Taiwan is considered one of the most progressive economies in East Asia. Despite its size, it is currently ranked among the 20 most prosperous nations in the world in terms of GDP. This is mainly because of its focus on high-tech, manufacturing, and global trade. While Taiwan strengthens its position as a leader in semiconductors, electronics, and manufacturing, its businesses are resorting to payroll outsourcing to improve their operations and reduce administrative expenses. 

Payroll outsourcing in Taiwan is a popular choice for both local and international companies since it frees up resources for innovation, its major operations, and labor law compliance. Learn all about payroll outsourcing in Taiwan in this guide.

What is Payroll Outsourcing in Taiwan?

Payroll outsourcing in Taiwan is the practice of transferring the responsibility of handling a company’s payroll to a third-party provider. These payroll service providers are tasked with determining the amount each employee will be paid, how much they will be taxed, and what benefits will be withheld. Most importantly, they make sure their clients conform to all of the relevant employment and tax rules in Taiwan. Employers that use this service do so to reduce the tedious work required in payroll management and focus on their main objectives. It is especially useful for small and medium-sized enterprises with little to no experience in human resources management. 

Payroll management in Taiwan requires being familiar with labor laws governing the payment of employee wages and other benefits, such as health insurance, labor insurance, wage and hour rules, and severance compensation. Outsourcing allows these responsibilities to be delegated to qualified providers who are fully informed of current legislation and legal procedures, reducing the risk of non-compliance. For instance, a company with 30 or more staff members is required to have written work rules and register them with the appropriate authorities within 30 days. A business that breaches this clause faces fines ranging from 20,000 to 300,000 Taiwan dollars. Additionally, depending on the size of the company and the infraction, authorities may impose a fine of up to 450,000 Taiwan dollars. Working with payroll providers will help companies adhere strictly to Taiwanese labor laws.

How Does Payroll Outsourcing Work in Taiwan?

The payroll outsourcing procedure in Taiwan often begins with the client company providing basic employee information such as base salary, working hours, overtime, and other benefits. The outsourcing provider is then responsible for calculating employees’ wages and deductions, from taxes to contributions to Taiwan’s National Health Insurance and Labor Insurance. The payroll provider ensures accuracy and compliance during this process and they typically do this using advanced payroll software.

After the company’s payroll is processed, the outsourcing provider ensures that all relevant deductions are remitted to the Taiwanese tax authorities and other appropriate agencies. They also remit employees’ payments through the appropriate payment method. They keep records of payroll transactions and respond to inquiries employees may have regarding their pay.

After these processes have been completed, the payroll provider is expected to deliver reports and statements to their clients that provide a quick overview of payroll activities. Typically, such reports include payroll calculations, taxes paid, and any modifications that occurred during the payroll period.  These companies may also be required to audit payroll files, reviewing all entries and calculations to see whether there was an omission or error.

Taiwan Labor Law and Payroll Compliance

Taiwan has various labor laws guiding business operations and ensuring decent working conditions for employees. The Labor Standard Act of 1984 (LSA) covers a number of these regulations, including severance, overtime compensation, rest hours, working hours, and wages. This act states that an employee is required to work 40 hours a week, up to a maximum of 8 hours per day.  Employers also have a responsibility to pay a minimum wage that is set by the government and is subject to periodic adjustments. Currently, the minimum monthly wage is NT$29,500, and the hourly wage is NT$196.

The Labor Pension Act of 2004 mandates that employers must contribute a minimum of 6% of workers’ monthly earnings to individual labor pension accounts at the Bureau of Labor Insurance. This ensures that retirees have financial security after leaving a company. Taiwan uses a progressive tax system for personal income taxes ranging from 5% to 40% of workers’ payments.

Additionally, workers who qualify under the Labor Insurance Act are entitled to protection for various life occurrences, such as death, disability, long-term sickness, accident, old age, and unemployment.  According to this law, employers must register all of their employees with the Bureau of Labor Insurance (BLI). Part of the insurance premiums are paid by the employees and company, while the government also contributes a portion. The benefits include protection against work-related injuries, maternity leave policies, unemployment insurance, and pensions for the aged and people with disabilities.

What are the Benefits of Payroll Outsourcing in Taiwan?

