LABOR LAW GUIDE

Chapter 3 Wages

Section 2 Substantial Criteria for Ordinary Wages

1. Ordinary Wage

(1) Concept
Recent judicial rulings concerning rules for calculation and scope of ordinary wages have differed from Ministry of Employment and Labor guidelines, something which has caused much confusion for corporate management. However, the Supreme Court, with all judges in attendance, offered clarification on December 18, 2013: 'Ordinary wages' means wages which are determined to be paid periodically or in a lump sum to an employee for his/her prescribed work or whole work. This ordinary wage is used as the standard wage to calculate added allowance for overtime, night and holiday work, annual paid leave allowance, dismissal pay, and for paid leaves that employers have to provide under the Labor Standards Act. If this ordinary wage has not been calculated properly, it is not as simple as re-calculating and paying the correct amount from now on, but the employer shall recalculate all kinds of allowances such as overtime, night and holiday work, and other allowances that were paid over the past three years. Furthermore, the employer shall recalculate the severance pay for resigned or dismissed employees and pay the difference.

(2) Legal criteria for determining ordinary wages
1) Ordinary wages means wages that an employer pays to an employee as remuneration for his/her prescribed work or whole work, and those which are paid regularly and uniformly are considered ordinary wages in principle. For legislating the Labor Standards Act and the function and necessity of ordinary wages, what should be included as ordinary wages shall be fixed wages paid regularly and uniformly. This means non-fixed wages are not ordinary wages, as they are not paid regularly and uniformly and may or may not be paid, or the amount paid is according to actual work performance. Here, being paid 'uniformly' not only means that payment is made to all employees, but also to all employees qualified according to certain conditions or criteria. Here, 'certain criteria' refers to 'fixed conditions' in considering the concept of ordinary wage, because the ordinary wage is used to calculate 'fixed and generally accepted regular wage.‘103)
2) Even though a particular allowance or bonus, etc., may be paid for a period exceeding one month, if these are paid regularly and uniformly, these components can be included in ordinary wages. 104)
3) Mutual agreements between employer and employees that exclude a particular allowance considered ordinary wages according to the Labor Standards Act are null and void because such an agreement sets conditions lower than that of the Labor Standards Act. 105)

(3) Application of Ordinary Wage
1) Bonuses
Bonuses are included into the realm of ordinary wages even if they are not paid regularly every month. Rules for calculating ordinary wages explains the bonus as follows106) (revised after the Supreme Court ruling on December 18, 2013):


① As the regular bonus is paid regularly and uniformly (e.g. 100% paid every even month) as fixed wages for labor service, it shall be considered ordinary wages as stipulated in the Labor Standards Act. 107)
② The bonus in this case is only applicable to employees working for six months or more with a certain amount paid quarterly, and calculated according to the number of years of service. This bonus is paid every quarter, distinguishing it from annual salary divided into monthly payments, but this difference in payment time does not preclude it from being considered as ordinary wage. As the bonus in this case has been previously fixed, it shall be considered ordinary wage as it is a fixed wage paid regularly and uniformly.108)
2) Payments made for an employee's living costs or welfare, regardless of working hours

① The company has paid all cleaning workers a fixed meal allowance, household subsidy, transportation subsidy, morning meal costs, sanitation allowance, and snack allowances as fixed amounts every month, all of which shall be considered ordinary wages to be paid regularly and uniformly as reward for labor service. 109)
② If a welfare allowance has been paid uniformly, regularly, and at a fixed rate to all employees of the same business according to the collective wage agreement, this is not money paid temporarily and according to favor for welfare, but wages paid as reward for labor service according to employment relations. In addition, this is not wages paid individually or at a variable rate, but fixed wages for ordinary working days and working hours, so shall be considered ordinary wage.110)
③ Even though some employees with lower work attendance rates have been paid transportation and meal allowances differently than other workers, these allowances have been paid to all employees and shall be considered ordinary wages.111)
④ Even though a company enters into an agreement with employees that it will not calculate into ordinary wage the meal allowances that have been paid at a fixed rate to all employees, this shall be considered an illegal employment contract. 112)
⑤ Service allowances have accumulated according to the length of service for all cleaning workers employed for at least one year; meal, transportation, sanitation, and hazard allowances have been paid at a fixed rate every month to all cleaning workers. Quarterly, attendance, exercise, and traditional holiday allowances have been paid to all cleaning workers regularly and at a fixed rate if they meet certain criteria. As these allowances are fixed wages paid regularly and uniformly as reward for labor service, they shall be considered ordinary wages. 113)


2. Supreme Court Decision on Ordinary Wage

I. Rulings (Two Cases Related to Ordinary Wage)
1. First case 114)

(1) Background: The defendant company (hereinafter, referred to as the company) has paid bonuses on every even month, in accordance with the company's Bonus Payment Regulation, with the full amount paid to employees with more than two months of service. However, a different amount calculated by application of a pre-determined rate, according to the corresponding period of the bonus payment, is paid to new employees with less than two months of service, those who have just returned after taking at least two months of leave, and those who are on leave. As for those who resigned during the corresponding period of bonus payment, the company pays the pro-rated amount according to the number of days worked. When determining the amount of wages to be included in ordinary wages in the collective agreement concluded on October 8, 2008, the company and the labor union excluded the bonuses in the calculation of ordinary wage, assuming that the bonuses in this case were not included in ordinary wage in the Labor Standards Act.

(2) Controversial points related to this case:
1) Whether or not the bonuses in this case are included in ordinary wage;
2) Although the company and the union agreed to exclude the bonuses in the calculation of ordinary wages, if an employee applied for additional wage, claiming that the agreement was invalid, whether or not this claim violated the good-faith principle.

(3) Court ruling:
1) Even though the company paid the bonus for a period exceeding one month (every two months during each period of wage payment), this amount has satisfied the requirement of periodic payment, as this was paid periodically. Also, since whether or not the payment was made, and the amount of the payment had already been determined uniformly for all employees, the bonus qualifies as uniform and fixed. As the bonus payment varies according to the particular service period (as of two months), it could be misunderstood that there

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