Proposed bill to expand the scope of arrear wage fund in Taiwan

November 16, 2014

In order to provide more protection for workers in the event a business goes out of business, the Executive Yuan approved of a proposed bill to amend the relevant labor law for the purposes of enhancing the functional scope of the fund known as the Arrear Wage Payment Fund (“AWPF”). Under the current Labor Standards Law, an employer must contribute to the AWPF, based on a prescribed percentage of the total salary made to its employees every month.  The amount accumulated in the AWPF will be used to satisfy on the highest priority basis among unsecured creditors the back wages owed by the employer to its employees up to 6 months worth of salary in total in the event of specified events such as insolvent or bankrupt.  Many have criticized the lack of coverage of the AWPF, which should be extended to include severance pay and pension liabilities of the employers.  As a result to such criticisms, the proposed bill if passed into law by the legislature will ensure the 6 months' back wage, the legacy pension liabilities and the severance payments under applicable labor laws will enjoy the same priority as the debts of secured creditors who have a first ranking mortgage, pledge and/or lien.  Furthermore, (i) the amount of contribution by an employer will be increased to twice of its current ratio, i.e. from 0.0005% to 0.001% of the total monthly salary, and (ii) an employer will be required to make up any shortfall for its legacy pension liabilities if its legacy pension account is not sufficient to satisfy the applicable retirement pension payments to be made within the ensuing fiscal year taking into consideration the qualified candidates to retire within such period.