BY NATHAN SNYDER AND JEFFREY LIEN

Early this year, Taiwan’s legislature passed a set of amendments to the Labor Standards Act (LSA), Taiwan’s core statute governing labor and employment. These amendments, which were officially implemented on March 1, 2018, feature changes intended to provide greater flexibility to employers whose business needs may make compliance with the previous strict set of amendments difficult. Nonetheless, this round of revisions does not constitute a comprehensive shift like the previous amendments in 2017, and generally requires consultation and agreement with employees before the new options may be exercised.

In 2017, the LSA was amended with the intent to create a stable “five-day workweek,” with stronger overtime requirements intended to discourage overtime and encourage additional hiring instead. Specifically, the 2017 amendments required all employers to provide two days off every seven calendar days. One of those days would be flexible, called a “rest day.” The other would be definite, called “regular leave.” In theory, employees were permitted to work on the rest day, but not on the regular leave day. However, all work on the rest day was “overtime,” and employees had to be paid at a much greater hourly rate: 234-267% of their regular hourly wage, in four-hour blocks for wage calculation.

Despite such a big change, the LSA was silent on whether time off could be offered instead of pay for overtime work, or how an employer should deal with employees who worked unilaterally beyond regular hours without employer authorization of the overtime.

The 2017 amendments met with considerable resistance, especially among industries such as transportation which have irregular scheduling requirements for their employees. Concerns about widespread noncompliance caused the legislature to give the five-day workweek concept another pass, resulting in the 2018 amendments.

The changes in the 2018 amendments primarily affect three aspects of labor law: the structure of the workweek, employee paid annual leave, and overtime.

Workweek policy changes 

The aspects of Taiwan’s workweek structure that have been affected by the 2018 amendments include the following:

1. A new method of allocating the number of rest and regular leave days for certain industries; and,
2. The minimum time off between shifts for shift workers in certain industries.

Under the prior version of the LSA, the five-day workweek was fixed for most sectors, with employees required to have one “rest day” and one “regular leave day” in each seven-day week. There were limited exceptions for businesses that obtained special permission to redistribute the regular working hours among the days in a week to create a six-day week with shorter individual workdays. But a redistribution only rearranged rest days (i.e., two every two weeks, or eight every eight weeks). One regular leave day every week was still generally required.

The 2018 amendments’ optional work-week structure gives specific industries the option to obtain government permission and employee consent to move not only the rest day, but also the regular leave day within a two-week period. In other words, an employer may grant two days of regular leave every 14 days instead of one every seven days. This creates the possibility of 12 continuous days of work.

A list of which specific industries will be entitled to pursue this option is still pending from the relevant government authorities.

For those industries that require employees to work on rotational shifts, the previous version of the LSA called for a minimum of 11 hours of continuous rest in between the start of each of their rotations. Under the 2018 amendments, time off between shifts may be shortened to eight hours with the consent of the employees or the labor union. Government ministries will specify the industries affected by this rule as well, although this list is also still pending. Listed shift industries will likely not be the same as those industries listed as eligible for the two-week regular leave calculation option.

The following aspects of the workweek structure remain unchanged:

1. For employers in industries not on the list to be issued or who do not obtain government approval and employee consent, the five-day workweek with one “rest day” and one “regular leave day” every seven calendar days remains the norm.
2. Rest days and regular leave days are still required even if an employer obtains permission to rearrange the number of consecutive workdays within or among weeks.

Neither of the changes may be implemented yet.  Both changes await issuance of lists of eligible industries, and the movable regular leave option will also require an application for government approval.

New annual leave option  

Annual leave is guaranteed by the LSA to all employees based on the length of their service with their employer. As a minimum, the LSA guarantees at least the following amounts of paid annual leave:

1. Three days for service of six months or more but less than one year;
2. Seven days for service of one year or more but less than two years;
3. Ten days for service of two years or more but less than three years;
4. Fourteen days for service of three years or more but less than five years;
5. Fifteen days for service of five years or more but less than ten years; and
6. One additional day for each year of service over ten years up to a maximum of 30 days.

