How to Avoid Errors in Payroll Calculation? Base Salary, Overtime, Labor and Health Insurance to Take-Home Pay | Payroll System Recommendations

Calculating salaries is a task that every company must complete accurately every month, yet it is also the area most prone to errors and can easily lead to labor disputes. From base salary, overtime pay, vacation calculations, to labor insurance, health insurance, and labor pension contributions, each item has a legal formula; getting one wrong can result in supplementary salary payments or even penalties from the Ministry of Labor. This article comprehensively explains every step of the payroll calculation process according to the latest regulations from the Ministry of Labor, Labor Insurance Bureau, and National Health Insurance Agency, including the three multipliers for overtime pay, burden ratios for labor and health insurance, a comparison table for vacation days, and the easiest mistakes to make in calculating supplementary health insurance premiums for the second generation, to help employers and HR personnel establish correct payroll processes, along with suggestions for systematic tool selection.

What Items Make Up Salary?

A complete salary consists of two main parts: "payable salary" and "deductible amounts", thus take-home salary (net salary) = payable salary − deductible amounts.

Payable Salary Items

• Base Salary: Fixed monthly wage, the basis for all additional calculations
• Various Allowances and Subsidies: Transportation allowances, meal subsidies, job allowances, supervisory allowances, etc.
• Attendance Bonus: Granted when there are no late arrivals, early departures, or absences for the month according to company policy
• Overtime Pay: Calculated according to Article 24 of the Labor Standards Act, applying different multipliers based on overtime hours and categories
• Performance Bonus: Can be included in the payroll from the reward system according to rules
• Unused Leave Bonus: Cash amount calculated based on unused vacation days at the end of the year

Deductible Amounts

• Labor Insurance Premium (Employee's Contribution)
• National Health Insurance Premium (Employee's Contribution)
• Labor Retirement Fund (Employee's Self-Contribution, up to 6%, tax deductible)
• Income Tax Withholding (withheld monthly when salary exceeds a certain amount)
• Supplementary Insurance Premium for the Second Generation (deducted only in specific situations)
• Salary Deductions for Personal Leave, Sick Leave, or Tardiness (according to company policy)

Table: Overview of Salary Composition Items

How to Calculate Overtime Pay According to the Labor Standards Act?

Overtime pay is the area most prone to errors in salary calculation, primarily because Taiwan's Labor Standards Act assigns different multipliers based on "which day the overtime occurs". Many companies still use the same multiplier for both regular days and holidays, which is illegal.

Three Scenarios for Overtime Pay

Scenario 1: Overtime on Regular Days (more than 8 hours on a normal workday)

• First 2 hours of extended hours: Regular hourly wage × 1.34 times
• 3rd and 4th hour of extended hours: Regular hourly wage × 1.67 times
• Maximum daily extended hours: 4 hours

Scenario 2: Overtime on Holidays (the second day off in a two-day off system)

• First 2 hours: Regular hourly wage × 1.67 times
• More than 2 hours up to 8 hours: Regular hourly wage × 2.67 times
• For overtime on holidays, regardless of actual working hours, a minimum of 4 hours is always calculated

Scenario 3: Overtime on National Holidays (New Year's Day, Lunar New Year, Dragon Boat Festival, Mid-Autumn Festival, etc.)

• Full day: Regular daily wage × 2 times (i.e., original wage for that day plus 1 times)

Table: Quick Reference for Overtime Pay Multipliers (According to Article 24 of the Labor Standards Act)

> Calculation of hourly wage: For monthly salary employees, hourly wage = Monthly salary ÷ 30 ÷ 8

Common Errors in Overtime Pay

1. Applying the regular day rate to holidays: Overtime on holidays for the first 2 hours should use the 1.67 multiplier, not 1.34 times
2. Not considering the minimum 4 hours for holidays: If an employee worked only 1 hour, they must still be paid based on 4 hours for overtime
3. Incorrect calculation of hourly wage for monthly salary employees: Should be calculated as "Monthly salary ÷ 240" instead of "Monthly salary ÷ 176" because 30 days × 8 hours = 240

Rates and Burden Ratios for Labor Insurance, Health Insurance, and Labor Pension

Labor Insurance

According to announcements by the Ministry of Labor, the labor insurance premium rate is jointly borne by employers, employees, and the government:

• Employer's share: 70%
• Employee's share: 20%
• Government subsidy: 10%

The insured salary is classified according to the monthly insured salary classification table published by the Labor Insurance Bureau, and the rate is subject to the latest announcement by the Labor Insurance Bureau; it is advisable to confirm the classification table for updates every January.

