. Understanding Wages

1. The Characteristics of Wage Management
Wage management is classified into ① level management, for total amount management, and ② system management, for the distribution of wages to employees. Level management is concerned with the exterior market balance, whereas system management maintains interior balance.
Wage management has two distinct characteristics: labor costs in the form of a company's production costs, and an employee's living costs. Accordingly, the principle of the least amount is applied to the former, while the principle of the greatest amount is applied to the latter. This brings about many conflicts in finding mutual ground. However, extremely low wages make it impossible to recruit or maintain capable manpower, while extremely high wages burden the company and hinder stable growth.
There are three separate working conditions: wages, working hours, and the workplace (or work environment). These are also the considerations new employees use to decide which company to work for. Accordingly, the wage level must be determined considering working hours and the workplace.

2. Determining Wage Level
The company's ability to pay, employee living costs, and the wages set by the market are major factors considered when determining the wage level.

(1) Company's ability to pay
The company's ability to pay is not the financial capability of the company to pay the maximum, but its encompassed ability to pay within the limits of operation. Ability to pay is decided and disclosed by economic indicators of physical productivity such as value added, increased sales, and product productivity.

(2) Living costs
Living costs are the employee's general living expenses and necessities of life, including the cost of educating children. Direct living costs are difficult to calculate and so a model of the standard living costs including economic, social, and cultural conditions often serves as the common method adopted by a household life cycle model.

(3) Wages set by the market
Wages are directly related to manpower acquisition and employee morale. Even if wages are decided according to reasonable considerations, it is usually impossible to hire the necessary employees if the company's wage level is lower than that of other companies in the same industry or if the company has labor instability. Accordingly, social wage is highly considered when determining the wage level.

3. Wage System Management
The wage system is designed to keep interior balance through a reasonable distribution of limited funds for labor costs. In practice, it depends on how the portions are divided among the items. The wage system is divided into basic pay and miscellaneous pay.
Basic pay is the wage paid for labor under ordinary working hours and working conditions. Not only does it form calculating standards for miscellaneous pay, it is also the core of the wage system, revealing the company's wage policy. Basic pay consists of seniority-based pay, job-based pay, and skill-based pay. Most companies use mixed factors (that vary for each company) of seniority-based and job-based pay.
Miscellaneous pay is wages paid as a reward for labor service, which has been provided additionally and for job performance as an additional pay structure. Miscellaneous pay includes technology allowances, title allowances, and statutory allowances (overtime, weekly leave, and night allowances).

Ⅱ. Ordinary Wages and Paid Allowances

1. Understanding Ordinary Wage
'Ordinary wages' means wages which are determined to be paid periodically or in a lump sum to an employee for his/her prescribed work or whole work. This ordinary wage is used as the standard wage to calculate added allowance for overtime, night and holiday work, annual paid leave allowance, dismissal pay, and for paid leaves that employers have to provide under the Labor Standards Act. If this ordinary wage has not been calculated properly, it is not as simple as re-calculating and paying the correct amount from now on, but the employer shall recalculate all kinds of allowances such as overtime, night and holiday work, and other allowances that were paid over the past three years. Furthermore, the employer shall recalculate the severance pay for resigned or dismissed employees and pay the difference. That is, ‘ordinary wages’ means the wages determined to be paid periodically and uniformly within a specific period, regardless of the amount of actual work provided or the amount received as remuneration for quality or quantity of the labor.
Ordinary wages need to be calculated for
① dismissal allowances replacing advance notices of dismissal,
② wages added for overtime, night, or off-day work,
③ in the rules of employment to calculate annual paid leave, and
④ in cases where the pay is under ‘paid allowance,’ not under average wages according to the Labor Standards Act.
When calculating ordinary wages, the hourly wage rate is applied in principle. Daily wages, weekly wages, or monthly wages can be calculated at the hourly wage rate as in the following:
With respect to wages determined by the daily wage rate, the amount is calculated by dividing the daily wage rate by the contractual working hours per day. Contractual working hours represent those working hours which the workers and employers have agreed upon within the limit of the legal standard working hours (Article 2 (7) of the LSA). With respect to wages determined by the weekly wage rate, the amount is calculated by dividing the weekly wage rate by the contractual working hours per week. Weekly wage refers to ordinary wages that are to be paid on a weekly basis. With respect to wages determined by the monthly wage rate, the amount is calculated by dividing the monthly wage rate by the contractual working hours per month. Monthly wage refers to ordinary wages that are to be paid on a monthly basis.

