Labour Laws in Taiwan: What Every Foreign Employer Should Understand?

Introduction

Labour laws in Taiwan are detailed, actively enforced, and apply from the first day of employment. Foreign employers hiring in Taiwan need to understand the Labour Standards Act, statutory payroll deductions, leave entitlements, and termination rules before they bring anyone on board.

When a global company decides to hire in Taiwan, the first question is usually about the talent. The second question, which comes quickly, is about compliance. Taiwan has a well-developed employment framework, and it doesn’t make exceptions for foreign employers who are unfamiliar with local rules.

The good news is that Taiwan’s labour laws are structured and predictable. Once you understand the framework, you can plan around it. The problems arise when employers find out what’s required after they’ve already made a hire.

This guide covers what you need to know before your first employee in Taiwan starts work.

What Are the Labour Laws in Taiwan?

Most labour laws in Taiwan are regulated by the Labour Standards Act (“LSA”), which was enacted in 1984, and has since been amended many times. The LSA establishes basic standards for employment in almost all industries, from contracts to work hours, rest periods, vacations, wages, and dismissals. 

In addition to these, four distinct bodies of legislation govern specific areas of employment, namely the Labour Pension Act (“LPA”) with regard to retirement contributions, the Labour Insurance Act to protect workers in cases of injury or unemployment, and the National Health Insurance Act for medical benefits. 

Combined, these four systems of regulation outline what a lawful employment relationship in Taiwan would entail and are each concurrently applicable. The systems aren’t complicated for complexity’s sake, but each aspect of employment outlined above falls under a different regime, and all apply from the beginning.

If you are looking to expand in Taiwan, check out our EOR Services, Staffing Services, and Business Consulting Services for Growth.

Employment Contracts in Taiwan

While writing isn’t legally required for LSA employment contracts, they are heavily encouraged, and are common practice. Verbal contracts are binding in Taiwan but the lack of a document tends to lead to confusion that works to the detriment of the employer.

• Contracts can be fixed-term or open-ended. Fixed term contracts are governed by limitations outlined in the LSA. Their use is permissible for defined projects that must end by a specific date or for positions that are only seasonal. An employer makes the error of issuing a fixed term contract for what is actually a permanent position. If fixed term contracts are renewed over and over without clear reason, they can be treated as open ended by Taiwanese authorities and carry all the related obligations.
• Open ended contracts are the standard in almost all employer-employee relationships and will carry all the protections provided by the LSA from the inception of the contract.

The LSA does not have an explicit defined probation period but the courts recognise their existence. Generally, a period up to three months is considered reasonable. It is important to note that while the employee is in the probationary period, all LSA protections still apply. An employer may not dismiss a probation employee without just cause merely because they are within the probationary period.

Also Read: Benefits of using EOR in Taiwan for workforce expansion.

Working Hours and Overtime

Normal working days for the Taiwan LSA: the maximum 40 hour working week is allowed. It’s expected there will be two days off a week (a statutory holiday and one normal day off). Overtime has strict rules and associated costs. Working on a normal day off is paid at 1.34 the normal hourly rate for the first 2 hours and 1.67 times beyond that. 

Working on a statutory day off is at 1.34 the normal hourly rate for the first two hours and 1.67 times for the next six and double the normal rate from 8 hours upwards. Statutory holidays which fall on a normal day off must be paid double. Monthly OT is limited to 46 hours with an annual OT average of 54 hours per month and a strict annual cap of 138 hours within any 3-month period. 

It’s a defined area where there are rules and employers are fined if they consistently exceed these limits. Most office/white collar type roles can largely disregard these rules but in operations/manufacturing/shift type work getting the calculations for OT right from day one of pay processing is critical.

Read our Guide to payroll in Taiwan.

Leave Entitlements Under Taiwan’s Labour Laws

Taiwan’s leave system is structured around service length, and is not merely about seniority. Under the LSA:

• Employees with six months to one year service are entitled to three days of annual leave. Those with one to two years are entitled to seven days; two to three, 10; three to five, 14; five to 10, 15 days. For employees with more than 10 years, one day will be added each year, with a cap at 30 days.
• Aside from annual leave, the LSA mandatorily requires: personal leave (three days a year), sick leave (30 days a year on full pay for the first year and half-pay thereafter up to one year of leave), menstruation leave (one day per month), maternity leave (eight weeks for full term births) and paternity leave (five days). Other entitlement in terms of bereavement and marriage leave and public holiday arrangements are also covered.

