LABOR LAW GUIDE

Chapter 3 Wages

Section 6-2 Minimum Wage and the Employer’s Obligations

I. Introduction
On July 18, 2017, the Minimum Wage Council decided that the minimum wage, to be applied in 2018, would be KRW 7,530 per hour, which is equivalent to KRW 1,573,770 for a 40-hour week. This is an increase of 16.4% over the previous year, which is twice the average increase rate in the minimum wage, and it is expected that the impact on Korea’s small and medium-sized companies will be severe. To address this, the day after the announcement of the minimum wage the government announced that it would subsidize the additional labor cost with taxes in excess of the average increase rate of the previous minimum wage to alleviate the impact of the minimum wage and support the SMEs. In reality, however, it is unclear how much the government’s grant will help companies that have to fulfill the legal responsibilities of complying with the new minimum wage. The increase in minimum wage is the most desirable way to reduce the difference in wages between regular and irregular employees, but a great change is expected in the case of SMEs and small-scale service companies that are unable to pay the minimum wage.
According to the current minimum wage system in Korea, one minimum wage is applied at all workplaces, without distinction as to the type of industry or region, and all employers are obligated to pay at least the minimum wage.
In the following, I will explain the employer's obligations, the criteria for determining violations of minimum wage, calculation of hourly wage for minimum wage, and the practical applications thereof.

II. Application of the Minimum Wage

1. The employer’s obligations
The minimum wage system guarantees the minimum amount of hourly wage for employees. An employer can pay more than the minimum wage, and an employment contract stipulating a wage which is less than the minimum wage shall be invalid only for that part, and any wage that was paid at less than the minimum wage must be paid additionally. In cases of violation of this, the employer shall be punished by imprisonment for up to three years or a fine not exceeding KRW 20 million (Articles 6 and 28 of the Minimum Wage Act). In addition, when a minimum wage is announced, the employer shall inform employees of 1) the new minimum wage rate, 2) the scope of wages excluded from application of minimum wage, and 3) the effective date. This notice must be posted in places where it can be easily seen by all employees, or through other appropriate methods. In case of violation of this, the employer shall be punished by a fine up to KRW one million (Article 11 and Article 31 of the Act). Exceptions to the application of the minimum wage are: ① persons who are in a probationary period and who are within 3 months of the day of probation (except for employment contracts of less than one year) and ② surveillance or intermittent work approved by the Minister of Employment and Labor.1)

2. Criteria for determining violation of minimum wage
To determine whether the wages paid by a workplace are less than the minimum wage, ① the total wages included in the minimum wage from the wages paid monthly, ② will be divided by the monthly contractual working hours, and then hourly minimum wage will be calculated, ③ and then the amount will be compared with the minimum wage.2)
The scope of wages to be included in calculation of minimum wage according to the Minimum Wage Act includes 1) wages or allowances to be paid according to wage items stipulated in a collective agreement, the Rules of Employment, and/or an 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 (Article 2 of Enforcement Regulation of the Act (Table 2).
Wages excluded from minimum wage rules are as follows (Table 1 of the Act):
1) Wages, other than those paid regularly once or more every month
① Diligence allowances paid for superior attendance over periods exceeding one month;
② Long-service allowances paid for continuous work over periods exceeding one month;
③ Incentives, efficiency allowances, or bonuses presented for various reasons over periods exceeding one month; and
④ Other allowances paid temporarily or incidentally, such as marriage allowances, winter fuel allowances, kimchi allowances, exercise subsidies, etc., and which have no fixed payment date or are 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 allowances, housing allowances, transportation allowances, etc., or actual or similar expenses to support employee welfare such as meals, dormitory accommodation or other housing, company shuttle buses, etc.

3. Hourly wage calculation for the minimum wage
The minimum wage shall be determined in units of hours, days, weeks, or months. When determining the minimum wage in units of days, weeks or months, the hourly wage should also be indicated. The hourly wage determined for a month shall be the monthly amount divided by the number of contractual working hours in one month. In order to calculate the hourly wage of the monthly wage, the amount of the wage divided by the number of working hours per month becomes the hourly minimum wage (Article 5 of the Act, Article 5 of the Enforcement Decree). The prescribed working time of one month includes paid weekly holiday allowances (Article 55 of the Labor Standards Act) and paid allowances on off-days according to a collective agreement. The related court ruling and administrative interpretations are as follows:
(1) Court ruling
The court ruling for the contractual working hours per month is that “Article 5 of the Enforcement Decree of the Minimum Wage Act stipulates that the wages paid on a weekly or monthly basis shall be wages divided by the number of contractual working hours per week or month. The so-called "weekly holiday allowance", which is a wage for a paid holiday, is a wage that is regularly paid at least once a month for given work. Therefore, this regularly paid weekly holiday allowance should be included in the wage calculation.”3) In a sample case of 40 hours per week, the contractual working hours for the month is 209, including the weekly holiday allowance.
(2) Labor Ministry guideline
According to Article 5-2 of the Minimum Wage Act and Article 5 of the Enforcement Decree of the same Act regarding wages for application of the minimum wage, the monthly wage prescribed for a monthly period shall be the wage divided by the number of contractual working hours per month. In a workplace that conducts a 40-hour workweek each month, ‘if 8 hours of Saturday work are treated as paid working hours’ even though there is no work duty provided on this Saturday, the number of hours worked in a month for the application of the minimum wage is calculated as 243 hours including paid weekly holiday allowance [{40 hours + 8 hours (Saturday paid work) + 8 hours (paid weekly holiday)} x 365/7 ÷ 12 ≒ 243 hours]4).

III. Practical Applications of the Minimum Wage

For further questions, please
call (+82) 2-539-0098 or email bongsoo@k-labor.com

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