To resolve unpaid wages, new solutions are being presented in conjunction with legal preventive measures. As a preventive measure, there is a delayed interest rate system of 20% per year to encourage the payment of unpaid wages, and there is a non-indictment crime that allows employers to avoid criminal punishment if they pay the unpaid wages. In addition, if an unpaid worker goes through the Labor Ministry and receives a confirmed court decision for unpaid wages from the Legal Aid Corporation, regardless of the employer's ability to pay, they can receive unpaid wages up to a limit of KRW 10 million from the Wage Credit Fund. This is called the small-scale allowance system, and the limit was expanded from KRW 400 million to KRW 10 million from July 1, 2019, which will be a groundbreaking help in resolving unpaid wages. We will examine in detail the preventive system for unpaid wages and the small-scale allowance system related to this matter.
The term "wage arrears payment" refers to the payment made by the government on behalf of the employer to employees who leave the company without receiving their wages (including shutdown allowances) and retirement benefits due to company bankruptcy or other reasons. There are two types of wage arrears payments: general and small-scale. The general wage arrears payment system is designed to guarantee minimum wages and retirement benefits for employees of bankrupt or insolvent companies. However, even if a company does not go bankrupt, many employees suffer from wage arrears, and the small-scale wage arrears payment system has been introduced as a temporary measure to help them. Previously, even if wage arrears workers who did not receive their wages on time for reasons unrelated to bankruptcy or insolvency won their case in court, they would not receive wage arrears payments if the employer did not pay or could not find property to enforce the judgment. The Ministry of Employment and Labor has introduced a small-scale payment system for wagee arrears that allows the government to pay up to KRW 10 million (KRW 7 million for the final three months of unpaid wages, including shutdown allowances, and KRW 3 million for the final three years of retirement benefits) to workers who have received a final court judgment for wage arrears, regardless of whether the employer has gone bankrupt.
The system allows workers to apply to the Korea Workers' Welfare & Safety Corporation within one year of receiving a court judgment after submitting a wage arrears certification form to the Ministry of Employment and Labor and obtaining a wage arrears confirmation statement from the company's labor standards supervision agency in charge of the area where the company is located, as well as applying for free legal aid from the Korea Legal Aid Corporation in charge of the area where the worker lives and filing a lawsuit in the court with jurisdiction. Foreign workers can also be covered by the same four types of insurance (workers' compensation insurance, national health insurance, employment insurance, and national pension) as Korean workers. Therefore, if wages are not paid by the company, wages can generally be paid under the Wage Claims Guarantee Act. In addition, for companies or workplaces with less than 300 regular employees that are not covered by the Wage Claims Guarantee Act, or for which the Act does not apply, they are required to take out guarantee insurance or join the Overseas Employment Insurance Program to pay retirement benefits in anticipation of wage arrears.

1. Requirements for Small-scale Alternative Payment

The requirements for alternative payment stipulated by the Wage Guarantee Act are as follows:
① Based on the employer: The employer must have employed one or more permanent employees for six months or more at the workplace where the unpaid worker was employed on the retirement date. Article 8(2) of the Enforcement Decree of the Wage Guarantee Act

② Eligible employees for payment: The employee who is owed unpaid wages must have filed a lawsuit or applied for a payment order within two years of the day after the unpaid worker retired. Article 7(2) of the Enforcement Decree of the Wage Guarantee Act

③ Enforcement power secured: The employee must have obtained enforcement power through a court decision or a separate civil suit such as a judgment, payment order, or compliance recommendation from the Legal Aid Corporation.
An unpaid worker who meets these three requirements can receive an alternative payment for the unpaid amount of the last three months' wages (including shutdown allowances) and the unpaid amount of retirement benefits for the last three years, up to a maximum of 10 million won.

