Ⅵ. Minimum Wage

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 wage 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 31 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.
The increase in minimum wage is the most desirable way to reduce the difference in wage between regular and irregular employees, but a great change is expected for 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.
Employers can pay more than the minimum wage, but parts of employment contracts that stipulate a wage lower than the minimum wage shall be invalid, with the difference to be paid additionally. Employers shall be punished for violations with imprisonment of up to three years or a fine not exceeding KRW 20 million.



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.

(1) 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 Employment & 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.

(2) Minimum wage and employer obligations

The minimum wage system guarantees the minimum amount of hourly wage for employees. An employer can pay more than the minimum wage, but the part of an employment contract stipulating a wage which is less than the minimum wage shall be invalid, and any missing amount from the minimum wage must be paid additionally. For violations, 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 easily be seen by all employees, or through other appropriate methods. For violations of this, the employer shall be punished by a fine up to KRW 1 million(Articles 11 and 31 of the Act). Exceptions to the application of minimum wage are those to whom any of the following subparagraphs apply and for whom the employer obtains permission from the Minister of Employment and Labor: ① A person who has remarkably low abilities to work due to a mental or physical handicap and ② Other people as deemed inappropriate for application of the minimum wage.

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 wage excluded from application of minimum wage, and ③ effective date. This notice must be posted in places where it can easily be 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 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 its 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 contract signing; 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 wage 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 1 million won
- failure to inform employees of the minimum wage announced by decision of the Minister of Employment and Labor

2. Criteria for Determining Violations of Minimum Wage Law

To determine whether the wage paid by a workplace are less than the minimum wage, ① the total wage included in the minimum wage from the wage paid monthly ② will be divided by the monthly contractual working hours, and then hourly minimum wage calculated, and ③ then the amount will be compared with the current minimum wage.
The scope of wage to be included in calculation of minimum wage according to the Minimum Wage Act includes ① wage 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 wage 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 the Enforcement Decree to the Act(Table 2)).

* The portion equivalent to 25/100 of monthly conversion (122,160 won, calculated as of 2019) calculated based on the minimum hourly wage in the relevant year, of the bonuses or other equivalent payment; and the wage paid for support of livelihood and welfare of workers such as food allowances, accommodation allowances, transportation allowances, etc., which fall under any of the following items: a. wage paid in any form other than currency; b. Of wage paid in currency, the portion equivalent to 7/100 of the monthly conversion (436,287 won, calculated as of 2019) calculated based on the monthly wage paid in the currency, in turn based on the minimum wage in the relevant year.

wage excluded from minimum wage rules(Table 1 of the Act).

(1) wage, other than those paid regularly once or more every month
1) Diligence allowances paid for superior attendance over periods exceeding one month;
2) Length of 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) wage, 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) wage and additional allowances for extended work or holiday work;
3) Additional allowances for night work;
4) Day & night-duty allowances; and
5) wage not admitted to be paid for a contractual working day, regardless of how such payments are termed.

(3) Other wage deemed inappropriate to be included in the minimum wage
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 shall 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 its 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 to the Minimum Wage Act stipulates that the wage paid on a weekly or monthly basis shall be wage 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 regularly paid at least once a month for given work. Therefore, this regularly paid weekly holiday allowance shall be included in the wage calculation.” In a sample case of 40 hours per week, there are 209 contractual working hours for the month, including the weekly holiday allowance.

(2) MOEL Guidelines

According to Article 5-2 of the Minimum Wage Act and Article 5 of the Enforcement Decree to the same Act regarding wage 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)} × 365/7 ÷ 12 ≒ 243 hours].

(3) Practical applications of the minimum wage

1) Quarterly incentives, meal charges and vehicle maintenance expenses
① Quarterly incentives shall not be considered part of the minimum wage.
② The “meal charge(food expenses)” is paid regularly and uniformly to all employees on a monthly basis in accordance with the collective agreement and the rules of employment, and so it is decided to include these in the ordinary wage in the rules of employment. Meal charges are included as wage for the application of minimum wage(applied gradually from January 1, 2019). A “vehicle management fee” is paid to the driving worker at least once a month in accordance with predetermined payment conditions and is understood as a duty or service allowance for the specific worker, and can therefore be included as wage for the application of minimum wage.

2) Bonuses and sales bonuses
① Bonuses calculated on a yearly basis and regular bonuses
In cases where a bonus is paid equally each month, after it is calculated and fixed for the yearly period, this monthly bonus is included in the minimum wage.
② Sales bonus (based on results)
The sales bonus, for which the monthly amount varies according to the sales results of the individual salesperson, is equivalent to a wage, in accordance with the sales incentive bonus set forth in Article 5(2) of the Enforcement Decree to the Minimum Wage Act. Therefore, Article 5-2 of the Minimum Wage Act stipulates that the sum of the monthly sales bonus divided by the total number of working hours per month and the monthly salary divided by the number of working hours per month shall be included in the minimum wage.
In cases where a fitness trainer carries out individual fitness training for a member, if the trainer receives an additional fee according to a predetermined payment condition and payment rate, such fee can be considered equivalent to a sales bonus and included in the minimum wage. Such sales bonus is calculated into hourly wage after it is divided by monthly contractual working hours; the wage determined in monthly units, such as the basic wage, is also divided by monthly contractual working hours. The sum of both wage should be evaluated to determine whether it exceeds the minimum wage.

3) Welfare benefits
1) It is reasonable that a improvement bonus corresponding to money for welfare, such as an allowance which helps to improve the life of an employee is money which does not count in the minimum wage.
2) Even if a “welfare allowance” is included in regular wage, if it is explicitly stated in the collective agreement as a subsidy for living expenses or a benefit for welfare, according to Table 1 of Article 2 of the Enforcement Decree to the Minimum Wage Act, it shall be seen as a wage not included in application of the minimum wage in terms of welfare benefits.

4. Minimum Wage and Ordinary Wage

(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 wage. The minimum wage includes all items inclusive of ordinary wage and is evaluated according to actual payments, but ordinary wage shall be the amount determined to be paid in the beginning as it is a base from which to calculate the overtime wage rate. This ordinary wage means wage 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 minimum wage, but not included in ordinary wage.

(2) Differences from ordinary wage



5. Opinion

The 2018 and 2019 minimum wage increase, in addition to the court ruling in December 2013 concerning the enlarged scope of ordinary wage, has had a considerable impact on company wage structures. In particular, production workers in the automobile industry have 243 fixed working hours per month, which was designed to lower the ordinary wage through the bonus system. Such companies have maintained long working hours by lowering the overtime, nighttime and holiday work allowances. However, it will not be possible to maintain this trend with the higher minimum wage.
Three things are expected through the minimum wage increase. First, it will be an opportunity to simplify the current wage structure. There is a high possibility that wages will be restructured with a base salary added to the minimum wage range, performance bonuses, and statutory allowances. Second, the steep increase in wage may lead to a reduction in hours of work and the creation of new employment. Third, it will be an opportunity to overcome polarization in the working conditions for regular and irregular workers. I expect the increase in minimum wage to have a positive effect on SMEs while it may be a burden to management.