Ⅳ. Payment of Wages (How Wages are to be Paid)

The Labor Standards Act states that wages shall be directly paid in full sum to the worker in cash and paid at least once per month on a fixed day, thereby including the principles of cash payment, direct payment, total payment, and fixed-day payment (Article 43 of the LSA).

1. Principle of Cash Payment
Wages shall be paid in cash, not in kind. Accordingly, wages shall be paid in convertible cash (i.e. bank notes or coins) except for special cases prescribed in law or collective agreement. A cashier's check issued by the bank, however, does not violate the principle of cash payment, though bill payment is treated as an agreed extended payment.

2. Principle of Direct Payment
Wages shall be paid directly to employees. This rule does not allow exceptions by law or collective agreement, nor does it permit any delegation or proxy. However, the principle is not violated if a family member serves as a messenger in case of any illness affecting the recipient. The family member can collect the payment or it can be transferred into a designated bank account upon the employee's request. However, this excludes seamen, who are exempt from direct payments due to the differences in working conditions at sea.

3. Principle of Total Payment
Wages shall be paid in total amounts to all employees after applicable deductions according to law or collective agreement. Legal deductions include income tax, resident tax, medical insurance, national pension, etc. Collective agreement deductions include union membership fees (check-off system).

4. The principle of fixed-day payment
Wages shall be paid on a fixed day, one or more times in a month, to promote stability for employees. Wages or allowances paid temporarily to be admitted as exceptions shall include:
① Diligence allowances paid for superior attendance during periods exceeding one month;
② Service allowances paid for continuous work during periods exceeding one month;
③ Incentives, efficiency allowances or bonuses presented for various reasons during periods exceeding one month; and
④ Other allowances paid irregularly.

Ⅴ. The Inclusive Wage System and Its Limits

Inclusive wage systems, where an employer pays a fixed monthly salary, is convenient for management, but can only be applied in some situations, as they can easily lead to violations of the Labor Standards Act. Inclusive wage systems are salary payment systems where the employer determines total wages, which include statutory allowances such as overtime, night, and holiday work allowances in consideration of job characteristics and convenience in calculating wages, and then pays a fixed wage every month. This system is often designed for use at workplaces where it is hard to measure working hours due to the job characteristics or for the convenience of calculating working hours even though those working hours are measurable. However, this inclusive wage system is also commonly used to avoid paying various allowances required under the Labor Standards Act.




1. Inclusive Wage System and Related Judicial Principles

Article 17 of the Labor Standards Act stipulates, “Employers shall clearly state wages, contractual working hours, and other working conditions. For matters as to constituent items of wages and the calculation and payment methods of wages shall be specified in writing.” Article 56 regulates, “Employers shall pay an additional 50 percent or more of the ordinary wages for extended work, night work, or holiday work.” Based upon these regulations and the rules stipulated concerning ordinary wages, in making an employment contract, the employer shall first determine basic pay, and then from this basic pay, shall calculate the statutory allowances such as overtime, night work, and holiday work allowances according to actual working hours.
In principle, the payment of wages is according to the number of working hours. There are exceptional cases where working hours cannot be measured when considering actual hours worked, employment types and job characteristics like surveillance and intermittent work. In this case, the employer may make a wage payment contract that follows an inclusive wage system where the employer and employee can determine a monthly or daily wage that reflects all allowances, including statutory, without deciding the basic pay in advance, or the employer may make an employment contract with fixed amounts inclusive of all statutory allowances, based only upon the previously determined basic pay, without considering the actual number of hours worked. This inclusive wage system is permissible when there is no disadvantage to the related workers or as a justifiable method in view of special situations related to those jobs.
However, if working hours of a specific job are measurable, the principle is to pay wages according to working hours as reflected in the Labor Standards Act, unless a special situation exists where the LSA requirements do not apply. Therefore, for an employer to create a wage payment contract that uses an inclusive wage system (paying a fixed amount for statutory allowances) regardless of the number of working hours, is to violate the Labor Standards Act in principle and is not allowable by law.

