How is Payroll Calculated in the Taiwan?
In Taiwan, payroll, deductions, and salary structures are regulated by the Labor Standards Act (LSA). Employers are required to comply with these rules, which outline important aspects such as minimum wage, deductions, and employee entitlements.
What is the Labor Standards Act?
The Labor Standards Act (LSA) is Taiwan's primary labor law, governing payroll, working conditions, and employee rights. The LSA applies to most employees, including full-time, part-time, and contract workers. However, certain groups, such as civil servants and employees in government bodies, are exempt from the LSA’s provisions.
The LSA ensures that employees are paid fairly and receive benefits such as overtime pay, paid leave, and other entitlements. Employers are required to comply with the LSA to avoid penalties for non-compliance.
Salary and Payments
Under the LSA, employers in Taiwan must pay employees monthly. Payments are typically made within 10 days after the end of the salary period. Salaries in Taiwan may include base pay, allowances, bonuses, and other forms of compensation.- Monthly salaries are calculated based on the employee’s contractual working hours.
- Daily wages are used for part-time employees or those working on short-term contracts.
Monthly and daily salary: definitions and calculation
In Taiwan, employers may choose to pay their employees either on a daily or monthly basis. When calculating daily wages, you will use either the gross rate, which covers items such as paid public holidays, leave, salary in lieu, and salary deductions, or the basic rate, which is used for work done on rest days or public holidays.
Monthly wages
For monthly wages, a “month” refers to any calendar month in the year. If an employee does not work the full month, the salary is adjusted accordingly. The formula to calculate pay for an incomplete month of work is:
How an incomplete month pay is calculated:
Salary for an incomplete month of work is calculated as follows:
Monthly gross rate of pay
Total number of working days in the month
x
Number of days actually worked
If you take no-pay leave
If your full-time monthly-rated employees take unpaid leave during the month, it will count as an incomplete month. In this case, you’ll need to prorate their salary based on the number of days they actually worked during that month.
Definitions
When the number of hours worked in the day is 4 hours or less
When the number of hours worked in the day is more than 4 hours
Where an employee:- Starts work after the first day of the month.
- Leaves employment before the last day of the month.
- Takes no-pay leave of one or more days during the month.
- Is on reservist training during the month.
Monthly gross rate of pay
Total amount of money including allowances, payable for one month's work. This excludes:
- Additional payments (overtime, bonus, AWS).
- Reimbursement of special expenses incurred during the course of employment.
- Productivity incentive payments.
- Travel, food and housing allowances.
Total no. of working days in the month
Excludes rest days and non-working days, but includes public holidays. For employees with fixed rest days on Sundays or non-working days on Saturdays, the total number of working days per month varies, but typically consists of around 21 working days.
Total no. of days actually worked in the month
This includes public holidays, paid hospitalization leave, and annual leave, if applicable.
When the number of hours worked in the day is 4 hours or less
When the number of hours worked in the day is more than 4 hours
Where an employee:
- Starts work after the first day of the month
- Leaves employment before the last day of the month
- Takes no-pay leave of one or more days during the month
- Is on reservist training during the month
Monthly gross rate of pay
Total amount of money including allowances, payable for one month's work. This excludes:
- Additional payments (overtime, bonus, AWS)
- Reimbursement of special expenses incurred during the course of employment
- Productivity incentive payments.
- Travel, food and housing allowances
Total no. of working days in the month
Excludes rest days and non-working days, but includes public holidays. For employees with fixed rest days on Sundays or non-working days on Saturdays, the total number of working days per month varies, but typically consists of around 21 working days.
Total no. of days actually worked in the month
This includes public holidays, paid hospitalization leave, and annual leave, if applicable.
Basic rate of pay
For calculating pay for work on a rest day or public holiday.
Basic rate of pay includes wage adjustments and increments that an employee is entitled to under a contract of service.
Basic rate of pay excludes:
- Overtime payments, bonus payments and annual wage supplements (AWS).
- Reimbursement of special expenses incurred in the course of employment.
- Productivity incentive payments.
- Any allowance.
For calculating pay for work on a rest day or public holiday.
Basic rate of pay includes wage adjustments and increments that an employee is entitled to under a contract of service.
Basic rate of pay excludes:
- Overtime payments, bonus payments and annual wage supplements (AWS)
- Reimbursement of special expenses incurred in the course of employment
- Productivity incentive payments
- Any allowance
How it is calculated
For a monthly-rated employee, the basic rate of pay for 1 day is calculated as follows:
12 × Monthly basic rate of pay
52 × Average number of days worked per week
Gross rate of pay
For calculating:
- Salary in lieu of notice of termination of service.
- Salary in lieu of annual leave.
- Salary deduction for unauthorised absence from work.
- Paid public holidays.
- Approved paid leave, including annual leave, hospitalisation leave and maternity leave.