2. Procedure for Small-scale Alternative Payment for Unpaid Wages


❍ Report Unpaid Wages to the Ministry of Labor
When unpaid wages occur, workers can file a report with the Ministry of Labor to initiate an investigation into the case. Labor inspectors confirm the facts by demanding attendance from the relevant parties. If an agreement is reached or unpaid wages are paid during the process, the case is closed. However, if unpaid wages are not settled despite corrective orders from labor inspectors, criminal proceedings will be initiated. In addition to this process, workers can obtain an "Unpaid Wages Confirmation Certificate" and file a civil lawsuit to secure the right to execute on unpaid wages.
❍ Free Legal Aid from the Legal Aid Corporation
Workers who want to receive a small amount of unpaid wages can obtain an "Unpaid Wages Confirmation Certificate" from the Ministry of Labor and receive free legal aid from the Legal Aid Corporation in their jurisdiction to secure the right to execute on unpaid wages. Workers who do not qualify for free legal aid (those whose average wage for the last three months is less than 4 million won) must personally file a civil lawsuit with the court to secure the right to execute on unpaid wages and then apply for a small amount of unpaid wages. Workers must submit a claim for a small amount of unpaid wages to the Korea Workers' Welfare Service within one year of securing the right to execute.
❍ Apply for Small-scale Alternative Payment to Workers' Welfare Service
Welfare Service When a worker submits a claim for a small amount of unpaid wages with an "Unpaid Wages Confirmation Certificate", a right to execute on unpaid wages, and a certificate of finality, the Korea Workers' Welfare Service decides whether to pay the small amount of unpaid wages within 14 days of receiving the claim. If the claim is approved, the Korea Workers' Welfare Service pays the small amount of unpaid wages to the claimant.


3. Differences with the Alternative Payment System

(1) Reason for Payment
The alternative payment system allows payment of unpaid wage only when the company has been declared bankrupt, has started the rehabilitation process, and has received de facto insolvency recognition from the labor department due to its failure to reach bankruptcy or rehabilitation under the law. On the other hand, under the Small-scale Alternative Payment System, unpaid wage is paid regardless of whether the company has gone bankrupt or not.
However, in order to receive a small-scale alternative payment, retired workers must first secure enforcement power from the court for unpaid wages against the employer.
(2) Eligible Workers for Payment
The alternative payment is paid to workers who retired within 3 years from the date of bankruptcy or rehabilitation application, based on the retirement date one year prior to the application. In contrast, the small-scale alternative payment is paid to retired workers who file a lawsuit within 2 years from the day after their retirement.

(3) Employer Criteria
Under the Alternative Payment System, the employer must have operated the business for six months prior to the employee's retirement and then have gone bankrupt or become practically insolvent. Under the Small-scale Alternative payment System, the employer only needs to have operated the business for six months prior to the employee's retirement.

(4) Claim Period
Under the Alternative Payment System, the retirement benefits must be claimed within two years from the bankruptcy or insolvency recognition date. Under the Small-scale Alternative Payment System, the unpaid wage must be claimed within one year from the date of the final judgment.

(5) Payment Amount Range
Both the Alternative Payment System and the Small-scale Alternative Payment System pay the final three months' salary (including shutdown allowance) and the final three years' retirement benefits on behalf of the employer. However, the Alternative Payment System pays a different amount depending on the employee's age, ranging from KRW 2.2 million to KRW 3.5 million per month (up to KRW 21 million in total). The Small-scale Alternative Payment System has a maximum payment amount of KRW 10 million, with a cap of KRW 7 million for wages (including shutdown allowance) and KRW 7 million for retirement benefits, based on the payment standards.

4. Summary

In the case of the general wage payment system, one must be recognized as bankrupt or legally recognized as bankrupt in order to receive wage payments, but the small-scale alternative payment system has a high potential for system utilization as it allows for wage payments even if these conditions are not met. The key requirement for small-scale alternative payment is whether the execution right for unpaid wages has been granted or not, so the administrative procedure for wage payment is easier compared to the general alternative payment system. However, the fact that workers still have to go through several administrative agencies and prepare various documents to receive small-scale alternative payments serves as a hindrance to the utilization of the system. To overcome these obstacles, there is a need for the Ministry of Labor, the Labor Relations Commission, and the Employment Welfare Fund to establish a systematic one-stop service for small-scale alternative payments through collaborative work. Park Geun-hoo and 4 others, Ministry of Employment and Labor service data, page 131.

There are two systems that can be utilized within legal boundaries to solve the problem of unpaid wages for workers: the delayed interest system and the criminal offense system for intentional non-payment of wages. To improve these systems, the Ministry of Labor must include a delayed interest rate of 20% when calculating unpaid wages at the stage of issuing a certificate of unpaid wages. Furthermore, criminal punishment for intentional non-payment of wages is mostly imposed in the form of fines, with fines also being imposed within 20% of the unpaid wages. In Korea, like in the United States, punitive fines should be imposed that exceed several times the actual unpaid wages to spread the perception that non-payment of wages is a form of slave labor. Additionally, the expanded small-scale alternative payment system is a ground breaking measure as it guarantees workers' wage rights even for general unpaid wages from employers. This system should be actively utilized as a quick and convenient solution for resolving unpaid wages for workers.