2. Inclusive Wage System for Jobs with Certain Characteristics
(1) Application
Judicial rulings allow inclusive wage systems due to the special nature of work for cargo truck drivers whose working hours are difficult to measure, guards engaged in surveillance and intermittent work, workers contracted on a daily basis, part-timers with remarkably shorter contractual working hours, shift workers on 24-hour shifts, and other similar jobs. As for other jobs where the working hours cannot be measured in reality, if the employer and the employees agree to fixed overtime and holiday work allowances for a certain number of working hours each month, and if the employees have received those fixed allowances without complaint for a certain period of time, this inclusive wage system is allowed unless there is disadvantage to the employees when considering all circumstances.

(2) Related Cases

1) In cases where an inclusive wage payment system has been agreed upon in the employment contract, the inclusive wage that the employee receives for overtime work allowance and other allowances equivalent to overtime, night, and holiday allowances (in accordance with the Labor Standards Act) is an acceptable inclusion of overtime allowance, night work allowance and holiday work allowance. In cases where the inclusive wage payment system has been agreed upon at a workplace, the employer does not pay the difference in allowances for overtime.

2) The labor service that employees provided to Construction Company “S” was to guard and patrol workplaces for 24 hours straight every second day: surveillance work with lower mental and physical stress. This work naturally included overtime, night, and holiday work exceeding standard working hours under the Labor Standards Act. The employment contract made between the employees and the Company was not one with an ordinary type of wage payment (basic pay plus various allowances), but an inclusive wage system that paid a fixed amount monthly that included various allowances, as it is difficult to measure the employees’ working hours in terms of overtime, night, and holiday work due to the specific job characteristics. When they were initially hired, the employees agreed on such an inclusive wage system in consideration of the specific type of work, and had never complained about the validity of this system until their employment at Apartment G was terminated. Considering the aforementioned items, the inclusive wage system in this case shall not be determined null and void.

3) The “basic labor fees” included in “service expenses” that KBS paid to its workers, in accordance with its broadcasting production expense regulations, is remuneration for work from 9 am to 9 pm. On the other hand, KBS has paid a fixed daily wage, in accordance with its payment criteria for temporary workers, regardless of the quantity or quality of their working hours in cases where workers have worked from 9 am to 9 pm. KBS workers, including the workers in this case, agreed to this fixed payment and have received it without complaint. Furthermore, as this fixed daily wage could not have been regarded as disadvantageous in view of the rules of employment applying to them, the inclusive wage system (which includes overtime) for work from 9 am to 9 pm between KBS and its workers is acceptable. Therefore, the related workers are not eligible for overtime allowances for work between 6 pm and 9 pm.

3. Changes in Court Rulings regarding the Inclusive Wage System

(1) Details of Changes
Related rulings can be divided into those before and those after July 2007. Before July 2007, the courts did not specifically determine contractual working hours because employment contracts were not required to stipulate wage, working time or other conditions. In other words, even if the basic wage was not calculated in advance, but the inclusive wage equaled the sum of applicable allowances plus the monthly wage in a way that was not disadvantageous to the employee, it was considered valid. As a result, it was possible to accept the inclusive wage system for both jobs where the working hours were difficult to calculate, and jobs where the working hours were not difficult to calculate, but the system was conducive to convenient management.
In 2010, however, the Supreme Court ruled that the difficulty of calculating working hours would determine whether an inclusive wage system was justified and that such a system was not acceptable if the working hours could be calculated. This case is considered to set a related precedent because employment contracts then started to specify contractual working hours in accordance with Article 17 of the LSA. In other words, the basic wage should be determined on the basis of the contractual working hours when concluding an employment contract, and in principle, the inclusive wage system cannot be introduced when working time can be calculated. Thus, the inclusive wage system is acceptable for workers with supervisory and intermittent duties that make it difficult to calculate working time, but not easily for workers whose working time can be calculated.

