Wage

Chapter 2. Satutory Wages

Ⅵ. Related Labor Cases


Occupational Accident Compensations Jung, Bongsoo, “Occupational Fatalities and Follow-up Actions”, 「Labor Law」, Jungang, Nov 2013.


1. Outline of the case

At 8:20 in the morning on September 6, 2013, Employee A (hereinafter referred to as “the Employee”) was in a warehouse guiding a forklift carrying air conditioning equipment. The air conditioner slipped off the left side of the forks and fell on the Employee, which caused serious injury. He was taken to Aju University Hospital in Suwon, where he died during emergency treatment.
[For reference, the Employee was a senior citizen, 72 years of age, with a monthly average wage of ₩1,719,340, and a daily ordinary wage of ₩56,065].
The following information details the major issues companies who face this tragedy must deal with: methods for calculating those industrial accident compensation benefits.

2. Calculating industrial accident compensation (survivors’ pension and funeral expenses)

Surviving family members can request survivors’ benefits and compensation for funeral expenses in accordance with the Industrial Accident Compensation Insurance Act, so it is desired for companies to calculate the benefits in advance. Compensation for occupational fatalities includes expenses for medical treatment and funeral services, and survivors’ benefits. Lump sum payments for survivor’s benefits in this case equaled ₩72,884,500, and for funeral expenses ₩9,300,770, for a total of ₩82,185,270. The details for compensation through Industrial Accident Compensation Insurance are as follows:
○ Survivor’s benefits: 1,300 days’ average wages; Options for receipt of payment: 1) 100% Pension or 2) half pension and half lump sum. In this case, the total lump sum was calculated as ₩56,065 x 1,300 days = ₩72,884,500.

(1) 100% pension (the Employee’s daily average wage was ₩56,065)
① Basic pension: ₩56,065 x 365 days x 0.47 = ₩9,617,950 per year
② Addition for Basic pension: ₩56,065 x 365 days x 0.05 x 1 = ₩1,023,186(Up to four surviving family members can be added for additional basic pension: The victim’s directly dependant family members – spouse, parents aged 60 or older, and children aged 19 or younger)
If the 100% pension is chosen, the total sum of ① and ② is ₩10,641,136. As this amount is divided by 12 months, the monthly payment would be ₩886,761.

(2) Half pension and half sump sum payment
① Lump sum: ₩72,884,500 x 50% = ₩36,442,250
② 50% pension: ₩886,761 x 50% = ₩443,380
○ Funeral expenses: 120 days’ Average wages (Minimum: ₩9,300,770 ~ Maximum ₩13,051,700). The calculation in this case was ₩56,065 x 120 days = ₩6,727,800. As this calculated amount is less than the minimum funeral expenses, the minimum amount, ₩9,300,770, shall be paid.
Should the Employee’s surviving wife die while the monthly pension payments made total less than the lump sum payment would have been, the remaining money shall be paid out in a lump sum to the next closest surviving family.



Branch Manager’s Severance Pay Jung, Bongsoo, “Branch Manager’s Severance Pay”, 「Labor Law」, Jungang, March 2008.


1. Case Summary

Company B is a Korean branch of a newspaper sector company whose head office is located in a foreign country. The company was divided into four business entities in 2002 for the purpose of efficient accounting management. Each entity operates independently in different locations. The business entities are classified as: 1) Report Team, 2) Digital News, 3) Newspaper Distribution, and 4) Advertisement. The business head of each entity was appointed as that entity’s representative director.
The Petitioner (hereinafter referred to as “the Employee”) joined Company B as a sales manager in September 2000 and worked as a branch manager of the Advertisement business entity starting 2002 until he quit in July 2007. The Employee was the representative director of the entity which maintained only two other employees, a number that was too small for severance pay under the Labor Standards Act to be applicable. Although the company granted legal severance pay to the Employee in consideration of his contributions during his tenure, the amount did not meet the accumulation rate (1.5 times) of severance pay verbally promised to the Employee at the time of his hiring.
The company also failed to reflect individual sales incentive bonus in its calculation of average wages for severance pay. When the Employee appealed to the company for a re-calculation of his severance pay, the company refused. Hence, the Employee submitted an application for payment of delayed severance pay to the Ministry of Employment and Labor via this labor attorney in August 2007.
2. Company B’s Claim

1) Company B (hereinafter referred to as “the Company”) is not liable for severance pay
because it employs only two employees and does not submit to any rules or agreement stipulated for the payment of severance pay in the rules of employment, labor contract or verbal contract. As already conveyed to the branch manager (the Employee), the Company intends to pay the amount of severance pay calculated by multiplying the average wages by the number of service years during the time of his resignation. This amount will factor in his contributions made to the company during his tenure. Provided, however, that all legal liability shall expire between the Company and the Employee in accordance with payment of severance pay.
2) The incentive bonus requested by the Employee is not wage to be included in average wages under the Labor Standards Act. Even if the bonus was assumed to be included in average wages, the incentive bonus requested by the Employee was paid in March 2007 in remuneration for labor service in 2006. The requested bonus cannot be included into average wages, because it was not paid in return for labor service for the last three months prior to the Employee’s retirement date in July 2007.