In cases where legal standard hours are regulated to the same as contractual working hours, the calculation is as follows:



2. Substantial Criteria for Ordinary Wages
(1) Ordinary wages means wages that an employer pays to an employee as remuneration for his/her prescribed work or whole work, and those which are paid regularly and uniformly are considered ordinary wages in principle. For legislating the Labor Standards Act and the function and necessity of ordinary wages, what should be included as ordinary wages shall be fixed wages paid regularly and uniformly. This means non-fixed wages are not ordinary wages, as they are not paid regularly and uniformly and may or may not be paid, or the amount paid is according to actual work performance. Here, being paid 'uniformly' not only means that payment is made to all employees, but also to all employees qualified according to certain conditions or criteria. Here, 'certain criteria' refers to 'fixed conditions' in considering the concept of ordinary wage, because the ordinary wage is used to calculate 'fixed and generally accepted regular wage.'

(2) Even though a particular allowance or bonus, etc., may be paid for a period exceeding one month, if these are paid regularly and uniformly, these components can be included in ordinary wages.

(3) Mutual agreements between employer and employees that exclude a particular allowance considered ordinary wages according to the Labor Standards Act are null and void because such agreements set conditions lower than those in the Labor Standards Act.
3. Application of ordinary wage
(1) As long as the welfare allowance is paid periodically and uniformly, it shall be included in the realm of ordinary wages.
In cases where the welfare allowance has been paid to all employees periodically and uniformly within a period of wage calculation for the contractual working hours or legal standard working hours for the purpose of supplementing the low wage level of employees working in social welfare facilities, this allowance shall be included in the realm of ordinary wages. Here, the term “periodically” means that the employer shall pay wages for contractual working hours or legal standard working hours within the period of wage calculation. The term “uniformly” means more than that the employer shall pay all employees, but also includes paying all employees who meet a certain condition or reach a certain level of working conditions. The term “a certain condition” means a fixed condition.

(2) Even though a company and labor union agree in a collective bargaining agreement to include into ordinary wages those wages and valuables which are exclusive in the realm of ordinary wages according to the LSA guidelines, it is not possible to deem that they are converted ordinary wages according to law.
If a company decides through collective bargaining agreement (CBA) and the rules of employment to include into the realm of ordinary wages valuables which are not included in the realm of ordinary wages according to LSA regulation, the company shall follow the promised rules. However, even though the company and the labor union agreed such in the CBA and rules of employment, it is not possible to deem that such valuables are converted to ordinary wages according to Article 6 of the Enforcement Decree to the LSA.

Ⅲ. Calculating Average Wage for Severance Pay

1. General calculation
Average wages mean the actual wage paid for actual work provided and calculated into the daily wage rate. Average wage is the amount calculated by dividing the total amount of wage 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.



1) The total amount of wage paid for the last three calendar months
The total amount of wage includes all wage under the Labor Standards Act excluding other forms of payment. In determining whether individual items of pay may be identified as wage reflected into the calculation of average wage, 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 wage regardless of their titles.
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 wage. 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 wage occurs) by the total number of calendar months, which is 3/12 times the total monetary value of bonuses paid per year.

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 cases
1) “Average wage” 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 wage” to calculate severance pay refer to the amount calculated by dividing the total amount of wage 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 wage of the employee concerned, the ordinary wage shall be deemed as average wage.
2) In cases where the period of calculating average wage 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 wage paid for that period shall be deducted respectively from a basis period for the calculation of average wage 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 wage excluding the period mentioned above shall be used for the calculation of average wage. If the leave of absence exceeds three months, the first day of the leave of absence shall be the date for calculating average wage based on the previous three months. In any case, if the amount calculated above is lower than the ordinary wage of the employee concerned, the amount of the ordinary wage shall be deemed as average wage.
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 wage. In cases where an employee could not provide labor service during the period required for calculating average wage due to the employee’s choice or actions, this period shall be included in the standard period in calculating average wage. 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 wage excluding the period mentioned above shall be used for the calculation of average wage. If the leave of absence exceeded three months, the first day of the leave of absence shall be the date for calculating average wage based on the previous three months. In any case, if the amount calculated above is lower than the ordinary wage of the employee concerned, the ordinary wage shall be deemed average wage.