1. Concept

The minimum wage system is the nation intervening in the decision-making process between employer and employee, designed to protect employees earning low wages by stipulating and legally requiring employers to pay minimum wage levels or higher. The minimum wage is determined annually on the 5th of August by the Minimum Wage Council, which is composed of 9 representatives from each of the following groups: labor, management, and government. The minimum wage they determine is effective from January 1 to December 3 of the following year. The minimum wage mainly influences small and medium-sized companies who employ low-income workers such as guards, janitors, migrant workers, etc., and this directly affects the process of making decisions on salary.


2. Scope of Application

The minimum wage shall apply to all businesses or workplaces.
1) Deduction from application of minimum wage: a 10% deduction is applicable for a person who is still in a probationary employment period and three months have not passed from the beginning of employment.
2) Exclusion from application of minimum wage: ① a person who has remarkably low abilities to work due to a mental or physical handicap and for whom the employer has obtained approval from the Ministry of Labor; ② any business using only relatives living together, ③ those hired for household work, and ④ seamen who are subject to the Seaman Act, or ship owners employing such seamen.


3. Minimum Wage and Employer Obligations

(1) Obligation to give notice
When the minimum wage is announced, the employer shall inform employees of 1) the minimum wage rate, 2) scope of wages excluded from application of minimum wage, and 3) effective date. This notice must be posted in places where it can be easily seen by employees, or through other appropriate methods.

(2) Obligation to pay minimum wage
An employer shall pay the minimum wage in full to employees covered by the minimum wage rules. If a labor contract between an employer and employee provides for a wage that is less than the minimum wage rate, such provision shall be null and void and the invalidated provision shall be regarded as stipulating that the same wage as the minimum wage rate shall be paid.

(3) Joint liability for contractor
In the event that a project is carried out under contract, if the contractee has paid his/her employees wages lower than the minimum wage rate for reasons for which the contractor is liable, the contractor, along with the contractee, shall take joint liability. The reasons a contractor will be considered liable are 1) a contractor’s act of determining unit labor costs lower than the minimum wage rate at the time of the signing of the contract; and 2) a contractor’s act of lowering unit labor costs to below the minimum wage rate in the middle of the contract period.

(4) Supplement allowance due to reduced contractual working hours
Even though the contractual working hours are reduced due to the Labor Standards Act (Article 50), the employer cannot lower the previously paid wages subject to the minimum wage without justifiable reason. If the salary paid after reducing contractual working hours is less than the amount paid before working hours were reduced, a supplemental allowance shall be paid.

(5) Penal provisions for violation of the minimum wage level
1) Imprisonment of up to three years or a fine not exceeding 20 million won
-paying lower than the minimum wage rate
-lowering the previous wages on grounds of the minimum wage, according to the ‘Minimum Wage Act’
-failure to pay the required supplement allowance if reduced contractual working hours result in reduced wages
2) Fine not exceeding one million won
- failure to inform employees of the minimum wages announced by decision of the Minister of Labor


4. Minimum Wages and Ordinary Wages

(1) Understanding the difference between minimum wage and ordinary wage
Calculation of the minimum wage is based upon the hourly minimum wage just like ordinary wages. The minimum wage includes all items inclusive of the ordinary wage and is evaluated according to actual payments, but the ordinary wage shall be the amount determined to be paid in the beginning because the ordinary wage is a base to calculate the overtime wage rate. This ordinary wage means wages determined to be paid periodically or in lump sums to the employee for contractual or whole labor. For a related example, an incentive wage due to production volume shall be included in the minimum wage, but not included in the ordinary wage.

(2) Wages included in minimum wages
The scope of wages to be included in calculation of minimum wage according to the Minimum Wage Act contains 1) wages or allowances to be paid according to wage items stipulated in the collective agreement, the Rules of Employment, and the employment contract, or repeated regular payments; and 2) wages or allowances to be paid periodically or in a lump sum once or more every month for contractual labor according to previously agreed upon payment conditions and payment rate.

(3) Wages excluded from minimum wage rules
1) Wages, other than those paid regularly once or more every month
① Diligence allowances paid for superior attendance during periods exceeding one month;
② Long-service allowances paid for continuous work during periods exceeding one month;
③ Incentives, efficiency allowances, or bonuses presented for various reasons during periods exceeding one month; and
④ Other allowances paid temporarily or incidentally like marriage allowances, winter fuel allowance, kimchi allowance, exercise subsidies, etc. and without fixed payment dates or irregularly paid, even though payment conditions were determined in advance.
2)Wages, other than those paid for contractual working hours or contractual working days
① Annual or monthly paid allowances, work allowance on paid leave, work allowance on paid holidays;
② Wages and additional allowances for extended work or holiday work;
③ Additional allowances for night work;
④ Day & night-duty allowances; and
⑤ Wages not admitted to be paid for a contractual working day, regardless of how such payments are termed.
3) Other wages deemed inappropriate to be included in the minimum wage
Allowances paid to assist employees such as family allowances, meal allowance, housing allowance, transportation allowance, etc. or actual or similar expenses to support employee welfare such as meals, dormitory accommodations or other housing, company shuttle buses, etc.