Before the 2018 amendments, the LSA required employers to pay wages for any amount of annual leave that remained unused by an employee at the end of every annual period. However, the LSA was vague as to the exact circumstances in which leave could remain unused and be subject to compensation.

Criticism of the prior rules therefore also focused on this inflexibility and vagueness. Employers sometimes felt forced to schedule employee leave at undesirable times or draft provisions into work rules compelling leave. Some employers even scheduled employee leave for their employees unilaterally.

Under the 2018 amendments, unused annual leave for a given year may now be carried over to the next calendar year if the employer and employee both agree to do so. If the annual leave is still unused at the end of the year into which it was carried over, or if the employment is terminated during the second year before the leave is used, then the employer must compensate for it.

Changes to overtime 

The following aspects of the LSA overtime scheme were affected by the 2018 amendments:

1. Block calculation of rest-day work was removed.
2. The maximum number of overtime hours per month may increase.
3. An employer may create a system for compensatory leave in lieu of overtime wages.

Revised calculation of rest-day overtime pay: Previously, work performed on a rest day was counted in blocks of time. Any work up to four hours was counted as four hours. Time between four and eight hours was counted as eight hours, and any time more than that was counted at the maximum number of 12 hours worked. This method, combined with the increased rates of pay for rest day work, created truly substantial overtime obligations for employers.

Although these provisions were designed to function as a deterrent to scheduling work on the new, distinctive “rest days,” many employers criticized them, particularly the block calculation mechanism, as unduly burdensome. Further, some felt that such lucrative pay provisions actually had undermined the intent of the new law; employees would in fact be incentivized to work on a rest day rather than use it to rest, yet the intent of the 2017 provisions was to reduce employee overwork.

As a result, the 2018 amendments have ended the block calculation system for calculating rest day overtime pay. Work on a rest day is no longer rounded up into blocks of a certain number of hours. Instead, workers will be paid based on the actual number of hours worked. For example, half an hour will no longer be counted as two hours, four-and-a-quarter hours will no longer be counted as eight hours, etc.

However, the rates of rest-day compensation have not changed; work up to two hours on a rest day must still be paid at 234% of the regular hourly wage rate, and work beyond that must still be paid at 267% of the regular hourly rate. By comparison, LSA provisions for regular workday overtime require pay rates of 134% of the normal hourly wage for up to two hours of overtime, and 167% of the normal wage for overtime up to the presumptive maximum of four hours of overtime.

Increased maximum monthly overtime: Under the previous version of the LSA, an employee was permitted to work a maximum of 48 hours of overtime per month. The 2018 amendments allow employers, with the consent of the employees or the labor union, to increase the maximum amount of overtime to 54 hours per month, but not more than 138 hours for every three-month period.

New compensatory time off: In the past, overtime under the LSA could only be compensated by extra wages, not by compensatory leave (except in the case of overtime for business travel). The 2018 amendments improve flexibility in this area by permitting employers to provide extra leave more broadly as compensation for overtime.

Employers may now create a program for employees to take time off instead of receiving overtime pay as compensation for any overtime worked, at a one-to-one exchange ratio (i.e., one hour of overtime = one hour of paid leave). Such a program requires the employer to specify a definite timeframe within which the employee may take the compensatory leave, after the expiration of which the unused leave amount will be required to be paid at the applicable overtime pay rate for the day on which the work was performed. Guidelines for this timeframe have not yet been finalized, but will likely specify that the time is either the calendar year or the company’s internal annual leave year.

Creating a compensatory leave policy requires consultation with and consent from employees. The following aspects of the LSA overtime scheme remain unchanged:

1. Basic workday and rest-day overtime pay rates.
2. The default working hour schedule, which is still eight hours per day or 40 hours per week.