Amendment of the Labor Standards Act resulted in the following changes in rulings on inclusive wages.
Before revision of the LSA



(2) Current Trends in Rulings on the Inclusive Wage System
  Since July 2007, consistent judicial precedents have been set, denying the existing inclusive wage system. A Supreme Court case in 2014 provides a clear explanation (Supreme Court Decision on June 26, 2014: 2011 Do 12114). “In cases where the inclusive wage system can be deemed justifiable, it is necessary to consider the type and nature of the work (such as whether it involves surveillance and intermittent aspects), and the difficulty of calculating the working hours when considering working time. The amount of allowance included in the statutory allowance is set as a monthly benefit or daily wage, or the basic wage calculated in advance, but if the statutory allowance is not classified and a fixed amount is set as the statutory benefit allowance, it is valid when a wage contract under the inclusive wage system is concluded. However, it should not be disadvantageous to the workers. Therefore, it is justified in light of the various circumstances mentioned above.”
 In addition, the rulings also reject the inclusive wage system if calculation of the working hours is not difficult, unless there is a special situation where the working hours regulation in the Labor Standards Act cannot be applied. In this case, if a contract is concluded in advance under the inclusive wage system, it is judged whether the inclusive wage contract is legal or not after reviewing if the statutory allowance included in the inclusive wage is correct. If the wages paid under the inclusive wage system fall short of the statutory allowance calculated according to the standards established by the LSA, and if it will be disadvantageous to the employees, it will be null and void. In such a case, the company shall compensate the employee(s) equal to the amount to be paid in legal standard allowances."

(3) When it is Difficult to Calculate Working Hours
 If calculating working hours is difficult, the inclusive wage system can be introduced. The following types of work to which this system is applicable are presented in the Labor Standards Act.
1) Supervisory/intermittent work: The working hours, rest and holiday regulations in the Labor Standards Act shall not apply to workers engaged in supervisory/intermittent work once the employer has received approval from the Minister of Employment and Labor (Article 63 (3) of the LSA).

2) Work outside the workplace: If a worker is unable to calculate working time due to working all or part of the working time outside the workplace (or other reasons), he/she shall be deemed to have worked the contractual working hours (Article 58 (1)).

3) Discretionary work: The discretionary work in Article 58 (3) of the Labor Standards Act refers to tasks where it is difficult to calculate working time because of the characteristics or performance rather than the amount of work. Written consent is required from the employee representative in order to qualify the work as within the contractual working hours. Specific tasks include designing and analyzing research and development and information processing systems, organizing articles for newspapers and broadcasts, design and design-related jobs, and producing and supervising broadcasting and film production (Article 58, Clause 3).

4. Opinion
 The purpose of making it mandatory to list the contractual working hours in the employment contract is to ensure that workers are able to pursue happiness while maintaining human dignity by providing work within statutory working hours. Since the inclusive wage system promotes long hours of work, it should be applied only to those industries where there is significant difficulty in calculating hours worked. Long working hours have been the widespread norm for white-collar workers through the inclusive wage system, which is based on a fixed overtime allowance. This can be said to be a violation of the principle that wages must be calculated according to contractual working hours. Therefore, there should be restrictions on fixed overtime allowances that may result in long hours of work for office workers.