National Health Insurance

According to the announcement by the National Health Insurance Agency, the health insurance rate is 5.17% (effective from January 1, 2021), with burden ratios as follows:

• Employer's share: 60%
• Employee's share: 30%
• Government subsidy: 10%

Dependents' premiums are borne by the insured persons (employees) themselves. Each dependent is calculated at the same rate and included in the same premium bill.

Labor Retirement Fund

Employers contribute 6% of the employee's monthly salary to the individual retirement account on a mandatory basis, which is fully borne by the company and cannot be passed on to the employee. Employees may also voluntarily contribute an additional 1%–6%, with the self-contribution portion not counted as annual income for tax purposes.

Table: Overview of Burden Ratios for Labor Insurance, Health Insurance, and Labor Retirement Fund

> Rates may be adjusted annually according to regulations; actual figures are subject to the latest announcements from the competent authority.

When is the Supplementary Insurance Premium for the Second Generation Deducted?

The supplementary insurance premium for the second generation is the item most frequently overlooked in health insurance regulations. The rate is 2.11% (effective from January 1, 2021), deducted at source by the withholding units.

The following six situations require the calculation of the supplementary premium:

1. Total bonuses for the year exceed 4 times the insured amount for the month: For example, if the insured monthly amount is NT$35,800, any portion of total bonuses for the year that exceeds NT$143,200 needs to be deducted at 2.11%
2. Part-time income: Salary for part-time personnel (not covered by full-time labor insurance)
3. Business revenue: Payments to lawyers, accountants, consultants, and other professionals
4. Dividend income: When the company distributes dividends
5. Interest income: Interest from bank or corporate bonds
6. Rental income: Payments for personal real estate rent

> Employers should note: Year-end bonuses, quarterly bonuses, and performance bonuses, if accumulated for the year exceed 4 times the monthly insured amount, the excess must be deducted for the supplementary health insurance premium, and any missed deductions must be made up with penalties.

How to Calculate Vacation Days? Seniority Comparison Table

According to Article 38 of the Labor Standards Act, employees who continue working for the same employer or business unit for a set period of time are entitled to the following number of special leave days each year:

Table: Legal Special Leave Days Comparison (According to Article 38 of the Labor Standards Act)

Handling of Unused Leave:

• At the end of the year or contract termination, the employer must settle any unused days and compensate in cash
• Unused days × daily wage = Unused Leave Bonus (must be included in income tax reporting)

Two Commonly Confused Scenarios in Calculating Leave:

Scenario A: Employees Working Across Calendar Years

Seniority is calculated from the "start date", not based on the calendar year or fiscal year. For example, if an employee starts on March 1, 2022, by March 1, 2025, they have completed 3 years of seniority, thus vacation days increase from 14 to 15 days. If the company resets leave based on the calendar year (January 1), the correspondence between seniority and leave days must be recalculated to ensure that the actual available days are not less than the legal standard.

Scenario B: Probation Period and Leave

The probation period (usually 3 months) counts towards seniority, allowing employees to start accumulating 3 days of leave once their seniority reaches 6 months, without waiting for the end of the probation period to re-evaluate. Many companies mistakenly believe that the probation period does not count towards seniority, resulting in insufficient vacation days being granted, which is illegal. Additionally, employees should determine when to take their leave independently; employers cannot forcibly require employees to take all their leave before the end of the year, as this would be an illegal deprivation of leave rights.

