1. Purpose of calculating average wages

The basic principle of average wage is to calculate the ordinary living wage of workers as a matter of fact. Severance pay is based on the average wage for the same reason. Supreme Court ruling on Nov. 12, 1999: 98da49357.
According to Article 2 (2) of the Labor Standards Act, if the total wage decreases due to abnormal work, the average wage will be lower than the normal wage, so then the ordinary wage is used. Gwangju Appellate Court ruling on Dec. 22, 2015: 2004nu1062.
The precedent also stipulates that if the amount calculated as the average wage is lower than the ordinary wage of the worker concerned, the ordinary wage shall be the average wage in Article 2 Paragraph 2 of the Labor Standards Act. The purpose for this is to guarantee the minimum average wage in case the wage is significantly lower than in normal cases due to reasons attributable to the worker or an inability to work normally due to reasons attributable to the worker during the three months prior to the occurrence of the reason for calculating the average wage. Seoul Administrative Court ruling on July 1, 1999: 98gu19789.
Here, ordinary wages refer to fixed wages in advance that are set to be paid regularly and uniformly regardless of the actual provision of work. For this reason, Article 2 (2) of the Labor Standards Act is used in cases where the average wage falls short of the ordinary wage. Supreme Court ruling on June 28, 1991: 90daka14758; Supreme Court ruling on Dec. 26, 1990: 90daka12493.

Since the total wage is the average wage, it has always been higher than ordinary wage, which reflects only fixed and regular wages. For this reason, Article 46 of the Labor Standards Act stipulates that 70% of the average wage or 100% of the ordinary wage must be paid as leave of absence allowance for periods attributable to the employer. This is because the use of average wages is the basis for severance pay regulations and accident compensation for workers. However, ordinary wage is calculated for the purpose of calculating hourly wage, and so such ordinary wage is used when calculating paid allowances stipulated in the Labor Standards Act, such as overtime pay and unused annual allowance under the Labor Standards Act. Because ordinary wages refer to fixed and pre-promised wages paid for the contractual working hours when a labor contract is drawn up, while the average wage is paid according to the rate of attendance at work, it does not decrease.

2. Methods for calculating average wages Jung, Bongsoo, ｢Korean Labor Law Bible｣ 5th Ed., Joongang, 2016, pp. 76-80.


(1) General Calculation
Average wages mean the actual wages paid for actual work provided and calculated into the daily wage rate. Average wages are the amount calculated by dividing the total amount of wages paid to the relevant worker during three calendar months prior to the date of calculation by the total number of calendar days during those three calendar months.


Average Wages＝
Total amount of wages paid for the last three calendar months
Total number of calendar days in the last three calendar months(89-92 days)

1) The total amount of wages paid for the last three calendar months
The total amount of wages includes all wages of the Labor Standards Act excluding other forms of payment. In determining whether individual items of pay may be identified as wages reflected into the calculation of average wages, the following criteria shall be considered: 1) the items are paid regularly and periodically; 2) they are mandated by the employer according to collective bargaining, rules of employment, salary regulations, the labor contract, or habitual practice; or 3) employees identified under general conditions are paid uniformly. If individual items of pay meet any of these criteria, the items of pay shall be considered wages regardless of their titles. Seoul Central District Court ruling on Jun. 21, 2007, 2006Na20978.

In cases where bonuses are paid once per annum and paid for periods exceeding one month, the total monetary value of the bonus paid for a certain month shall not be included into the calculation of average wages. The bonuses shall be calculated by dividing the total monetary value of bonuses paid to a relevant employee (during the twelve calendar months before the day on which cause for calculating their average wages occurs) by the total number of calendar months, which is 3/12 times the total monetary value of bonuses paid per year. MOEL Guidelines: on Feb. 24, 2003, Wages 68207-120.

