Wage

Chapter 2. Satutory Wages

Ⅳ. Minimum Wage

1. Concept Jung, Bongsoo, “Minimum Wage and the Employer’s Obligations”, 「Labor Law」, Jungang, December 2013.


The minimum wage system is the nation intervening in the decision-making process between employer and employee, designed to protect employees earning low wages 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.

         (Unit: KRW)

Year
Category
20121. 1. 1.
~2021.12.31.
2022. 1. 1.
~2022.12.31.
2023. 1. 1.
~2023.12.31.
2024. 1. 1.
~2024.12.31.
Hourly pay
8,720
9,160
9,620원
9,860원
Day pay
(8 hours)
69,760
73,280
76,960
78,880
Monthly work hours (209 hours)
1,822,480
1,914,440
2,010,580
2,067,740
Trainee employees
(within 3 months)
7,848 (hour)
1,640,232 (month)
8,244 (hour)
1,722,996 (month)
8,658 (hour)
1,809,522 (month)
8,874(hour)
1,854,666 (month)


✴ A 10% reduction is applied to probationary workers for the first three months.
(Applicable to workers who have signed a labor contract for a period of one year or more.)
✴ If working the standard weekly 40 hours (209 hours on a monthly basis, including 8 hours of paid leave per week), the minimum wage will apply.

The increase in minimum wage is the most desirable way to reduce the difference in wages 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.
According to the current minimum wage system in Korea, a single minimum wage is applied at all workplaces, without distinction as to the industry or region, and all employers are obligated to pay at least the minimum wage. Employers can pay more than the minimum wage, and 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. The Minimum Wage Act, Article 6 and 28.

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 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 be easily seen by all employees, or through other appropriate methods. For violations of this, the employer shall be punished by a fine up to KRW one million (Article 11 and Article 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. The Minimum Wage Act, Article 7 (Exclusion from Application of 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 wages excluded from application of minimum wage, and ③ effective date. This notice must be posted in places where it can be easily 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 their 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 the signing of the contract; 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 wages 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 one 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

To determine whether the wages paid by a workplace are less than the minimum wage, ① the total wages included in the minimum wage from the wages paid monthly, ② will be divided by the monthly contractual working hours, and then hourly minimum wage calculated, ③ and then the amount will be compared with the current minimum wage. Supreme Court ruling on Jun. 29, 2007 2004 da 48836 (Calculation of minimum wage).

The scope of wages to be included in calculation of minimum wage according to the Minimum Wage Act includes 1) wages 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) wages 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).

* Wages excluded from minimum wage rules (Table 1 of the Act):

(1) Wages, 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) Wages, 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 Wages and additional allowances for extended work or holiday work;
③ Additional allowances for night work;
④ Day & night-duty allowances; and
⑤ Wages not admitted to be paid for a contractual working day, regardless of how such payments are termed.

(3) Other wages 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 wages paid on a weekly or monthly basis shall be wages 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.” Supreme Court ruling on Jan. 11, 2007, 2006 da 64245 (Case related to minimum wage)
In a sample case of 40 hours per week, there are 209 contractual working hours for the month, including the weekly holiday allowance.

(2) 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 wages in the rules of employment. Meal charges are included as wages for the application of minimum wage. 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 wages for the application of minimum wage. MOEL Guidelines on Dec. 15, 2010 Wage Welfare-2356

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. MOEL Guidelines on Feb. 14, 2004 Wage Policy-501; Apr. 3, 1990 Wage 32240-4770; Oct. 2, 2005 Wage Policy-801; Jun. 20, 2003 Wage 68200-471

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 wages should be evaluated to determine whether it exceeds the minimum wage. MOEL Guidelines on Oct. 2, 2015 Labor Standards-4782

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. MOEL Guidelines on Feb. 7, 2014 Labor Improvement-659

② Even if a "welfare allowance" is included in ordinary wages, 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. MOEL Guidelines on May 17, 1989 Wage 32240-7146


4. Minimum wages and ordinary wages

(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 wages. 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 wages 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 wages Supreme Court ruling on Jan. 11, 2007: 2006 da 64245; MOEL Guidelines on Jun. 29, 2006 Wage and Working Hours 1539; MOEL Guidelines on Dec. 20, 2006 Wage and Working Hours 3848

1) Definition/Purpose
Ordinary wage refers to hourly wages, daily wages, weekly wages, monthly wages, or contract wages which are determined to be paid periodically or in lump sum to a worker for their prescribed work or whole work.
The purpose of this Act is to bring stability to workers and improve labor force quality by guaranteeing a minimum level of wages (Article 1 of the Minimum Wage Act).

2) Calculation method
Calculated into hourly wage rate (Monthly ordinary wage ÷ monthly contractual working hours). /
Calculated into hourly wage rate (Monthly minimum wage ÷ monthly contractual working hours).
3) Legal enforcement
No legal enforcement. / Legal enforcement, with cases of violation rendered invalid.
4) Usage
Wages determined to be paid in advance; used for paid leave allowances. / Wages actually paid;
used for guaranteeing employee

5. Opinion

The 2018 and 2019 minimum wage increase (30%), in addition to the court ruling Supreme Court ruling on Dec. 18, 2013, 2012 da 8389
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 the wage structure will be restructured with a base salary added to the minimum wage range, performance bonuses, and statutory allowances. Second, the steep increase in wages 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.

For further questions, please
call (+82) 2-539-0098 or email bongsoo@k-labor.com

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