3. Employee’s Claim

1) The Employee was hired as a sales manager for Company B on September 1, 2000, and had continued to work until he quit on July 31, 2007. The wages are comprised of basic monthly basic pay and the annual incentive bonus. The basic monthly pay was paid once every month, and the incentive bonus of a similar amount was given every March for the last 7 years based on the payment criteria of the incentive bonus contracted previously by sales outcomes. When the Employee resigned from the Company, his severance pay did not include the individual sales incentive bonus into the calculation of average wages and failed to reflect the accumulation rate (1.5) of consecutive service years.
2) There were 16 employees in Company B when the Employee was hired, and the Company has maintained a similar number of employees so far. The Company was divided into four business entities in 2002 for the purpose of better accounting management. Each business was established as an independent entity: 1) Report Team, 2) Digital News, 3) Newspaper Distribution, and 4) Advertisement (2 persons). The business head of each entity was appointed as the representative director of each entity. However, in practical terms, the Newspaper Distribution business and Advertisement business had been operating in the same building until recently and all four entities have been managed by a single accounting team. The president of the foreign head office has directly overseen, ordered and supervised all four business entities, while Human Resources management has been under an Asia regional head office in 000 country. Even though the president of the company worked in the workplace with fewer than 5 employees, he fell under the definition of an employee under the Labor Standards Act.
3) During the hiring stage, Company B verbally promised Employee a 1.5 times accumulation rate for severance pay. Two former employees were granted such an adjusted severance pay upon retirement. Without the employees’ consent, however, the Company decided to abolish this accumulated rate. This new adjustment should be declared null and the Company pay the Employee his severance pay at the accumulated rate.
4) The Employee received an additional 120 million won as incentive bonus in March 2007 due to good sales performance the previous year. The Company did not reflect the individual sales incentive bonus in the calculation of average wages for his severance pay, insisting that the incentive bonus did not apply. However, as the incentive bonus reflects individual sales performance, not corporate business performance, the Employee’s individual sales incentive bonus shall also be included in the calculation of his average wages.

4. Related Administrative Interpretations and Judicial Ruling

1) In cases where there are different entities per business under one company (Administrative interpretation: Retirement Benefit Team 4126, Oct. 11, 2007):
In cases where an identical employer operates more than one business or workplace at different locations, if the branch offices, sales offices and unit plants are operated under an identical organization and management without independent operations, the related entities are regarded as one business or one workplace. This means that the total number of employees at all entities shall be counted together in pursuant to labor law. However, if each entity maintains different structures and operates independently in terms of business location, accounting and human resource management, each entity shall be considerpay is applicable or not shall be considered according to the specifics. ed an independent business or workplace. Accordingly, whether severance
2) In cases where the Company unilaterally revises accumulated rate of severance pay to non-accumulated rate (Administrative interpretation: same as above):
Even though there had been no mention of severance pay stipulated in the contents of the labor contract (and no rules of employment), the Company had promised the Employee severance pay at an accumulated rate according to service years and had applied the system for a considerable period to its former employees. In this case, the Company shall take measures to receive employee consent if it wishes to revise the content, especially in the case of unfavorable revision for its employees.
3) Administrative guidance and judicial rulings in relation to sales incentive bonus
① Bonuses in the Rules for Calculation of Ordinary Wages (Article 476 of MOEL Regulations, Jan. 22, 2002)
(i) Cases where bonuses are wages
In cases where payment conditions, amounts, and payment rate are regulated in the rules of employment, or where employees are paid routinely and expect to get paid: regular bonuses, exercise support fees, etc.
(ii) Case where bonuses are not wages
In cases where payment is not paid routinely, but paid temporarily or conditionally in accordance with the company's profit by means of the employer's discretion and favor: Business incentive bonuses, special incentive bonuses, production incentive bonuses, rewards, and incentives
② Individual sales incentive bonuses that have been paid regularly and periodically shall be included in average wages. (Seoul District Court, Jun. 21, 2007, 2006 na 20978)
(i) The Company’s salary system consists of basic annual salary and annual incentive salary. The basic annual salary is paid monthly, and the incentive annual salary is paid in January as a lump sum based on the valuation of sales target and outcomes for the corresponding year. The Company pays severance pay that reflects basic annual salary without including annual incentive salary. Insisting that the Company should include incentive annual salary into calculation of average wages because annual incentive salary belongs to wages, the Employee has requested that the Company re-calculate his severance pay. When his application was rejected, he filed a suit against the Company.
(ii) Whether the items of pay may be identified as wages reflected into the calculation of average wages shall consider the following criteria: 1) They shall be paid regularly and periodically; 2) They are mandated by the employer according to collective bargaining, rules of employment, salary regulations, labor contract, or habitual practice; or 3) Employees identified under general conditions shall be paid uniformly. In these cases, these items of pay shall be considered as wages regardless of their titles. The annual incentive salary was ruled as wages.
4) How to include bonuses paid through one year into the amount subject to calculation of average wages (Feb. 24, 2003, Wages 68207-120)
In cases where a payment rate of bonuses is established per annum and paid for a period exceeding one month, the total 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 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 occurs— by the total number of calendar months, which is 3/12 times the total amount of bonuses paid per year.

5. Opinion

The Company and the Employee were interviewed by the Labor Supervisor since the Employee’s application for payment of delayed severance pay was filed with the Labor Office in August 2007. The Employee has also submitted a Q&A reference (see the above administrative interpretation): Company B’s four independent entities are identified as one company, and that the abolition of an accumulated rate of service years in severance pay shall be made null because the Company did not receive employee consent. During this process, the Company proposed that although it will not admit the total amount of incentive bonus received in return for work in 2007, it will accept in the average wages a 5/12 portion of incentive bonus related to that which the Employee received in March 2007 in return for labor service the previous year. The Employee accepted the Company’s proposal and received an additional amount (60 million won in addition to statutory severance pay) calculated based upon new average wages. After this settlement, the Employee rescinded his application for payment of delayed severance pay with the Labor Office.

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

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