Ⅵ. Legal Effect of a Retention Bonus (Signing Bonus)

A company can use several methods to retain highly-skilled workers for a long time, with two representative examples. One is through a non-compete clause in the employment contract or rules of employment, whereby the employer prevents capable workers from transferring to competitive companies, and the other is through a signing bonus, where the employer tries to restrict the transfer of workers through financial means. A non-compete clause is hard to validate as it restricts the freedom of a worker’s occupation. The Supreme Court has argued that "even if there is a non-compete agreement between the employer and the employee, if such an arrangement excessively restricts the constitutionally-guaranteed freedom of occupation, or the right to work or free competition, an action contrary to good social order, such as good customs as set forth in Article 103 of the Civil Act, should be invalid.” For this reason, many companies prefer signing bonuses, which have a direct effect on the reduction of turnover by good manpower.
I recently received an inquiry from a company about the effectiveness of a retention bonus clause. For this company, 30% of the annual salary is set as bonus, with 50% paid with the first year's salary in January, and the remaining 50% paid in January of the following year. In return, the worker must work for three years. The employer wants to include the following clause: "If the employee resigns prior to the agreed three years, the retention bonus shall be returned." The company asked for a legal review of the validity of this. In this case, I concluded that for the retention bonus to be set for three years would be no problem, considering related matters such as the nature of the related wage, the prohibition of forced labor, the prohibition against predetermination of nonobservance, etc.
In this article, I would like to deal with this issue in more depth, reviewing (ii) the characteristics of a special bonus and violation of the Labor Standards Act; (iii) the legal effect of a signing bonus; and (iv) the criteria for a signing bonus.

1. Characteristics of a Special Bonus and Determining whether it Violates the Labor Standards Act
(1) Characteristics of a Special Bonus
The term "wages" as defined in Article 2 of the Labor Standards Act refers to “wages, salary and any other money and valuable goods an employer pays to a worker for his/her work, regardless of how such payments are termed." Such bonuses can be regarded as wage if payment conditions and payment timing are set in a collective agreement or employment rules, etc. and if the payment of such bonus is customary for all employees. If the above conditions are satisfied, such special bonus can be recognized as having the characteristics of wages. Concerning the legal characteristics of a retention bonus, the Ministry of Employment and Labor judged that this bonus could not be considered as wages under the Labor Standards Act if payment was not stipulated in a collective agreement or rules of employment, etc., and if the employer temporarily or voluntarily paid it on condition of securing longer employment. Therefore, it is not included in average wage for the calculation of severance pay.

(2) Determining Whether a Special Bonus Violates the Labor Standards Act
“Prohibition against forced labor” as stipulated in Article 7 of the Labor Standards Act means that “No employer shall force a worker to work against his own free will through the use of violence, intimidation, confinement or any other means which unlawfully restricts mental or physical freedom.” It is forced labor to cause workers to carry out unwanted work. However, it is not forced labor for an employer to direct, supervise or legally sanction workers to fulfill their obligation to provide work under an employment contract. The penal provisions of Article 7 (Prohibition against Forced Labor) impose a penalty of imprisonment of not more than 5 years or a fine of not more than KRW 30 million, while the penalty for violation of Article 20 (Prohibition against Predetermination of Nonobservance) is a fine of no more than KRW 10 million. Therefore, in application of the signing bonus case, Article 20 of the LSA, which includes the voluntary intentions of employees, is more appropriate than Article 7, which governs only direct physical and mental restraint, such as assault, intimidation and confinement.
The prohibition against predetermination of nonobservance prescribed in Article 20 of the Labor Standards Act stipulates that "No employer shall enter into a contract by which a penalty or indemnity for possible damages incurred from breach of a labor contract is predetermined.” This is to prevent an employee from being forced to continue to work against his/her will by previously agreeing to pay a certain amount of money without determining the type and degree of the actual damage to the employer because of non-fulfillment of the employee’s employment contract. In order to guarantee performance in a contractual relationship, the Civil Act may apply penalties or damages for default in advance at the conclusion of a contract (Article 398 of the Civil Code ‘Liquidated Damages’). However, while a penalty for non-fulfillment of work is a means of securing long-term employment of good manpower for the employer, it does prohibit employees from resigning, because of the burden of penalty payment. As concerns provisions for the prohibition against ‘liquidated damages’, labor contracts in the form of penalties for existing wages are not allowed, but reimbursement of training costs and bonuses of reasonable and valid content is permitted, because it does not unduly limit freedom of resignation.