Complete Example of Calculating Take-Home Salary

Taking a general employee with a monthly salary of NT$35,000, who has 2 hours of overtime on a regular day and 4 hours of overtime on a holiday:

1. Calculate Hourly Wage

35,000 ÷ 30 ÷ 8 = NT$145.83 (approximately NT$146)

2. Overtime Pay on Regular Days

2 hours × 146 × 1.34 = NT$391

3. Overtime Pay on Holidays

First 2 hours: 2 × 146 × 1.67 = NT$488

Next 2 hours: 2 × 146 × 2.67 = NT$779

Total Holiday Overtime Pay: NT$1,267

4. Total Payable Salary

35,000 + 391 + 1,267 = NT$36,658

5. Statutory Deductions (using a health insurance rate of 5.17%, with health insurance deduction calculated as monthly salary × 5.17% × 30% as an example)

Health insurance employee contribution: 35,000 × 5.17% × 30% ≈ NT$543 (actual amount should be checked according to the monthly insured amount classification table)

Labor insurance contribution: Check according to the insured salary classification table (approximately 20% of the monthly insured salary)

Income tax: According to the Ministry of Finance's salary income withholding tax table

6. Take-Home Salary

= Payable Salary − Health Insurance Employee Contribution − Labor Insurance Employee Contribution − Other Deductions

> Actual amounts should be checked according to the current year's insured salary classification table; the above is a conceptual demonstration; it is recommended to use a payroll system to automatically input correct classifications and rates.

Common Errors in Payroll Calculation and Legal Risks

Most Frequently Discovered Violations by the Labor Bureau

1. Incorrect application of overtime pay multipliers: Especially for holiday work that did not use 1.67 and 2.67 times, instead applying the regular day multiplier
2. Errors in calculating vacation days: Underestimating days when seniority crosses years or failing to recalculate when switching working systems
3. Incorrect formula for calculating hourly wage for monthly salary employees: Using "monthly salary ÷ 22 working days ÷ 8" instead of "monthly salary ÷ 30 ÷ 8", leading to lower overtime pay
4. Omissions in deducting supplementary health insurance premiums for the second generation: When bonuses accumulated exceed 4 times the monthly insured amount, the excess portion was not withheld at 2.11%
5. Insured salary for labor and health insurance not adjusted according to minimum wage: After annual adjustments to the minimum wage, insured salary should be updated accordingly

Legal Consequences of Violations

According to Article 79 of the Labor Standards Act, employers who violate overtime pay regulations may be fined between NT$20,000 and NT$1,000,000, and the names of the business units and responsible parties will be publicly announced. If the outstanding amount reaches a certain level, the supervisory authority may order a business suspension, and in severe cases, criminal liability may be pursued.

Key Points of Labor Inspection: The Ministry of Labor and labor bureaus across counties and cities regularly audit business payroll calculation records, focusing on whether attendance records are complete (to be retained for 5 years), whether overtime pay calculations are correct, the actual number of vacation days granted, and whether minimum wage meets legal standards. It is advisable for businesses to keep detailed payroll calculations (audit logs), enabling tracing of calculations and working hours for each overtime payment to provide explanations during labor inspections.

How to Use the Management King Payroll Calculation System

The payroll calculation system by Management King AI.com.tw automatically incorporates all the complex rules mentioned above into the system, eliminating the need for HR to manually apply formulas in Excel:

Automatic Calculations

• Three multipliers for overtime pay under the Labor Standards Act (1.34/1.67 for regular days, 1.67/2.67 for holidays, double for national holidays) automatically applied based on attendance records
• Labor insurance, health insurance, and labor pension deductions automatically allocated according to the latest insured salary classification table
• Smart detection for the second-generation supplementary insurance premium: The system automatically accumulates annual bonuses and prompts and calculates deductions when exceeding the 4 times threshold
• Seniority automatically accumulates, and vacation days are updated in real time according to legal standards, with proactive notifications for adjustments upon reaching seniority thresholds

Integrated Attendance Tracking

Management King's clock-in system is natively integrated with the payroll calculation system, with automatic adjustments for payroll calculation in case of attendance anomalies (tardiness, early departures, absences), and the schedule information from the scheduling system is directly integrated into the overtime pay calculations, eliminating the need for HR to manually transfer figures.

One-Click Generation of Payroll and Transfer Files

Payroll PDFs are automatically generated and sent to employee Emails, and transfer files support ACH formats compatible with banks such as Yuanta, Cathay, and Mega.

