I. Summary

Engineering company A (hereinafter referred to as “the Company”) was founded in March 2005, and began with simple construction work with such things as reinforced concrete structures, before gradually moving into construction of more specialized, larger machines and facilities. On March 21, 2010, one of its 10 regular employees (a daily worker) was injured on the job, and applied to the Employee Welfare Corporation (hereinafter referred to as “the Corporation”) for accident compensation. While handling the occupational injury of the worker concerned, the Corporation came to believe that the Company was not a construction company, but a manufacturing company instead. The Corporation confirmed that the Company’s corporate register stipulated that it was a construction and manufacturing firm together, that in its financial statements since 2007, production costs had been described as higher than construction costs, and that its product sales were much higher than its construction sales.
The Corporation then changed the Company’s business registration from construction to ‘manufacturing of metal products for construction’. Due to this, additional premiums were charged and penalties imposed on the Company in December 2010, in accordance with the change of business registration. Since the Company had been registered as a subcontractor for its construction projects, its daily workers were automatically covered by the main contractor’s Industrial Accident Compensation Insurance. This meant that only resident employees at its head office subscribed to the Insurance separately as administration office staff (905009), with premiums due at a rate of 10:1,000 of the total yearly wages. This was in contrast to the Corporation’s determination of the Company as a manufacturer of metal products (21809), with premiums due at a rate of 49/1,000. The Company then took legal action in February 2011, filing with the Administrative Appeals Commission for cancellation of the Corporation’s fines and additional premiums.
As already mentioned, it was discovered that the Company was registered as a construction firm while the Corporation was handling the accident compensation case. The manufacturing costs were listed as greater than construction costs, and product sales greater than construction sales, because the Company had manipulated the dates in order to secure lending from a bank in the near future. During investigation by the Administrative Appeals Commission, the Company was recognized as a construction business, and not manufacturing, by providing verifiable documents for all sales-related VAT invoices issued during the corresponding period. Here, I would like to explain the details of this case and how the company proved its claims.

II. Reasons for Additional Premium Charges

The Company subscribed to Industrial Accident Compensation Insurance on July 1, 2005, and since then it had been considered a ‘separate administrative office’ among other various businesses. As an occupational injury occurred to one of the employees of this Company on March 21, 2010, the Corporation investigated the Company’s business registration to determine the applicable business type for the insurance. After auditing, the Corporation concluded the Company’s business was manufacturing, because, even though the Company did not have a plant for production, it purchased raw materials, assembled or produced metal structures at building sites, and installed them there. The Company was informed of the Corporation’s decisions to change its business registration to “metal products manufacturing for construction” and charge ₩101,536,050 for additional premiums for the years 2007 to 2009 and the adjusted premiums for 2010.
Although the Company registered its construction license without registering its plant separately, it produced half-finished metal structures on its own premises and installed them on building sites to fulfill contracts with purchasers. When confirming purchase agreements with purchaser M and purchaser W during the years 2007 to 2009, the Company hired daily workers to produce metal structures, fabricate the half-finished products, and then assemble and install them at the building sites. Labor costs occurring at the building sites shall be evidence enough to prove that registration as a manufacturing business was more appropriate.
Accordingly, the Company has used its construction license to engage in construction, and besides building operations, it purchased the materials necessary to produce structures to fulfill contracts with purchasers, manufactured half-finished products on its own premises, and welded or otherwise assembled those structures at building sites. Even though the Company did not have a manufacturing facility to produce structures on its premises, it has regularly and continuously produced metal products related to building structures in accordance with contracts with purchasers, thereby justifying the current change of the Company’s registration to “metal products manufacturing for construction”.

III. The Company’s Reasons for Filing for Cancellation
In March 2005, the Company was founded as a small construction company with ₩220 million in capital. If a small construction company like ours has to pay more than ₩100 million in penalties, this becomes an imminent matter of survival. Since its establishment, the Company has managed typical construction projects with ten regular employees, sometimes hiring from 3 to 100 temporary workers to meet our subcontract obligations.
In our estimation, the Corporation based its decision only on documentation stating that the Company’s business license stipulated “construction and manufacturing” and its income statement showed that product sales were larger than construction sales. However, in reality, the Company did not produce any original products, did not own a production facility, and did not hire any personnel to regularly produce. It is for these reasons that we put forward that this Company cannot be considered a manufacturing business.
Even in legal terms, this Company does not satisfy the enforcement regulation (Article 4) of the Industrial Accident Compensation Insurance Act: “When the employer produces original products on a regular basis and installs them directly according to a contract with purchasers, this installation is deemed to be part of manufacturing. However, if such installation includes other building projects besides installing its own original products to fulfill subcontracts, this installation is not deemed as manufacturing.” The Company’s biggest building contracts were to install three subcontractors’ products for their customer companies. The Company completed three projects as their subcontractor: 1) For Company S, the Company installed their product, a drying oven, in the Hyundai Motors Ulsan plant after tearing down the out-dated facility; 2) For Company M, the Company installed a heat-retaining facility for gas pipes in the Hyundai Iron Dangjin plant; and 3) For Company W, the Company installed pipes in the same Dangjin plant. Such subcontracting projects were not related to manufacturing at all, but purely to construction.

IV. Details of Administrative Appeals Commission Decision

1. Details of the Case

1) March 21, 2010 A daily worker suffers an occupational injury and
applies to the Corporation for compensation
2) May 25 ~ Nov 11, 2010 The Corporation audits the Company to confirm type
of business
3) Nov 11, 2010 The Corporation changes the Company’s business registration and charges additional premiums
4) Feb 9, 2011 The Company files an administrati