2) Total number of calendar days in the last three calendar months prior to the occurrence date
The date on which the event occurred or the incident which necessitates such calculation means, in the event of resignation, the day in which the employer accepts the letter of resignation submitted by the employee. In the event of an industrial accident, it is the day on which the injury occurred, or the day when the disease is confirmed by diagnosis. However, the periods excluded from calculation are periods of shutdown on account of the employer, periods of maternity leave, periods of suspension from work for medical treatment owing to occupational injury or disease, periods of childcare leave, periods of strike, periods of approved suspension from work, and periods of suspension of service owing to performance of duties.
The period of three months does not signify 90 days, but three (3) calendar months (89~92 days) from the occurrence date. For employment of less than three months, the actual period served is calculated.


(2) Exceptional case: Calculation of average wages during periods of leave
1) “Average wages” where an employee came to resign 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 wages” to calculate severance pay refer 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 wages of the employee concerned, the amount of the ordinary wages shall be deemed as average wages.
2) In cases where the period of calculating average wages includes the period falling under a period of leave from work with approval from the employer caused by nonoccupational 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 wages 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 period mentioned above 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 wages of the employee concerned, the amount of the ordinary wages shall be deemed as average wages. MOEL Guidelines: Retirement Pension Dept-518, Oct. 21, 2008

3) In cases where leave of absence is due to the employee's choice or actions, this period shall be included in the standard period in calculating average wages. MOEL Guidelines: Wage 68207-132, Feb. 27, 2003.
In cases where an employee could not provide labor service during the period required for calculating average wages due to the employee's choice or actions, this period shall be included in the standard period in calculating average wages. On the other hand, in cases where an employee took a leave of absence with approval from the employer, caused by non-occupational injury, diseases or other reasons according to Article 2 (8) of the Enforcement Decree to the LSA, the remaining period and wages excluding the period mentioned above shall be used for the calculation of average wages. If the leave of absence exceeded 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 wages of the employee concerned, the amount of the ordinary wages shall be deemed average wages.

3. Adjustment of average wage

(1) Average wage in special cases Enforcement Decree to the Labor Standards Act, Article 4 (Average Wage in Special Cases) Where it is impossible to calculate an average wage in accordance with Article 2 (1) 6 of the Act and Articles 2 and 3 of this Decree, such an average wage shall be as determined by the Minister of Employment and Labor; [Special Case Notice for Calculation of Average Wages by the Minister of Employment and Labor (No. 2015-77, noticed on October 14, 2015)]

1) When the period excluded from the calculation of average wage is 3 months or longer (Article 1)
If the period of time excluded from the calculation of average wage is at least three months (Article 2 (1) of the Enforcement Decree to the LSA), the average wage shall be calculated based on the date on which the cause for calculating average wage occurs. The same shall apply mutatis mutandis to adjustment of average wage (Article 5 of the Enforcement Decree to the LSA). In this case, "the month when the injury and illness occurred" shall be deemed to be "the month of the first day of the period excluded from the calculation of average wage".
2) If the reason for calculating the average wage occurred on the first day work is provided (Article 2)
If the reason for calculating the average wage occurs on the first day work is provided, the average wage is calculated from the average daily wage that was supposed to be paid the worker.
3) When wages are paid collectively by two or more workers (Article 3)
In the event wages are paid collectively with two or more workers in one pair, the employee's career, production performance, working days, technical skills, responsibilities, and distribution practices shall be taken into account, unless a pre-determined payment method is provided for individual workers. We estimate the wage per worker and use the amount to estimate the average wage.
4) If part of the total wage is not clear (Article 4)
If the period in which the average wage is included includes payment of an additional portion in the average wage, the average wage shall be deducted from the total amount of wages paid out of the extra period from the total number of days.
5) When the total amount of wages is not clear (Article 5)
If the average wage cannot be calculated in accordance with the provisions of Article 1 through Article 4 of the Special Notice on Calculation of Average Wage, the head of the regional Employment and Labor Office shall consider the average wage of the worker as deemed appropriate in consideration of the following:
① Matters concerning wage level and inflation assessment in the area where the workplace is located;
② Matters concerning the monthly salary, monthly income, and monthly average salary reported under the Income Tax Act, the National Pension Act, the National Health Insurance Act, and the Employment Insurance Act;
③ Matters concerning wages of workers engaged in the same occupation as the worker at workplaces of the same or similar size as the type of business in the area where the workplace is located;
④ Matters concerning documentary evidence, such as records held by the person or his / her family, etc. (in this case, only if the employer approves) of the money received during the period providing work at the workplace;
⑤ Matters concerning employment labor statistics, such as the "Report on Labor Status by Employment Type" and the "Labor Work Survey Report", which are surveyed and published by the Minister of Employment and Labor.
(2) Adjustment of average wage in special cases (Article 5 of the Enforcement Decree to the LSA)
1) The average wage applicable to the calculation of compensation, etc. for the employee pursuant to accident compensation under the Labor Standards Act shall, when the average amount of monthly ordinary wage per employee (hereinafter referred to as the "average amount") paid to employees in the same business category in the same business or workplace to which the relevant employee belongs has changed by at least five percent from the average amount paid in the month when an injury or a disease occurs, be such amount increased or decreased at the aforesaid rate of change, but such rate shall apply to the month immediately following the month of occurrence of grounds for change and the months subsequent thereto: Provided, That the second or latter adjustment of average wages shall be calculated based on the average amount of the month in which a cause for immediately preceding change occurred.
2) Where the business or workplace to which the relevant employee belongs is permanently closed down, the adjustment of average wage under paragraph (1) shall be based on a business or workplace with the same business type and scale as at the time when an occupational injury or disease was inflicted on the employee.
3) If there is no employee engaged in the same occupational category as the relevant worker, the adjustment of average wage under paragraph (1) or (2) shall be based on employees engaged in the occupation of similar category.
4) The average wage applicable to computation of retirement benefits under Article 8 of the Act on the Guarantee of Employees' Retirement Benefits, which shall be paid to an employee who suffers from an occupational injury or disease, shall be the average wage adjusted in accordance with paragraphs (1) through (3).

