The wage claim of an employee can be repaid with priority over other claims. Because wages are the essential means of livelihood for workers, the Labor Standards Act has many regulations to protect them. Wages must be paid in cash, and employers can be punished for wage arrears if they pay only a portion of the wages or pay late. In addition, when a worker resigns, the employer must settle any financial relationships with the previous company within 14 days.
Furthermore, in situations where an employer has limited assets or substantial debts and there is a risk that wages will not be paid, there is a provision for "priority repayment of wage claims" so that the unpaid wages of workers can be repaid first. In terms of the priority of claims, wage claims are divided into "first-priority repayment wage claims," which are first priority, and "general wage claims," which are other than first-priority claims. The final three months' wages, shutdown allowances, the last three years of retirement benefits, and accident compensation are included in the first-priority repayment wage claims.
"Judicial bankruptcy" refers to a court's declaration of bankruptcy or commencement of a rehabilitation procedure against a company. This is usually done for large companies with serious debt problems, to resolve complicated debt relationships through court management. If the company one works for is declared judicially bankrupt, it takes a long time to receive unpaid wages. Also, if the business owner of a small or medium-sized enterprise closes the business due to financial difficulties while employee wages are still pending, workers cannot receive unpaid wages, as there may be no remaining property left by the business owner or any remaining property may be under seizure. In such cases, there is a system called the "wage guarantee system," where the government pays unpaid wages on behalf of the employer. The law on wage claims guarantees separate provisions related to the payment of wage guarantees. Employers eligible for wage claim guarantees must operate their business for more than six months and are subject to mandatory industrial accident insurance.
Meanwhile, when a company where a worker was employed goes bankrupt and the employer has no repayment capability, the worker may not receive the wages or retirement benefits they are entitled to. If the employer has repayment capability, there is a system in place where workers can receive unpaid wages and retirement benefits as a top priority through lawsuits and auction procedures in the future, but since this process takes a considerable amount of time and money, there is a need for society to protect the livelihoods of workers and their families during this period. The "Wage Protection System" refers to a system that aims to ensure the basic livelihood stability of workers by providing a certain amount of unpaid wages and retirement benefits on behalf of the employer by the government in case a retired worker is unable to receive their wages and retirement benefits due to a company's bankruptcy.

1. Reasons for General Alternative Payment

Severance pay refers to the amount that the government pays on behalf of the employer when a retired worker is unable to receive wages due to reasons such as the employer's bankruptcy. The government later recovers this amount from the employer. Bankruptcy rulings and commencement of rehabilitation proceedings under the Corporate Restructuring and Bankruptcy Act are determined by court rulings as bankruptcy.
Next, the fact of bankruptcy by the Minister of Employment and Labor pursuant to the Enforcement Decree of the Wage Claims Guarantee Act (Article 5) is determined by the head of the local labor office to be declared bankrupt at the request of retired workers when the business owner is in fact in a state of bankruptcy due to business deterioration, etc. Admit it. In this case, ① the business owner must virtually cease business activities, ② there must be no prospect of resuming the business, and ③ all requirements must be satisfied, such as being recognized as bankrupt due to inability to pay wages and retirement benefits. Since the majority of bankruptcies that occur in small and medium-sized businesses occur in the form of de facto bankruptcy that does not go through legal procedures, the recognition of facts such as bankruptcy is recognized as a reason for payment of subrogated money. Accordingly, it is stipulated that for companies of a certain size with 300 or less full-time workers who are difficult to be recognized for bankruptcy in court, the head of the local labor office can in fact admit bankruptcy.

2. General Requirements for Alternative Payment

○ First: Employer Requirements
To become an employer eligible for wage guarantee protection, the following requirements must be met: ① The employer must be a business subject to mandatory occupational accident insurance (employing at least one permanent employee). ② The employer must have engaged in the relevant business for a period of at least six months after becoming subject to the applicable laws. ③ The employer must have been declared bankrupt or have had a recognized fact of insolvency.

○ Second: Employee Requirements
The conditions for an employee to receive wage guarantees are as follows: ①The employer at the time of retirement must meet the above employer requirements. ②The employee must retire from the relevant business within three years after the date on which the employer applied for recognition of bankruptcy or insolvency, which must be at least one year after the date of application.

○ Third: Payment of Wage Guarantees
The range of unpaid wages guaranteed by wage guarantees is the final three months' wages and the final three years' retirement pay. The wage guarantee system is intended to contribute to the minimum living standard of workers who have retired from bankrupt companies, so the level of wages paid by the government is not the full amount of unpaid wages, but a certain upper limit. Even with regard to wages that are guaranteed to be paid, individual workers' wage levels are not guaranteed to be fully protected, and there is a limit to the upper limit based on age.
For example, if an employee who was receiving a monthly salary of 4 million won retires at the age of 45 and the final five months' wages and the recent five years' retirement pay are unpaid, how much will the general wage guarantee be? The range of unpaid wages guaranteed by wage guarantees is the final three months' wages and the final three years' retirement pay. The final three months' wages are 900 million won (the average monthly wage in January was 4 million won, but the monthly limit based on age is 3 million won), and the final three years' retirement pay is 9 million won (3 million won x 3 years), so the wage guarantee is 18 million won.