2. Legal Effectiveness of a Signing Bonus

(1) Situations where a Commitment to Return the Signing Bonus is Valid
1) Suwon Regional Court ruling on May 13, 2013: 2002gahap12355: An employee agreed that he would receive KRW 150 million as a retention bonus for 3 years’ employment, which he would repay if he left the company prematurely. After 7 months of service, he moved to a competitor company. The court ruled, “The retention bonus does not belong to wages and can be excluded from application of Article 20 of the LSA (Prohibition against Predetermination of Nonobservance), but the company paid the bonus for the purpose of retaining the employee for 3 years. Therefore, the employee should repay the retention bonus.”

2) Seoul Regional Court ruling Apr. 29, 2013: 2013kahap231: An employee received a signing bonus of KRW 50 million, which he agreed to repay if he left the company within two years of receiving this money. He then left the company after 7 months. The court ruled, “This signing bonus to retain the employee for a certain period of service cannot be translated as forced labor; neither does it violate Article 20 of the LSA (Prohibition against Predetermination of Nonobservance).”

3) Changwon District Court ruling on Nov. 17, 2007: 2007na9102: According to a mutual agreement between company and employee, the company was to pay a special bonus to the employee in accordance with the length of service, ranging from 12 months to 41 months of the normal wage, in return for which the employee would stay for two years from the date on which the employee was paid. The agreement stipulated that in the event that the employee resigned from the company, the special bonus would be returned to the company for a period not exceeding two years. The employee who received the compensation from the company submitted a resignation letter and resigned the day after receipt of the compensation. In this case, returning compensation based on two years of obligatory work does not restrict the freedom of choice of the workplace or freedom of retirement. The court agreed with the company’s rule that the special bonus should be returned.

(2) Instances where a Commitment to Return the Signing Bonus is Invalid
1) Supreme Court ruling on Oct. 23, 2008: 2006da37274: When an employee was hired by the company, he signed a retention bonus agreement whereby he would receive KRW 500 million and serve the company for 10 years. If he resigned within 10 years, he would repay a penalty of KRW 1 billion. In this case, the court ruled that this retention agreement violated Article 20 of the LSA (Prohibition against Predetermination of Nonobservance) and became null and void.

2) Incheon Regional Court ruling on Apr. 29, 2013: 2013gahap3994: An employee promised to work for a company for at least 5 years, and received KRW 50 million as a retention bonus. In the agreement, the employee agreed to repay 3 times the value of the retention bonus received if he did not fulfill the agreement. After 5 months of service, the employee resigned. The company claimed KRW 150 million, three times the amount of the retention bonus. In this case, the court rejected the employer’s claim.

(3) Supreme Court Ruling on Signing Bonuses
1) Case details: “S” company, which manufactures robot doctors (ROBODOC), hired an experienced engineer in the field of fuel cells on January 13, 2009 for a period of four years. The company and employee entered into a recruitment agreement to pay KRW 100 million as a signing bonus separate from the salary. The recruitment agreement contained a stipulation that the company guaranteed employment for seven years, and the employee would work for the company for seven years. The employee resigned on April 12, 2010 for personal reasons. The company sued for return of the signing bonus, but the district court dismissed the plaintiff’s (company’s) claim (Dongbu District Court, 2010kahap13266). The company appealed, and the Seoul High Court partially accepted the claim that the employee should pay a prorated amount of the signing bonus, stating that the signing bonus was: 1) a special incentive to work for the company, 2) a full down payment for 7 years of pre-emption, and 3) a special bonus to expect 7 years’ service (Seoul High Court 2011na22827).

