What Severance Pay Rules Must Employers Follow in Taiwan?

Which Employees Qualify for Severance Pay?

• Employees classified as workers under the Labor Standards Act with an indefinite-term or fixed-term contract that is lawfully terminated by the employer.
• Employees whose employment is terminated due to business reasons, restructuring, closure, or redundancy not attributable to serious employee misconduct.
• Employees who are unable to perform their duties due to illness, disability, or occupational injury where termination is permitted by law and not caused by their intentional act.
• Employees who are dismissed because the business transfers ownership, changes operations, or relocates in a way that legally justifies termination.
• Employees who voluntarily agree to terminate employment under a mutual separation arrangement that explicitly provides for statutory or better severance.
• Employees hired before July 1, 2005 under the old LSA system or after that date under the LPA system, provided they meet the respective service and eligibility rules.

What Are the Legal Timelines for Paying Severance?

In Taiwan, severance must be paid promptly once the employment relationship ends and the entitlement is confirmed. While the Labor Standards Act does not set a single fixed number of days, authorities expect payment on or very close to the final working day or within the same regular payroll cycle. Your company should document the calculation, obtain written acknowledgment, and transfer the funds without delay to avoid claims of late payment. For mass layoffs or large restructurings, plan cash flow early so you can meet all severance obligations on time. When in doubt, align severance payment with the final wage payment and keep clear records of dates and amounts.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Taiwan, you risk administrative fines, orders to make back payments, and potential civil claims from employees. Labor authorities can investigate complaints, review your records, and require you to correct underpayments with interest. Non-compliance can also damage your reputation with regulators and future hires.

• Labor authorities may impose fines under the Labor Standards Act, typically in a specified monetary range per violation.
• You can be ordered to pay any shortfall in severance plus accrued interest to affected employees.
• Employees may file complaints or lawsuits seeking unpaid severance and additional damages.
• Repeated or serious violations can trigger higher fines and closer regulatory scrutiny.
• Disputes over severance can lead to mediation or arbitration costs and management time spent on resolution.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (https://www.playroll.com/employer-of-record) in Taiwan does not remove the need to follow local severance rules, but it can shift day-to-day compliance work to the EOR provider. Legally, the EOR is usually the formal employer on record and responsible for calculating and paying severance under Taiwanese law. However, your company, as the client, typically bears the commercial cost of any severance and may be named in disputes if decisions were driven by your instructions. You should ensure your EOR contract clearly allocates severance funding, approval workflows, and liabilities. Always confirm that the EOR’s local entity is applying the correct LSA or LPA rules for each worker’s service history.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance in Taiwan means tracking which regime each employee falls under, how their average wages are calculated, and whether the termination reason is legally justified. Playroll helps your team map each hire to the correct framework, maintain compliant contracts, and document performance or business reasons that support lawful termination. You get clear breakdowns of service periods, accrued entitlements, and what must be paid on the final day.

With Playroll, you can also centralize approvals, automate calculations, and coordinate payments so severance is processed accurately and on time. Our local experts monitor changes to the Labor Standards Act, Labor Pension Act, and enforcement practices, then update your workflows without you needing to chase legal updates. That way, your company can restructure, downsize, or exit roles in Taiwan while staying confident you are meeting every severance obligation.