Understanding Taiwan’s severance pay regulations is essential for foreign employers managing teams in Taiwan. This guide breaks down the key requirements under two governing laws: the Labor Standard Act and the Labor Pension Act.
Advance Notice Requirements (Labor Standard Act, Article 16)
Before terminating an employment contract, employers must provide advance notice based on the employee’s length of service:
| Years of Service | Required Notice |
|---|---|
| 3 months – 1 year | 10 days |
| 1 – 3 years | 20 days |
| 3+ years | 30 days |
Important: If an employer terminates a contract without serving advance notice within these time limits, they must pay the worker wages for the advance notice period instead.
Employees with less than 3 months of service have no statutory notice requirement, but check your employment contracts for any agreed terms.
Severance Pay Calculation (Labor Pension Act, Article 12)
For employees under the Labor Pension Act (post-July 2005 hires), severance pay is calculated as follows:
- Half a month’s average wages for each full year of employment
- Proportionate payment for periods under one year
- Maximum cap: Six months of average wages
Formula
Severance Pay = (Years of Service × 0.5) × Average Monthly WageFor example:
- 2 years of service = 1 month’s wages
- 4 years of service = 2 months’ wages
- 12+ years of service = 6 months’ wages (capped)
Payment Deadline
Severance pay must be paid within 30 days of the termination date.
Average Wage Calculation
“Average wage” under Taiwan law means the total wages earned in the six months prior to termination, divided by the total days in that period. This includes:
- Base salary
- Regular bonuses and allowances
- Overtime pay
It excludes one-time payments like year-end bonuses unless they’re guaranteed in the contract.
Old vs. New Pension System
Employees hired before July 1, 2005 may be under the old Labor Standard Act pension system, which has different severance calculations (one month per year of service, no cap). Many long-tenured employees have a mix of both systems.
If you’re managing employees with pre-2005 service, consult with a local labor attorney to ensure correct calculations.
Key Takeaways
- Always provide proper notice — or pay wages in lieu of notice
- Calculate severance correctly — half month per year, capped at 6 months
- Pay within 30 days — delays can result in penalties
- Document everything — maintain records for labor authority audits
- Check pension system — old vs. new rules affect calculations
References
This guide is for informational purposes only and does not constitute legal advice. For specific situations, consult with a Taiwan labor law specialist.