There is an impressive amount of public holidays in Taiwan, totaling 115 days in 2024, factoring in weekends and public holidays. This volume is sometimes something a foreign employer finds hard to anticipate over a year of operation.

Statutory Payroll Deductions

All Taiwan employers have 3 streams of mandatory contributions for every employee that they have. They can be avoided, nor is there any room to ignore these from day one the employee is working.

• National Health Insurance (NHI)

This is mandatory health care in Taiwan and the employer must pay about 6.11% of the insured monthly salary as contribution, and a premium about 6.11% over the employer’s portion for dependents as well. The employees have to pay about 2.11% of it.

• Labour Insurance

This system provides coverage for work injury, unemployment, and disability. The total rate is around 11.5% of insured salary, and the employer’s contribution will cover 70% of it (roughly 8.05% of salary), the government covers 10%, and the employee pays 20% of it.

• Labour Pension Act(LPA) contributions

According to the LPA’s individual account system, most workers hired after July, 2005 must have at least 6% of their monthly wage be paid into their government-managed individual pension account.

Employees are allowed to make optional supplementary contributions, however, the employer’s compulsory 6% payment still needs to be made even if the employee elects not to add anything to the account.

The calculation of the right insurance salary basis, the prompt report to the Bureau of Labour Insurance and the National Health Insurance Administration is key to get this right. Every missed cycle or under-payment constitutes liability for the employer.

Taiwan payroll compliance is beyond determining the right net salary. The deduction above them is what foreign employers would definitely need assistance for.

Termination and Severance Under Taiwan’s Labour Laws

Taiwan’s LSA establishes precise grounds under which an employee can be terminated without cause, and sets forth the severance which employers must provide.

• Termination requires advance notice. Those employees with service from three months to one year must receive 10 days notice, between one and three years require 20 days, and those with over three years of service require 30 days notice. An employer may provide pay in lieu of notice.
• Severance calculations differ depending on the pension scheme in which the employee falls. For those under the prior LSA pension regime (which is becoming a rarity to be hired under as new employees), severance is 1 month’s average wages per year of service up to 6 months; for those under the more recent LPA regime (introduced in 2005), severance is calculated in the same way, however, the prior LPA contributions are considered in calculating the actual out-of-pocket cost to the employer.
• Disciplinary terminations, which rely upon grounds such as repeated and egregious misconduct or violations of work rules, can terminate employment without either notice or severance but the reasons for termination must be recorded and supported. Improper termination is treated seriously in Taiwan, with courts potentially ordering either re-employment or full compensation.

From the perspective of foreign employers, it is at the point of termination that compliance discrepancies usually come to light. Unless it was set up properly to begin with, a clean break becomes more complex.

How Foreign Employers Manage Taiwan’s Labour Law Requirements?

The majority of foreign companies hiring their first Taiwan employees do so using one of three strategies: establish a local entity and internal HR/payroll capability; employ an EOR and have the partner manage the employment relationship within Taiwan law on behalf of the foreign company; or start with an EOR and transition to a local entity as the headcount increases. 

The EOR method is ideal for smaller hires (less than 10 or so employees) and market entry, moving the responsibility of compliance to a partner who already has their operations established in Taiwan and the foreign company retaining 100% of operational control. The EOR and payroll solutions for Taiwan and the broader APAC market by Galaxy APAC cover the entire statutory process, including contract drafting through termination.

The legal framework of Taiwan’s labour laws is the baseline for your internal HR team if you’re committed to establishing your own local entity. 

Conclusion

Taiwan’s employment regulations demand careful planning from the very beginning of the hiring process. From payroll deductions and leave entitlements to overtime calculations and termination procedures, foreign employers are expected to comply with Taiwan’s labour framework from day one of employment.

Galaxy APAC helps companies manage hiring and workforce compliance through Employer of Record (EOR) services, payroll outsourcing, tax and accounting support, incorporation services, and HR administration solutions. Our expertise in 10+ APAC markets and trusted by 3,000+ businesses worldwide helps businesses reduce administrative pressure while managing compliant employment structures across Taiwan and the wider APAC region.

From employment contract management and payroll processing to onboarding support and statutory compliance administration, Galaxy APAC provides practical support personalised to the operational needs of expanding businesses.

If your company is preparing to hire employees in Taiwan, expand into APAC markets, or manage local employment compliance more confidently, Galaxy APAC can support your workforce expansion with solutions built around speed, compliance, and operational flexibility.