2) Decision of the Supreme Court: The Supreme Court dismissed the plaintiff's claim, saying, "As the company concluded labor contracts in a way to keep experienced professional personnel, the so-called “signing bonus,” the following points should be taken into consideration: ① Whether or not they have the characteristics of compensation for job turnover or conclusion of a labor contract; ② Whether to pay for the prohibition against resignation during the compulsory working period; ③ Whether or not there is a written statement concerning returning the bonus upon retirement or turnover in the middle of the period.” Based on the aforementioned premises, the signing bonus was judged to have the characteristics of a reward because there was no description of a specific method of payment or any return obligation. In other words, the signing bonus for this case is an instance in which the nature of the reward for employment is judged to be stronger than the nature of the mandatory working period of seven years.

3. Criteria for a Signing Bonus
The judging criteria for a signing bonus must adhere to the following principles:

(i) If there is disagreement over interpretation of the contract between the parties: ① The contents of the document, ② The motivation and the manner in which the agreement was made, ③ The purpose of achieving by agreement, and ④ The true intention of the parties should reasonably be interpreted according to logic and empirical rules.

(ii) It is effective for the employer to stipulate a return of the employee's bonus, which is provided separately from the employee's wage, for the special purpose of preventing the employee from working for another company. In principle, these return arrangements are required to ① balance the amount of the signing bonus award and duration of the employment contract, and the degree of the former restriction; ② not infringe on the essential condition of the employee's freedom to change jobs; ③ the bonus should not have the characteristics of a wage, and ④ there should be no reason related to the employer for the employee working for another company.
In other words, it must be made clear that the signing bonus is awarded on the understanding that the bonus is paid for a period of mandatory service; the duration of such obligatory service should be as short as possible and; the amount to be returned should be equal to or less than the amount the employee received for the mandatory service period. In addition, a contract for returning the bonus award is valid only if the employee voluntarily resigns.

Ⅶ. Minimum Wage and Employer Obligations

According to the current minimum wage system in Korea, one minimum wage is applied at all workplaces, without distinction as to industry or region, and all employers are obligated to pay at least the minimum wage.
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. Application of the Minimum Wage

(1) Employer Obligations
The minimum wage system guarantees a minimum amount of hourly wage for employees. Employers can pay more than the minimum wage, but sections of an employment contract stipulating a wage lower than the minimum wage shall be invalid, and any wage that was paid at less than the minimum wage must be paid additionally. In cases of violation, the employer shall be subject to 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. In cases of violation of this, the employer shall be subject to a fine up to KRW one million (Article 11 and Article 31 of the Act). Exceptions to application of the minimum wage are: ① persons who are in a probationary period of up to 3 months (except for employment contracts of less than one year) and ② surveillance or intermittent work approved by the Minister of Employment and Labor.

(2) Criteria for Determining Minimum Wage Violations
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, then hourly minimum wage will be calculated, ③ and then the amount will be compared with the 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 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 Long-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 and 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) Calculating Hourly Wage to Determine if Minimum Wage Is Being Paid
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 should 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 the Enforcement Decree). The prescribed working time of one month includes paid weekly holiday allowances (Article 55 of the LSA) 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 a wage that is regularly paid at least once a month for given work. Therefore, this regularly paid weekly holiday allowance should be included in the wage calculation.” In a sample case of 40 hours per week, the contractual working hours for the month is 209, including the weekly holiday allowance.

2) MOEL guidelines
According to Article 5-2 of the Minimum Wage Act and Article 5 of the Enforcement Decree to the same Act regarding wages for application of the minimum wage, the monthly wage prescribed for a monthly period shall be the wage divided by the number of contractual working hours per month. In a workplace that conducts a 40-hour workweek each month, ‘if 8 hours of Saturday work are treated as paid working hours’ even though there is no work duty provided on this Saturday, the number of hours worked in a month for the application of the minimum wage is calculated as 243 hours including paid weekly holiday allowance [{40 hours + 8 hours (Saturday paid work) + 8 hours (paid weekly holiday)} x 4.345 weeks ≒ 243 hours].
2. Application of the Minimum Wage in Practical Terms
(1) Quarterly Incentives, Meal Fees and Vehicle Maintenance Fees
1) Quarterly incentives shall not be considered part of minimum wage.
2) "Meal fees (food expenses)" are paid regularly and uniformly to all employees of a certain company 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. So, meal fees are included as wages for application of the minimum wage (applied gradually from January 1, 2019). A "vehicle maintenance fee" is paid to a driver 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 application of the minimum wage.

