.83%.  The rate was over 5% only two years ago.  The integration of Taiwan into Chinas economy has been a key HR trend in recent years.  As economic exchange across the straits became more routine, laborers in Taiwan began to lose their jobs to cheaper labor in China.  This brought about a concentrated government campaign to attract highly skilled labor to new industries targeted to be Taiwans future competitive stronghold.  Important changes have resulted that will have a lasting impact on HR issues in Taiwan. 

Labor Law Updates 

One important recent development in Taiwanese labor law is the implementation of the Labor Pension Act (LPA), which began in July 2005.  In the past, retirement plans were administered by employers and were not portable when workers switched jobs.  Employers managed funds and were obligated to make lump-sum payments upon employee retirement.   The new LPA plan will begin with a five year trial period, during which employees can choose whether or not to participate.   The LPA gives employees the flexibility to establish individual retirement accounts, which are portable.  Multiple employers may contribute to these accounts over time.  HR managers should be aware that the act requires a contribution from the employer in the amount of 6% of total salary.  It also allows, but does not require, contributions by the employee.  The advantage of this system to employers is that it is a fixed-contribution system rather than a fixed-benefit system.  The new regulations are applicable to Taiwanese working for both local companies and FIEs in Taiwan, but do not apply to expats.

Passage of the LPA has also lead to advantageous changes for employers in the calculation of severance pay. Under the old provisions, severance pay in the amount of one months salary per year of service was required. This requirement has now been cut in half, partly to make up for the increased employer contribution to pension plans.  Time worked before the switch to the new system must still be paid for according to the old provisions.

Labor and Employment Insurance Acts 

The Taiwanese Labor Insurance Act guarantees retirement, disability, death, and unemployment benefits to Taiwanese workers.  The insurance is funded by a combination of contributions from employees, employers, and the government.  The Labor Insurance Act has been on the books since 1958, but recent changes will affect the way that employers handle these benefits.  In the past, retired employees typically received lump-sum payments for retirement benefits.  2004 regulation updates require annuity payments instead.  Legislation is also expected to extend labor insurance to companies regardless of staff size.  Currently, only companies with five or more staff members are required to participate.  Foreign employees are also covered under the Labor Insurance Act.

The Employment Insurance Act was passed in early 2003.  It includes a new unemployment provision, providing unemployed workers with 60% of their previous monthly salary.  Other programs under the Labor Insurance Act were trimmed in order to implement this unemployment program.  There is no additional employer contribution. The Taiwanese government, however, plans to increase the 60% unemployment coverage rate to 70%.  This may increase future contribution schedules for both employers and employees.

Personal Income Tax

Foreigners who work in Taiwan for less than 183 days pay a flat 20% income tax on all earnings.  All other Taiwanese and foreign residents must pay personal income tax according to the following schedule:

Personal Income Tax Rates in Taiwan

In addition, overtime pay of up to 46 hours per month is not taxable.  Employees do not have to pay income tax on fringe benefits that are detailed in their employment agreement, including reimbursed housing and transportation expenses.  Home leave allowances for foreign employees are also non-taxable.

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