Newsletter
CLARIFICATION ON PENSION ISSUES FOR AFFILIATED COM-PANY PERSONNEL
The Labor Pension Act (LPA) took effect on 1 July 2005. The Council of Labor Affairs re-cently issued an interpretation regarding calcu-lation of years of service for personnel trans-ferred between affiliated companies, and over the applicability of the old and new retirement pension systems to such personnel.
The interpretation stated that (1) when an em-ployee is seconded to another company (includ-ing an affiliated company), because the em-ployment contract has not been terminated or suspended, the period spent working at the other company should be included in the calculation of the employee’s years of service for pension purposes; and that (2) if an employee opts for the new pension system, his years of pension con-tributions accumulated under the old system should be retained in accordance with Article 11 of the LPA, and when the employee retires, the employer should pay the employee a retirement payment in respect of the retained years of ser-vice, based on the employee’s average salary at the time of retirement, according to the payment rates provided for by the Labor Standards Act (LSA). When an employee to whom the new pension system applies works at another com-pany under secondment, although his wages are not paid directly by the original employer, the employment contract continues to exist, so the original employer should still make monthly pension contributions according to the em-ployee’s individual wage band.
Conversely, when an employer reassigns em-ployees to an affiliated enterprise, this involves a change in one of the parties to the employment contract or in the recipient of services, so that such work is not performance of the original employment contract. Therefore, after the new pension system takes effect, if an employer re-deploys employees in this way, with the consent of the employee concerned, then the new pension system should apply, as required by the proviso to Article 8 Paragraph 1 of the LPA. If the em-ployer makes pension contributions under the new system, and includes in the calculation of the employee’s years of service under the old pension system all periods spent with both the original business entity and with affiliated en-terprises, and when the time comes to pay out the retirement payment due under the old system on this basis, there should be no objection to this treatment, because it provides the most favorable treatment to the employee.
However, it may be that an employee who is temporarily assigned to work at an affiliated en-terprise remains in the employment of the original employer. After the new pension system takes effect, if an employee is required to move to another business entity and render services there, but remains enrolled as an employee of the original business entity and continues to draw salary from the original business entity, then because the employment contract between the employee and the original business entity has not been terminated due to his working at another business entity, the employee may continue with the old LSA retirement pay scheme, if he so chooses.