(2) Sales and Other Bonuses
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 performance bonus (based on results)
A sales bonus, for which the monthly amount varies according to the sales performance of an 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.
In cases where a health trainer carries out individual fitness training work for a member, if the trainer receives an additional training fee according to a predetermined payment condition and payment rate, such a fee can be considered equivalent to a sales bonus and included in the minimum wage. Such sales bonuses are calculated into hourly wage after division 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.

(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.

2) Even if a "welfare allowance" is included in regular wages, if it is explicitly defined 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 the wage for application of the minimum wage in terms of welfare benefits.

Ⅷ. Procedures for Wage Adjustments (Increases, Reductions, Freezes, Returns)

Labor and management together can freely determine and adjust wages through labor contracts, employment rules, and collective agreements. So far, wage adjustment has been used to mean “wage increase” as wages have been increased every year due to inflation. However, as the coronavirus epidemic over the past year has caused enormous damage to all industries, many companies have overcome difficulties through other forms of wage adjustment, such as wage cuts, freezes, and returns. An employer unilaterally cutting wages has no effect. Reductions, freezes, or wage returns are unfavorable changes to working conditions, so legal procedures must be adhered to by the labor and management before taking such steps.
Wage cuts refer to reducing wages lower than existing levels for the same job and require collective consent of the affected workers. Wage freezes have the same effect as wage reductions when annual wage increases or service allowances are currently in place, and therefore require collective consent. However, deciding to keep the same wage as before without increasing wages does not require collective consent. Regarding wage returns, since wages are accrued in return for work already performed, those wages belong to individual workers, so the employer must obtain the consent of that individual worker. If the company deducts wages based only on collective consent, not individual consent, those deducted wages will be considered unpaid wages. The table below provides a brief summary of wage reductions, freezes and returns. In the next sections, I will review the related principles and related labor cases in detail.




1. Wage Increases and Wage Reductions
Wage increases are decided through collective bargaining if there is a labor union. Wages have generally been raised every year through collective bargaining between labor and management, and if negotiations do not result in wage increases, the labor union increases the pressure through strikes. Employers generally increase their workers’ wages to the minimum extent acceptable to the labor union. Wages can also be reduced through collective bargaining if the economy is bad or the company is in trouble. In this case, if the union consists of a majority of the workers concerned, non-union members are also affected by the wage adjustment concluded by the labor union due to the general binding force of the workplace (Article 35 of the Labor Union Act). In workplaces without a labor union, wage increases are determined unilaterally by the company within an appropriate range through changes to the employment rules or labor contract. However, since wage reductions are regarded as an unfavorable change working conditions, an agreement between labor and management is necessary.
Wage reductions refer to a lower wage than before being paid at a certain point in the future. The total wages paid is lowered by reducing or abolishing the basic wage and/or various allowances, with the process carried out in a manner decided in collective decision-making. If there is a majority union, this is done through a collective agreement, but if there is no majority union, it is necessary to go through the procedures required to make unfavorable changes to the employment rules. Even if labor and management have agreed, wages cannot be reduced below the minimum wage level, and additional rates or legal allowances (such as overtime/night/holiday work allowances, weekly holiday allowance, annual paid allowance, etc.) are not subject to reductions, in accordance with the Labor Standards Act. Also, the reduced wage is not included in the calculation of average wage. Wage reductions are judged differently for each case. Here are some of these individual cases.

(1) Even if individual workers agree on a wage reduction, this cannot replace collective consent. Wage reductions involve paying less in the future for the same work that is currently provided, which makes them an unfavorable change to working conditions. In order for consent to a reduction in wages obtained from individual workers to be considered valid, the collective agreement must be changed according to required procedures.

