Ending a job contract, be it a resignation on the part of the employee, or a dismissal/termination by the employer, must follow a legal process. The Labor Standards Act (LSA) of Taiwan provides guidelines, such as the need to establish grounds for termination, and what both parties must do to ensure a smooth process.
Moreover, there area cases where employees are entitled to severance pay, which is calculated based on how long they’ve worked for the company. To learn more about severance pay and to estimate how much you might receive in the future, keep on reading as we discuss this topic based on the country’s labor laws.
Guide to Calculating Severance Pay for OFWs
In Taiwan, an employee’s severance pay can be estimated first by determining whether he/she falls under the old pension scheme or the new one. The old pension scheme is based on the Labor Standards Act (LSA), while the new pension scheme is based on the Labor Pension Act (LPA), which took effect on July 1, 2005.
How is Severance Pay Calculated?
If an employee was hired on or after July 1, 2005, his/her severance is calculated based on the new pension scheme (LPA). On the other hand, if the employee was hired before June 30, 2025, his/her severance is calculated based on both the LSA and the LPA, depending on whether he/she opted into the new pension scheme. Let’s take a closer look at how these are calculated!
Under the Old Pension Scheme
Under the old pension scheme (LSA), an employee’s severance pay is calculated as one month’s average wage for every full year of service. If he/she remained in the old pension scheme after July 1, 2005, he/she will continue to receive severance at this rate.
On the other hand, if the employee opted into the new pension scheme (LPA) after July 1, 2005, his/her severance pay shall be calculated based on the new rate.
Under the New Pension Scheme
Under the new pension scheme (LPA), Article 12 states that an employee’s severance shall be calculated as half a month’s average wage for every full year of service. Meanwhile, the severance pay for an employment period that is less than one year shall be calculated proportionally. The maximum amount of severance pay under this scheme shall not exceed six (6) months’ average wage.
Moreover, based on the LPA, an employee’s severance pay must be given within 30 days after the termination of his/her job contract.
Average Monthly Salary
At this point, it’s important for us to define “average wage” in relation to the computation of severance pay. In this case, average wage refers to an employee’s total wages earned in the six months immediately before his/her termination, divided by the total number of days within that period. These wages include the employee’s salaries, allowances, bonuses, and other regular payments.
Online Severance Pay Calculator
So far, we have mentioned that severance pay is calculated based on an employee’s years of service (i.e. date of employment, end date of job contract), average wage, and whether or not his/her contract falls under the old pension scheme or new pension scheme.
To have a better idea of your severance pay, you can visit the official website of the Ministry of Labor (MOL) and use their “online severance pay calculator.” All you have to do is provide some details, and the screen will display your estimated severance pay.
Here is a step-by-step guide to using the online severance pay calculator on the MOL website:
- On the screen, enter your Date of Employment (first day at the job) at the company or business entity. Follow the format YYYY-MM-DD when you type in your details.
- Next, enter your End Date of Labor Contract (last day at the job) at the company or business entity. Once again, follow the format YYYY-MM-DD when you type in the date.
- Enter the date on which the company or business entity became applicable to the Labor Standards Act (LSA). At this stage, a drop-down menu will appear, and you need to click on the “industrial classification” of your company or business entity (see NOTE).
- Enter your Average Monthly Wage in TWD.
- Check whether your seniority (i.e. length of service) has been converted to the new pension scheme. For this step, you will need to select an answer based on these options: (a) All the seniority applies to the old system; (b) All the seniority applies to the new system; or (c) Select the date of participation in the new pension system.
- Enter the Amount of Severance Pay agreed upon between you and your employer before the application of the LSA. If you leave this part blank, only the part that applies the LSA will be calculated.
- Click “Calculate.” The screen will show the estimated severance pay.
NOTE: With reference to Step No. 3, the “industrial classification” will help determine the date when your company or business entity became applicable to the LSA. For example, the following industries became applicable to the LSA in 1984: Agriculture, Mining and Quarrying, Manufacturing, Construction, Transportation, and Mass Communication. Meanwhile, these industries became applicable in 1998: Financing, Data Processing Information Services, Real Estate Activities, International Trade, Consultation Services, etc.
Important Reminder
According to the MOL, their online severance pay calculator is intended for reference purposes only. If you want a more detailed and precise calculation, you’ll need to do the following:
- Consult Your Job Contract. You contract itself may contain specific details about what you’re entitled to when your contract is ended or terminated, including severance pay.
- Contact the MOL or other Authorities. For complex cases, such as labor disputes, you may need to contact the MOL for legal advice regarding your particular situation. Additionally, you can also go to the Manila Economic and Cultural Office (MECO) for help, including emergency assistance, legal assistance, temporary shelter, etc.
Termination Without Severance Pay
Keep in mind that there are cases where an employee may be terminated without prior notice or severance pay. Usually, these cases involve serious misconduct on the part of the employee, for example:
- The employee made false statements before entering the job contract, leading to potential harm to the employer;
- The employee grossly insulted or committed violence against the employer, the employer’s family, agents, or fellow employees;
- The employee received a final criminal conviction that requires imprisonment, unless that conviction is suspended or replaced with a fine;
- The employee committed a breach of contract;
- The employee intentionally damaged the employer’s property; or
- The employee had been absent without a valid reason for three (3) consecutive days or six (6) non-consecutive days in a month.
A good understanding of the Labor Standards Act (LSA) and Labor Pension Act (LPA) is a must for all employers and employees, regardless of the industry. This includes knowing the proper process for resignation or termination, and whether or not prior notice and severance pay is required. We hope that the above guide has been helpful in discussing severance pay and how it’s calculated!
Meanwhile, changing jobs or employers is another matter that involves following a legal process. Read this guide about the steps involved in changing jobs or employers in Taiwan.