Employee consent 

Most aspects of the 2018 LSA amendments require employers to obtain employee consent for any new policies created under the amendments. In the context of Taiwan’s labor law, employee consent may mean reaching an agreement with the relevant labor union. For those companies that do not have a labor union, employee consent is established via labor-management meetings.

At a labor-management meeting, representatives of management are designated by the employer from among persons familiar with the business operations or labor affairs, and representatives of the employees are elected by all employees. Specific rules are then negotiated and mutually agreed. Regulations call for these meetings to be held every three months.

Areas that remain unclear 

While the most recent changes to the LSA have brought a slightly greater degree of flexibility to labor rules, especially by opening the possibility of a compensatory leave system devised entirely by an employer and its employees, certain elements of the labor law and regulations remain vague or unspecified.

Industry lists 

The two-week regular leave calculation option and the eight-hour minimum rest option for shift workers will be available only to employers in industries to be specified by the Ministry of Labor Affairs.  It is not yet clear whether the Ministry will restrict these new options to a narrowly defined group of companies or make them available broadly throughout Taiwan’s economy. Whatever position the Ministry takes, definitional issues are likely to arise. Companies in Taiwan are no longer licensed to engage only in specific lines of business. Thus, in some cases a determination as to whether an employer is engaged in a particular industry could be quite subjective.

Government approvals 

The two-week regular leave calculation option also requires advance government approval. It is not yet clear how strict or liberal the Ministry will be in granting these approvals. If the Ministry adopts a broad industry list for this option and grants approvals freely, it could be attractive for employers who want flexibility for employees engaged in business travel on weekends.

Defining overtime 

While very specific about the method and amounts of pay for overtime work, the LSA remains vague about the conditions that create “overtime work.” The LSA’s Enforcement Rules offer the following definition of overtime: “The part of working hours that exceeds eight hours per day or the part of working hours that exceeds a total of 40 hours every week.” However, the Rules are silent as to what constitutes “working hours.”

Many companies close this gap by specifying in their work rules that “working hours” beyond regular working time cannot be counted unless they are approved in advance or recognized later by the employer. This prevents employees from unilaterally accruing overtime pay and increasing the employer’s labor costs by working on their own in excess of regular work hours without employer approval.

Such rules are consistent with the LSA provision concerning rest day overtime: “an employer shall pay a worker overtime wages when required to work on the rest days [italics added].” This may mean that any employee-initiated work performed on a rest day is not subject to mandatory overtime pay because the employee was not “required to work.” However, nothing specific on this issue appears in either the LSA or the Enforcement Rules.

The Enforcement Rules do attempt to clarify the circumstances for employees with remote work obligations: “If the working hours of a worker cannot be readily calculated owing to special errands or other reasons requiring him to attend to work outside the workplace, his/her working hours shall be deemed to be his regular working hours. This shall not apply, however, where his actual working hours have been proven.” It is therefore advisable to be as precise as possible when drafting employment contracts and work rules to provide exactly what will count as working hours.

Counting carryover 

Additionally, it remains unspecified how to treat carried-over annual leave that is counted against the next year’s leave. For example, if an employee is entitled to 10 days of annual leave and carries over three days of annual leave from year 1 to year 2, then takes 10 days of annual leave in year 2, there are no guidelines about whether the remaining three days must be compensated as year 1’s unused leave, or whether it should be considered year 2’s unused leave (which then could be carried forward to year 3). This could likely be resolved by specification in the employer’s work rules, either by specifying that the unused leave from year 1 will be applied first in year 2, or perhaps by allowing the employee to decide at the end of year 2 whether to choose/accept carryover or compensation.

Over time, some of the remaining uncertainties in the LSA or its Enforcement Rules may be clarified by further regulation. In general, though, the political pressure for further significant change to Taiwan’s labor rules has dissipated. The Ministry will adopt industry lists and formal or informal approval policies for the regular leave-day option, but most other areas of vagueness or uncertainty will need to be clarified by carefully drafted and thorough employment contracts and work rules.