Gross rate of pay includes allowances that an employee is entitled to under a contract of service
Basic rate of pay excludes:
- Overtime payments, bonus payments and annual wage supplements (AWS).
- Reimbursement of special expenses incurred in the course of employment.
- Productivity incentive payments.
- Any allowance.
For calculating:
- Salary in lieu of notice of termination of service
- Salary in lieu of annual leave
- Salary deduction for unauthorised absence from work
- Paid public holidays
- Approved paid leave, including annual leave, hospitalisation leave and maternity leave
Gross rate of pay includes allowances that an employee is entitled to under a contract of service
Gross rate of pay excludes:
- Overtime payments, bonus payments and annual wage supplements (AWS)
- Reimbursement of special expenses incurred in the course of employment
- Productivity incentive payments
- Travel, food and housing allowances
How it is calculated
For a monthly-rated employee, the gross rate of pay for 1 day is calculated as follows:
12 × Monthly basic rate of pay
52 × Average number of days worked per week
Hours of work, overtime and rest day
In Taiwan, working hours and rest days are regulated under the Labor Standards Act (LSA), which sets the rules for working conditions, overtime, and rest days.
Who is covered
These guidelines apply to full-time, part-time, and temporary employees covered under the LSA. It’s important to note that certain senior managerial and professional roles may be exempt from these provisions. Specific terms should be clearly outlined in employment contracts.
Definitions
Week: A continuous 7-day period from Monday to Sunday.
Hours of Work: The time during which employees are required to perform job duties. Break times and meal intervals are not included in these hours.
Break Times: Employees should not work more than 6 consecutive hours without a break. For shifts up to 8 hours, employees are entitled to a 30-minute break.
Normal hours of work
In Taiwan, standard working hours are 8 hours per day and 40 hours per week. However, flexibility may exist in contracts depending on the nature of the business.
Your contractual hours of work are
Up to 9 hours per day or 44 hours a week
Up to 8 hours a day or 44 hours a week
For other work arrangements, contractual hours of work are defined based on agreements between employers and employees.
Overtime pay
In Taiwan, overtime work is governed by strict regulations. Overtime must be compensated, and employers are required to adhere to the following rules:- Overtime pay is 1.33 times the hourly wage for the first 2 hours of overtime and 1.66 times the hourly wage for any additional overtime.
- Overtime cannot exceed 46 hours per month unless special conditions are met.
Overtime pay is calculated as follows:
Hourly basic rate of pay × 1.33 × Number of overtime hours worked
For example, if an employee earning NT$30,000 per month works 2 hours of overtime, the calculation for overtime pay would be: Overtime pay = 30,000 ÷ 240 (monthly hours) × 1.33 × 2 = NT$332.5 × 2 = NT$665
Maximum hours of work
As per the LSA, employees cannot work more than 12 hours per day, including overtime. In case of emergencies or special circumstances (e.g., accidents or urgent work), employers can apply for exemptions, but these are subject to government approval.
Rest day
In Taiwan, employers must provide at least one rest day per week. This rest day must consist of 24 consecutive hours, typically from midnight to midnight. For shift workers, a continuous period of 30 hours is required as rest.
Rest Day Pay Calculation
If employees are required to work on a rest day, the employer must compensate them as follows:- Up to 4 hours of work: Employees receive half-day’s salary
- More than 4 hours but less than 8 hours: Employees receive a full day’s salary
- More than 8 hours: Employees receive 2 days’ salary + overtime pay
Work on Public Holidays
If employees are required to work on public holidays, they are entitled to overtime compensation or a substitute day off. Public holiday work is compensated at 2 times the normal hourly wage.
Work on Rest Day/Public Holiday Pay Calculation
Rest day or public holiday pay = Hourly basic rate × 1.33 × Hours worked
Exemptions
Employers may apply for an exemption if they require employees to work more than 46 overtime hours in a month. This process involves submitting a request to Taiwan's labor authorities, and approval is based on the business's needs and justification.
Does payroll tax apply?
Yes, Taiwan has a system of individual income tax. Employers are required to withhold income tax from employees' monthly wages and remit the taxes to the National Taxation Bureau. The tax rate depends on the employee’s total income for the year.
What are common salary deductions?
In Taiwan, common salary deductions include:- Labor Insurance Premiums: Employers deduct a percentage of the employee’s salary to contribute to the labor insurance program
- Health Insurance Premiums: A portion of the salary is also deducted for the National Health Insurance (NHI)
- Pension Contributions: Employers must contribute to the Labor Pension Fund for employees, and a small portion is also deducted from employees' salaries
Employers must ensure that all deductions are made in compliance with the Labor Standards Act, and that no more than 30% of an employee’s monthly salary is deducted without prior consent. Public holidays and payroll
Employees in Taiwan are entitled to national public holidays as paid days off. If an employee is required to work on a public holiday, the employer must provide compensation in the form of either overtime pay or a substitute day off.