Payroll outsourcing in Taiwan has many advantages, particularly given the complex employment and labor laws. Businesses are required to regularly update their knowledge of labor and tax laws in Taiwan to calculate employee benefits, pay taxes, and make social security contributions. For instance, statistics show that 10 to 20% of companies may unintentionally classify their workers as independent contractors, which might cause problems with taxes and payroll. Companies can avoid errors like this by outsourcing their payroll processes to providers with experience managing employee payroll. Doing so will help them avoid several issues, including fines and even lawsuits resulting from non-compliance with regulations.

Another benefit of outsourcing payroll in Taiwan is its cost savings and increased productivity advantages. Companies that outsource payroll processes get to manage their payroll functions without setting up a payroll department or purchasing advanced payroll technologies. Payroll providers can help businesses automate tax filing and calculation procedures, reduce paperwork, and ensure that employees’ salaries are paid quickly. In the end, it leads to improved employee satisfaction and overall organizational effectiveness.

What are the Downsides of Payroll Outsourcing in Taiwan?

Although outsourcing payroll in Taiwan might provide numerous benefits, it also has certain challenges. One major challenge is the risk of data breaches and mishandling. Companies that outsource their payroll tasks disclose sensitive information to third-party providers. This means that whenever the selected payroll provider does not integrate necessary security requirements, there is a considerable chance of data invasion or misuse. In 2022, Taiwan saw up to 30 million cyberattacks monthly. This suggests that data protection should be a major consideration for businesses in Taiwan when choosing payroll providers.

Another potential challenge is that the management team will have to give up some control over the payroll process. This may result in issues when the providers’ methods do not align with the client company’s needs.

How to Choose a Payroll Outsourcing Provider in Taiwan

When choosing a payroll provider in Taiwan, companies need to consider several factors. The first step is to assess the provider’s proficiency with Taiwan payroll laws. Given Taiwan’s numerous regulations, it is essential to work with a provider who is well-versed in Taiwan’s labor laws. An outsourcing provider with expertise in handling payroll for companies can help businesses ensure compliance with payroll regulations.

Companies also need to look into the technology offered by potential payroll providers. To save costs and ensure accuracy, businesses should choose a provider that uses an advanced payroll software system.

Similarly, companies need to consider data security when choosing a payroll provider. An excellent provider will have security measures in place to guard employees’ data. They will also have backup systems in case of data loss and other cybersecurity threats.

How Much Does Payroll Outsourcing Cost in Taiwan?

Payroll outsourcing rates in Taiwan vary based on certain factors. Typically, providers quote monthly rates according to the number of employees in the company and the range of services that the provider is expected to offer. While some businesses choose to outsource only a few tasks, others usually outsource all of their payroll needs to payroll services. 

Companies that outsource all of their payroll duties will typically have to pay more than companies that outsource some of their functions. Similarly, big companies will likely have more employees than smaller ones, meaning bigger companies require more work. This also typically comes with a higher fee. For a more accurate estimation of what payroll outsourcing will cost, companies can visit their prospective provider’s websites and get a quotation.

Payroll Outsourcing Alternative: Employer of Record

Payroll outsourcing is an effective method for foreign companies in Taiwan to comply with payroll and tax rules. However, if a company requires a more comprehensive solution, it may be best to hire an Employer of Record (EOR) in Taiwan. An EOR, like a payroll provider, is in charge of administering a company’s employees’ wages and taxes, but its responsibilities extend beyond that. An EOR in Taiwan is responsible for overseeing employee management, including hiring, ensuring compliance with local rules, managing payroll, and much more. They are legally accountable for all of a company’s employees, allowing the company to focus solely on business.

Engage a Taiwan Payroll Service

Companies in Taiwan can ensure accuracy, efficiency, and compliance in their payroll functions by outsourcing them to expert third-party providers. While payroll outsourcing has several benefits, companies also have to consider the downsides. An EOR takes the payroll process a step further by assuming the role of the legal employer and managing all employee-related activities.

For companies looking to get connected with payroll outsourcing solutions and EOR providers, Remote People can be a great option to explore. This company connects companies to the talents they need, from payroll services to EORs.

Ready to streamline payroll in Taiwan? Remote People’s payroll outsourcing services ensure compliance and efficiency. Contact us today to discuss how we can support your business in Taiwan.