1. Concept

When designing a labor contract, the employer determines the base pay for the employee. Then, the employer generally calculates wages or added allowances with the base pay for overtime, off-days, and night work. However, in order to consider working structure and job characteristics, to make an efficient calculation, or to encourage strong work ethic, an employer can include general allowances such as overtime allowance, etc. in the base pay and also pay a certain amount of allowance every month under the inclusive wage system. In this case, as long as the conditions are not deemed disadvantageous to the employee, it does not violate the law. The inclusive wage system where an employer pays a fixed monthly salary is convenient for management, but can only be applied in some situations, as it can easily violate the Labor Standards Act. The inclusive wage system is a salary payment system where the employer determines the total wages, which include statutory allowances such as overtime, night, and holiday work allowances in consideration of job characteristics and convenience in calculating wages, and then pays a fixed wage every month. This system is often designed for use at workplaces where it is hard to measure working hours due to the job characteristics or for the convenience of calculating working hours even though those working hours are measurable. However, this inclusive wage system is also commonly used to avoid paying various allowances required under the Labor Standards Act. Originally, statutory allowances under the Labor Standards Act were meant to be paid for actual work provided. If an employer pays wages that include statutory allowances in advance, this could violate the Labor Standards Act, but is allowed, albeit with strict limitations as determined in judicial rulings and administrative guidelines.
There are two generally-accepted types of inclusive wage systems. The first is for special work where it is difficult to measure working hours. The second is for convenience of calculation.


2. The Inclusive Wage System and Related Judicial Principles¹¹⁸⁾

Article 17 of the Labor Standards Act stipulates, An employer shall clearly state wages, contractual working hours, and other working conditions. For matters as to constituent items of wages and the calculation and payment methods of wages shall be specified in writing. Article 56 of the LSA regulates, An employer shall pay an additional fifty percent or more of the ordinary wages for extended work, night work, or holiday work. Based upon these regulations and the rules stipulated concerning ordinary wages, in making an employment contract, the employer shall first determine basic pay, and then from this basic pay, shall calculate the statutory allowances such as overtime, night work, and holiday work allowances according to actual working hours.
In principle, the payment of wages is according to the number of working hours. There are exceptional cases where working hours cannot be measured when considering actual hours worked, employment types and job characteristics like surveillance and intermittent work. In this case, the employer can make a wage payment contract that follows an inclusive wage system where the employer and employee can determine a monthly or daily wage that reflects all allowances, including statutory, without deciding the basic pay in advance, or the employer can make an employment contract with fixed amounts inclusive of all statutory allowances, based only upon the previously determined basic pay, without considering the actual number of hours worked. This inclusive wage system is permissible when there is no disadvantage to the related workers or as a justifiable method in view of special situations related to those jobs.
However, if working hours of a specific job are measurable, the principle is to pay wages according to working hours as reflected in the Labor Standards Act, unless a special situation exists where the LSA requirements do not apply. Therefore, for an employer to create a wage payment contract that uses an inclusive wage system (paying a fixed amount for statutory allowances) regardless of the number of working hours, is to violate the Labor Standards Act in principle and is not allowable by law.


3. Inclusive Wage System by Job Characteristics

(1) Requirements
1) Job characteristics and working structure
The inclusive wage system can be adopted when working structures, working hours, or rest hours in the working area are irregular, and when overtime and night work are naturally included in the working structure, even though the employee can decide on the working hours at his/her own discretion.
Examples of an inclusive wage system by job characteristics are as follows:
① Irregular work due to climate, supply of raw materials, etc.
② Transportation time that cannot be translated into working hours
③ Surveillance and intermittent work
④ Special working structures

2) Employee's consent
Under the circumstances in which the inclusive wage system is accepted as an exception to the payment structure for added wages in the Labor Standards Act, the system shall be specified concretely in a labor contract or Rules of Employment, or at least by a clear verbal agreement in principle. However, the inclusive wage can be admitted by two parties if it has already been habitually used in wage calculation for work such as surveillance, work that is intermittent, work that is every other day, and shift work, or if the employees have complied without disagreement to the work that requires regular overtime work and night work at measurable working hours.
(2) Effect
In cases where the inclusive wage system is introduced legally and properly through mutual agreement due to difficulties of measuring working hours, the employee cannot request added wages for overtime or night hours. Thus, even if the inclusive wage is less than the wage calculated by actual working hours, the employer does not have to pay the difference.
(3) Related cases
1) Judicial rulings allow inclusive wage systems due to the special nature of work for cargo truck drivers whose working hours are difficult to measure, guards engaged in surveillance and intermittent work, workers contracted on a daily basis, part-timers with remarkably shorter contractual working hours, shift workers on 24-hour shifts, and other similar jobs. As for other jobs where the working hours cannot be measured in reality, if the employer and the employees agree to fixed overtime and holiday work allowances for a certain number of working hours each month, and if the employees have received those fixed allowances without complaint for a certain period of time, this inclusive wage system is allowed unless there is disadvantage to the employees when considering all circumstances.¹¹⁹⁾

2) In cases where an inclusive wage payment system has been agreed upon in the employment contract, the inclusive wage that the employee receives for overtime work allowance and other allowances equivalent to overtime, night, and holiday allowances (in accordance with the Labor Standards Act) is an acceptable inclusion of overtime allowance, night work allowance and holiday work allowance. In cases where the inclusive wage payment system has been agreed upon at a workplace, the employer does not pay the difference in allowances for overtime.¹²⁰⁾
3) The labor service that the employees provided to Construction Company S was to guard and patrol workplaces for 24 hours straight every second day: surveillance work with lower mental and physical stress. This work naturally included overtime, night, and holiday work exceeding standard worki