4. Ministry of Employment and Labor Guidelines & judicial rulings

(1) Items to be included in average wages
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 wages paid as remuneration for labor service. Supreme Court ruling on May 15, 2001, 2001Do1186.

2) As the total wages calculated for average wages 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]. Supreme Court ruling on Apr. 14, 1992, 91Da5587

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 wages when calculating severance pay. Seoul District Court ruling on May 26, 2005, 2005Na175.

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 wages MOEL Guidelines: Labor Standard 1758, Mar. 25, 2005.
. In cases where an incentive bonus satisfies some specific conditions, it can be admitted as wages and shall also be included into the calculation of average wages. Otherwise, it shall be considered as a form of the employer's praise or favorable reward, which then denies it the character of wages and therefore excluded from the calculation of average wages. 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 wages.
However, if the incentive bonuses were to be included in the average wages, according to the CBA or rules of employment, in cases where the company calculates average wages 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 wages 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) Wages 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 wages 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 wages. 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 wages occurred by the total number of calendar months, which is 3/12 times the total amount of bonuses paid per year. MOEL Guidelines: Wages 68207-120.

2) Whether to include annual paid leave allowance into average wages to calculate severance pay
① Unused annual paid leave allowance already occurring before retirement
By the criteria of the attendance rate during the year prior to the retirement year, 3/12 of the unused annual paid leave allowance among 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 just because of retirement
The unused annual paid leave allowance that the employee is granted just because of retirement in the retirement year according to the 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 wages
1) Calculation of average wages during periods of leave MOEL Guidelines: Retirement Pension Dept-518, on Oct. 21, 2008.

Average wages 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 wages to calculate severance pay refer 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 wages of the employee concerned, the amount of ordinary wages shall be deemed as average wages. In cases where the period of calculating average wages 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 wages 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 wages of the employee concerned, the amount of the ordinary wages shall be deemed as average wages.
2) The period of suspension from office in calculating average wages MOEL Guidelines: Wage 68207-562, Jul. 16, 2003

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 wages is lower than the ordinary wages of the employee concerned, the amount of ordinary wages shall be deemed average wages. 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 wages and the total amount of average wages according to Article 2 (8) of the Enforcement Decree to the LSA.
3) Calculation of average wages for a full-time officer of the labor union. MOEL Guidelines: Wage 68207-317.

In cases where a full-time officer of the labor union, who is engaged exclusively in affairs of the labor union without providing 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. MOEL Guidelines: Wage 68207-545.