Ⅴ. Labor Ministry Guidelines & Judicial Rulings

1. Items to be included in average wage

1) As long as a meal allowance is paid periodically and uniformly, this cannot be pure welfare or a bonus expressing favor, but shall be regarded as money characteristic of wage paid as remuneration for labor service.
2) As the total wage calculated for average wage are any money and valuable goods an employer pays to a worker for their work, what the worker receives continuously and regularly, and what the employer has to pay according to the collective agreement and rules of employment, regardless of how such payments are termed, a holiday work allowance shall be included [in calculation of severance pay].
3) As overtime allowance is not money paid under friendly and favorable conditions, but rather, is remuneration the employer has to pay for an employee’s work, regardless of its label, overtime allowance shall be included into average wage when calculating severance pay.
4) As incentive bonuses, special bonuses, or production incentives have been determined at the discretion of the employer for their payment, payment rate, and payment period, they are not designated average wage. In cases where an incentive bonus satisfies some specific conditions, it can be admitted as wage and shall also be included into the calculation of average wage. Otherwise, it shall be considered as a form of the employer’s praise or favorable reward, which then denies it the character of wage and therefore excluding it from the calculation of average wage. If the company did not regulate in the CBA or rules of employment any payment of incentive bonuses, special bonuses or production incentives, but determined them at the employer’s discretion according to business performance, then, unless the habitual practice for payment was settled, such remuneration shall be denied as having the character of wage.
However, if the incentive bonuses were to be included in the average wage, according to the CBA or rules of employment, in cases where the company calculates average wage for severance pay and an unused annual leave allowance or, despite the absence of specific regulation, if the company has repeatedly included incentive bonuses in the calculation of average wage for severance pay for a long time, this common business practice may be deemed working conditions. In cases where the employer wishes to unfavorably change the working conditions admitted as habitual practice, the company must go through the proper procedure required to unfavorably revise the rules of employment.

2. wage paid irregularly for periods exceeding 3 months

(1) Bonuses

There are no regulations stipulated in labor law about matters concerning payment of bonuses, but bonuses shall be deemed wage as remuneration for work when they are stipulated in the rules of employment for payment conditions, amount, and payment period, or when they have been paid so habitually to all employees that the employee may have natural expectations to receive a bonus as a matter of course. On the other hand, in cases where the payment rate of bonuses was established per year-unit and paid for the period exceeding one month, the total amount of bonus paid for a certain month shall not be included into calculation of average wage. The bonuses shall be calculated by dividing the total amount of bonuses paid to a relevant employee during the twelve calendar months before the day on which a cause for calculating his average wage occurred by the total number of calendar months, which is 3/12 times the total amount of bonuses paid per year.
(2) Whether to include annual paid leave allowance into average wage to calculate severance pay

1) Unused annual paid leave allowance already occurring before retirement
By the criteria of attendance rate during the year prior to the retirement year, 3/12 of the unused annual paid leave allowance of annual paid leave occurring the year prior to the retirement year shall be included into “the basic wage items to calculate average wage for severance pay.”

2) Unused annual paid leave allowance occurring only because of retirement
The unused annual paid leave allowance that the employee is granted just because of retirement in the retirement year according to attendance rate of the year before the retirement year shall not be included into “the basic wage items to calculate average wage for severance pay,” because the unused annual paid leave allowance is not wages paid during the calculation of average wage.

3. The period for calculation of average wage

(1) Calculation of average wage during periods of leave

Average wage where an employee resigned after a period of leave from work that the employee took with approval from the employer due to non-occupational injury, illness or other reason shall be calculated as follows: average wage to calculate severance pay refers to the amount calculated by dividing the total amount of wages paid to the relevant employee during three calendar months prior to the date of calculation by the total number of calendar days during those three calendar months(Article 2 of the LSA). If the amount calculated by this method is lower than the ordinary wage of the employee concerned, the ordinary wage shall be deemed as average wage. In cases where the period of calculating average wage includes the period falling under a period of leave from work with approval from the employer caused by non-occupational injury, illness, or other reason, the period and wages paid for that period shall be deducted respectively from a basis period for the calculation of average wage and the total amount of average wage(Article 2 of the Enforcement Decree to the LSA).
Therefore, in cases where an employee took a leave of absence for non-occupational injury, illness or other reason in accordance with Article 2(8) of the Enforcement Decree to the LSA(with approval from the employer), the remaining period and wages excluding the leave of absence shall be used for the calculation of average wages. If the leave of absence exceeds three months, the first day of the leave of absence shall be the date for calculating average wages based on the previous three months. In any case, if the amount calculated above is lower than the ordinary wage of the employee concerned, the ordinary wage shall be deemed as average wage.

(2) A period of suspension from office in calculating average wage

In this case, the criteria for calculating average wages shall be decided upon whether the suspension from office is justifiable or not. If the suspension from office is justifiable, the suspension period and the wages paid during the suspension period shall be included in the total period and amount of wages respectively in calculating average wages, provided that, when the amount calculated for average wage is lower than the ordinary wage of the employee concerned, the ordinary wage shall be deemed average wage. If the suspension from office is unjustifiable, it is legitimate that the suspension period and the wages paid for the suspension period shall be deducted respectively from a basis period for the calculation of average wage and the total amount of average wage according to Article 2(8) of the Enforcement Decree to the LSA.

(3) Calculation of average wage for a full-time officer in the labor union.

In cases where a full-time union officer, who is engaged exclusively in affairs of the labor union and does not provide labor service, resigns from the company at the same time as his union service period expires, the initial day(last day of wage payment) of the labor union’s full-time officer for calculating average wages shall be considered the “date on which a cause for calculating his average wage occurred,” unless there is a special agreement to the contrary.