I. Summary

To ensure standards for working conditions, a labor inspector can visit any workplace, inspect it, and request to see books and documents, as well as interview both employer and employees. Employers or employees shall, without delay, report on the matters required, or shall present themselves to the Labor Office if the labor inspector requests it in relation to enforcement of the Labor Standards Act.

A labor inspector informed a company (hereinafter called “Company T”) located in Seoul on October 17, 2011 of his plans to audit the company. He visited the workplace 3 days later on October 20 to learn whether the company was following appropriate labor standards. While inspecting the company Rules of Employment and payroll documents, the labor inspector noticed many problems: unpaid overtime allowance and compensation for unused annual leave, incorrect calculation of average wages for severance pay, some violations of the Rules of Employment, no Labor-Management Council, and no education on sexual harassment prevention. On November 17, the labor inspector sent a correction order to Company T regarding the above Labor Standards violations.

The company hired a labor attorney to implement the correction order. This labor attorney recalculated overtime allowance, etc., considering the company’s characteristics as an IT business and the working situations of the dispatch employees. He also assisted the company in meeting the correction deadline by adding supplements to the Rules of Employment, establishing a Labor-Management Council, and correcting the average wage calculations for employees who had left the company to make up for the inadequate severance payments. As use of annual leave and overtime was too ambiguous to calculate, employees’ written explanations on actual use were considered in recalculation. When the company calculated unpaid wages in accordance with the correction order, the total amount to be paid came out to about ₩60 million, but this was adjusted by confirming with the employees (through written statements) whether the leave had actually not been used, and whether the recorded overtime had been done. After all this, the company and the labor inspector agreed that the total amount not paid was about ₩2 million. Company T finished carrying out its correction order by paying the confirmed unpaid wages to the appropriate employees. What follows is a detailed explanation of how the company was able to avoid unnecessary costs and meet the labor inspector’s requirements.

II. Violations of the Labor Standard

When visiting Company T and inspecting the working conditions on October 20, 2011, the labor inspector noticed the violations listed above (unpaid allowance for unused annual leave, incorrect calculation of overtime allowance and average wages, etc.). The company received a correction order for the following items on November 17, 2011.

III. Correction of the Violations

1. Categorization of Company T’s business

Company T is a software developer (Business Rules Engine: BRE) composed of project teams. When a client requests development of its system, Company T sends the project team members to the client’s office and sets up the system there. The company has a total of 48 employees: 15 engaged in management and administration at the company office, and 33 software engineers assigned to client projects. These 33 engineers were not required to attend company meetings or to otherwise report, except as specifically requested, such as at year-end meetings etc. Although annual salaries are relatively higher than that of its competitors, the company paid a fixed allowance of ₩60,000 for any overtime claim for work done during the weekend and not under the employer’s supervision and control. This was recorded in the payroll files, and was the particular cause of most of the violations.

2. Details on Company T’s correction of each violation

(1) Article 17 of the LSA (Absence of an article in the employment contract related to annual leave)

The company included details regarding the use of annual leave in the employment contract, and then submitted one copy of the revised employment contract.

(2) Article 56 of the LSA (Recalculation of annual leave allowance and holiday work allowance)

The contractual working hours are 8 hours per day, 40 hours per week, with the fixed overtime allowance paid for two hours each working day. The important point was that the company paid a fixed amount of ₩60,000 per day for overtime on Saturdays and Sundays, upon receiving email from the employees that they had worked those days. This was done as the work was outside of Company T premises, and verification was difficult any other way. The labor inspector requested that the company pay an additional allowance for actual working hours, calculated according to the standard found in the Labor Standards Act.

The company received written statements from the engineers to confirm and recalculate actual overtime and holiday working hours, as it could not independently confirm their actual working hours on Saturdays and Sundays. The company paid an additional amount to those who worked more overtime hours than what was covered by the fixed overtime allowance of ₩60,000 per day.

(3) Article 36 of the LSA (Inadequate severance pay due to incorrect calculation of average wages)

When calculating average wages for severance pay, the company included only basic pay and bonuses, excluding overtime and other allowances. The company recalculated average wages and paid the amounts owed (approximately ₩600,000).

(4) Article 60 of the LSA (Inadequate compensation for unused annual leave)

Each project team manager scheduled team members’ leave at his/her own discretion, and provided 10 days or more leave in the middle of a project or at the end as necessary, after obtaining verbal approval from the company to do so. As the leave application form was not used, it was impossible to track and record the number of leave days used.

Compensation was not paid for unused annual leave because no record was kept of used leave. Company T confirmed the number of used leave days through written statements of all dispatched engineers and paid an allowance for only the number of days of unused leave confirmed by their statements. The company submitted to the Labor Office verification that it paid allowance and that recorded leaves were confirmed with employee statements.

(5) Article 94 of the LSA (Absence of articles in company Rules of Employment protecting pregnant employees)

The company added missing items on premature or stillborn birth into the maternity leave section in the Rules of Employment, and submitted it to the Labor Office with evidence of the fact that the company received majority agreement from the employees on the revised rules. A copy of its report was included in its submission.

(6) Article 4 of the Act on the Promotion of Worker Participation and Cooperation (No Operational Rules for a Labor-Management Council)

Employers who ordinarily employ 30 workers or more shall establish a Labor-Management Council and report its operational rules to the Labor Office, something the company had not done. A Labor-Management Council was accordingly established, and its rules of operation were submitted to the Labor Office.

(7) Article 13 of the Equal Employment Act (no training on prevention of sexual harassment at work)

Training to prevent sexual harassment at work shall be done once a year in workplaces where ten employees or more are working. Company T carried out some training with audiovisual material (CD) distributed by the L