Automatic Regulatory Updates

Whenever the minimum wage, labor insurance rates, and health insurance rates are adjusted, the system automatically updates calculation rules, eliminating manual maintenance of formulas by HR.

Free Plan Available for Permanent Use, allowing up to 10 members to use all basic features of the payroll calculation system for free, with no credit card required, and complete free registration in 30 seconds.

Other functions within the HR system can also be used in conjunction:

• Performance Management: Setting KPI goals, monthly evaluations, and data basis for year-end evaluations
• Approval Center: Electronic signing for leave, overtime applications, automatically linked to payroll calculations
• Electronic Contracts and E-Signatures: Online signing of employment contracts and salary confirmation letters, with permanent archiving
• Accounting System: Automatic posting of payroll expenses, eliminating the need for duplicate data entry between payroll and accounting systems

For complete pricing information, refer to the Management King service plans, or read the complete guide to scheduling management rules to understand compliance points for scheduling, and refer to the accounting system purchasing guide for financial system integration methods.

Frequently Asked Questions

How to Calculate Hourly Wages for Monthly Salary Employees?

The hourly wage for monthly salary employees = Monthly Salary ÷ 30 ÷ 8. For example, with a monthly salary of NT$35,000, the hourly wage is approximately NT$145.83. This formula is the basis for calculating overtime pay and does not depend on the actual number of working days in a month; do not calculate based on actual working days or 22 days, as this would lead to illegal low overtime pay.

What is the Minimum Overtime Pay for Working on Holidays?

According to Article 24 of the Labor Standards Act, employees working on holidays must be paid a minimum of 4 hours for overtime, regardless of the actual hours worked. This means that even if an employee works for just 1 hour, the employer still has to pay for 4 hours of overtime on holidays (1.67 times for the first 2 hours and 2.67 times for the subsequent 2 hours).

How to Calculate the Supplementary Insurance Premium for Year-End Bonuses?

When employees’ accumulated bonuses for the year (including year-end, holiday, performance, and other bonuses) exceed "the monthly insured salary for that month × 4 times", the excess portion must have a 2.11% supplementary premium withheld. For example, if the monthly insured amount is NT$35,800, the 4 times threshold is NT$143,200. If the accumulated bonuses for the year total NT$200,000, the excess NT$56,800 is subject to a 2.11% deduction, which is approximately NT$1,199 supplementary health insurance premium.

What Happens if Employees Do Not Take Their Leave by Year-End?

According to Article 38, Section 4 of the Labor Standards Act, unused leave days must be settled in cash by the employer at the end of the year, ensuring that employees do not suffer losses. The calculation method is: Unused Days × (Monthly Salary ÷ 30) = Unused Leave Bonus; this bonus must be included in the annual income report, and if it exceeds the cumulative threshold of 4 times the monthly insured amount, it must also have a supplementary insurance premium deducted.

What Updates are Required in Payroll Calculations After Minimum Wage Adjustments?

Following the effective date of annual minimum wage adjustments, the following updates must be made: (1) Immediate salary adjustments for those earning below the minimum wage; (2) Update labor insurance monthly insured salary limits (Level 1 monthly insured salary follows the minimum wage); (3) Update limits for health insurance monthly insured amounts; (4) Recalculate related deduction amounts. The Management King payroll calculation system will automatically notify users of regulatory updates and provide a new rate table, which HR can apply with a single click after verification.

Data Sources

• Ministry of Labor – Minimum Wage Inquiry (minimum wage NT$29,500/month, NT$196/hour, effective from January 1, 2026)
• National Laws Database – Labor Standards Act Articles 24 and 38 (overtime pay multipliers, special leave day regulations)
• Ministry of Health and Welfare – Calculation Formula for Supplementary Insurance Premiums (supplementary health insurance premium rate 2.11%, effective from January 1, 2021)
• Ministry of Health and Welfare – General Premium Burden Amount Table (health insurance rate 5.17%, burden ratios 60% employer, 30% employee, 10% government)
• Ministry of Labor Labor Insurance Bureau – Insurance Fee Policies (labor insurance rate burden ratio: 70% employer, 20% employee, 10% government)

This article is for general informational purposes only and does not constitute legal or tax advice; actual regulations are subject to the latest announcements from the competent authorities.