This article is excerpted from Attorney Tsai Shu-Chuan’s book “When Cultural and Creative Industries Meet Law: Human Resource Management” (New book released 2024/11/05)
Every year-end, when media continuously reports that the financial industry, technology industry, shipping industry, and other highly profitable industries that year will distribute various high-value year-end bonuses, it always makes “How much year-end bonus will the company give this year?” the most concerning topic for office workers. For workers with job-switching plans, a more important issue is “Will I lose my year-end bonus if I switch jobs before the Lunar New Year?”
When employers distribute year-end bonuses, can they refuse to pay bonuses on the grounds that employees are not employed at the time of distribution (have already resigned)? This depends on whether the nature of the year-end bonus constitutes wages. In short, if the year-end bonus belongs to wages, even if employees are no longer employed at the time of distribution, employers should still pay it. Otherwise, they will violate Article 22, Paragraph 2 of the Labor Standards Act, which states “Wages shall be paid in full and directly to workers,” and may be fined between NT$20,000 and NT$1,000,000.
I. “Consideration for Labor Services” and “Regular Payment”
Article 2, Paragraph 3 of the Labor Standards Act stipulates: “Wages: refers to remuneration obtained by workers for their work; including wages, salaries, and bonuses, allowances, and other payments of any name paid regularly in cash or in kind on an hourly, daily, monthly, or piece-rate basis.” The Ministry of Labor’s interpretations and court decisions on “wages” consistently hold that “wages” must have “consideration for labor services” and be “regular payments.” The so-called “consideration for labor services” means that the payment is remuneration obtained by workers for their work; as for “regular payment,” it refers to payments that are not made on a temporary whim and are not unrelated to work.
Additionally, to prevent employers from avoiding legal provisions by not calling remuneration obtained by workers for work “wages” but using other names instead, judgment should be based on the substantive content of money paid by employers to workers—that is, the specific circumstances of the reasons, purposes, and conditions for payment—according to general social concepts, not merely based on the “name” used by employers when paying. Therefore, if employers, according to agreements in labor contracts, work rules, or collective agreements, repeatedly pay workers for labor services provided, regardless of the name, if the system usually belongs to workers providing labor services and can regularly obtain consideration (remuneration) over time, it has the nature of wages. Conversely, if payment is only made after certain payment conditions are met and is not necessarily an exchange payment after workers provide labor services, it actually has the nature of incentive, encouraging, or gratuitous payments and lacks “consideration for labor services” or “regularity of payment,” then it does not belong to “wages” as defined in Article 2, Paragraph 3 of the Labor Standards Act.
II. What is a “Year-End Bonus”?
Article 10, Paragraph 1, Item 2 of the Enforcement Rules of the Labor Standards Act excludes [“year-end bonuses”] from “regular payments of any other name” as referred to in Article 2, Paragraph 3 of the Labor Standards Act. At first glance, one might think year-end bonuses definitely don’t belong to wages. But what is a year-end bonus? Does it necessarily not belong to wages? According to Ministry of Labor interpretations, the “year-end bonus” referred to in the Enforcement Rules of the Labor Standards Act is the “year-end bonus” distributed before the Lunar New Year according to Taiwan’s folk customs, regardless of profit or loss. It belongs to non-regular payments made by employers or unilateral purposeful payments with encouraging and gratuitous characteristics, so it is not wages with the nature of consideration for labor services.
Then, is the “bonus” stipulated in Article 29 of the Labor Standards Act—”Business entities shall, upon settlement at the end of their business year, give bonuses or distribute profits to workers who have worked for the whole year without fault, if there is a surplus after paying taxes, making up losses, and setting aside dividends and reserve funds”—a year-end bonus? According to Ministry of Labor interpretations, the “bonus” referred to in Article 29 of the Labor Standards Act has the same nature as profit-sharing under the Company Act—both are distributed from after-tax surplus—and differs from the year-end bonus (pre-tax) distributed before the Lunar New Year according to Taiwan’s folk customs regardless of profit or loss, and is not a year-end bonus. Although early court decisions held that year-end bonuses were the bonuses under Article 29 of the Labor Standards Act and should be paid if conditions were met, later court views have changed, holding that although companies must pay bonuses if they make money, these bonuses are not year-end bonuses, and there are no definite standards for distribution—they are merely gratuitous and encouraging payments and also don’t belong to wages.
III. Whether “Year-End Bonuses” Are Wages Depends on Individual Cases
According to the above explanation, judgment of wages should not be constrained by the name “year-end bonus,” so substantive determination should still be based on individual cases.
Case 1
Office worker Xiao Hua, when joining a company, agreed on salary with the company using a “guaranteed annual salary” method. If both parties agreed on an annual salary of NT$720,000, divided into 12 months, equivalent to a monthly salary of NT$60,000, but Xiao Hua and the employer did not agree on an additional year-end bonus.
If in the year Xiao Hua resigned, the company separately distributed year-end bonuses and stipulated that eligibility was limited to employed workers, because according to the above explanation, this year-end bonus does not have the requirements of “consideration for labor services” and “regularity of payment” and should belong to “incentive, gratuitous” payments, not “wages” under the Labor Standards Act, then if Xiao Hua is no longer employed when bonuses are distributed, the company may refuse to distribute the year-end bonus to Xiao Hua.
Case 2
Engineer Xiao Ming negotiated salary conditions with the company of a monthly salary of NT$50,000, guaranteed annual salary of 14 months, and both parties explicitly agreed that 2 months were year-end bonuses and agreed they should be paid on the agreed date.
Because the 2-month “year-end bonus” agreed between Xiao Ming and the employer is part of the salary, it obviously has the requirements of “consideration for labor services” and “regularity of payment” and should belong to “wages” under the Labor Standards Act. Even if Xiao Ming later resigns, the employer may not refuse to pay this year-end bonus for any reason (at most paid proportionally according to service period). If the company doesn’t pay according to agreement, it violates the Labor Standards Act, and Xiao Ming may also request payment from the company.
Will workers lose their year-end bonus if they switch jobs before the Lunar New Year? It depends on whether the nature of the year-end bonus belongs to wages under the Labor Standards Act. The judgment standard for wages is that the payment should have “consideration for labor services” and “regular payment.” Although the Enforcement Rules of the Labor Standards Act have listed year-end bonuses as gratuitous and encouraging payments and excluded them from wages, judgment should not be constrained by the name “year-end bonus” and should still be based on substantive determination of individual cases.
In short, if labor and management have not explicitly agreed on year-end bonus payment in the labor contract, the year-end bonus should belong to “incentive, gratuitous” payments, not “wages” under the Labor Standards Act. Employers may add the condition of being employed at the time of distribution, so if employees are no longer employed when bonuses are distributed, companies may refuse distribution. Conversely, if labor and management have agreed that the year-end bonus is part of salary, then because the year-end bonus has the requirements of “consideration for labor services” and “regularity of payment,” it should belong to “wages” under the Labor Standards Act. Even if workers later resign, employers may not refuse to pay this year-end bonus, otherwise violating Article 22 of the Labor Standards Act.