(2) In order to overcome a management crisis, a company significantly reduced its workforce and unilaterally stopped paying bonuses to workers who were retained. The fact that workers who were retained have continued to work without objection to the unilateral cessation of bonuses, does not mean that those workers have given up their right to claim future bonuses.

(3) In accordance with the general binding force of Article 35 of the Labor Union Act, the effect of an agreement on wage reductions with a majority labor union also extends to non-union workers in the same kind of job in a workplace. However, if a separate contract for wages is signed for each worker, such as an annual salary contract, the individual worker's consent for a wage reduction is also required. On the other hand, if the number of workers who were in the labor union at the time of the labor-management agreement on wage reduction did not reach a majority of the workers, the general binding force of Article 35 of the Labor Union Act cannot be granted.

(4) In changing the shift work system, reducing the shift from 4 groups/3 shifts to 3 groups/3 shifts is an unfavorable change for workers. Conversely, if the increase is from 3 groups-3 shifts to 4 groups-3 shifts, unless the contractual working hours are shortened or wages are reduced, it is not regarded as a disadvantageous change to working conditions, even though related wages or allowances are reduced due to the reduction in overtime work.

(5) A change in the pay system can also lead to a reduction in wages. In cases where the amount of wages decreases from a reduction in the proportion of basic salary and an increase in the proportion of performance salary, the court considers it as a disadvantageous change in working conditions even though only some employees' wages decrease while the wages of most employees increase.

(6) If the wage peak system is introduced within the statutory retirement age, it is a disadvantageous change in working conditions because it results in a reduction in wages for workers at that time. In this case, if there is a labor union organized by a majority of workers, the consent of that labor union is required. Here, a union organized by a majority of workers refers to a union organized by a majority of all workers who are subject to the existing employment rules, regardless of the scope of union membership.

2. Wage Freezes
Freezing wages refers to keeping wages the same for future work as was paid for past work of the same type. In cases where a company regularly increases regular wage, ceasing or additionally restricting this regular increase in wage is an unfavorable change to working conditions. The company can freeze wages through amendment of the collective agreement or following the procedures for changing the employment rules disadvantageously. However, it is not a disadvantageous change to working conditions if wages are frozen when there is no regular salary increase.
(1) If the personnel regulations stipulate that regular increases occur on January 1st and July 1st of each year, and if the annual increase in salary has been carried out regularly and uniformly, this is considered to be a habitual wage practice. In this case, if the employer unilaterally freezes the regular increase without engaging with workers in the collective decision-making method, is the courts have deemed that the amount of regular increase that remains unpaid by the regular payment date each month as unpaid wages.

(2) A certain school had financial difficulties, and the principal explained the situation to teachers at a school affairs meeting, suggested that the basic salary increase for general school teachers be frozen that year. The teachers present did not object at the time to this. However, this lack of objection at the meeting with the teachers cannot be considered the same as obtaining collective consent.

3. Wage Returns
Wage returns refer to the return of wage bonds (wages, bonuses, etc.) already incurred for previous work based on the free-will consent of the individual worker. Due to the waiver of the right to claim wages that occurred legally, wages can only be returned through due process. Since a unilaterally-determined wage deduction by the employer violates the principle of paying full wages, individual workers' written consent is required. However, even in this case, any waiver of the right to claim severance pay is invalid because it violates the Labor Standards Act.
For procedures to be deemed reasonable, individual workers’ consent is required. Since the return of wages is effective only if it is the individual workers’ voluntary decision, individual workers must recognize the purpose of wage returns and sign a return consent form in their own name. While the court holds that it is desirable to obtain consent for each individual worker when returning wages, it is also possible to obtain individual consent by having workers sign a name list of workers if the company has sufficiently explained the difficult situation to the workers. An agreement to return wages in the collective agreement has no effect. This is because the return of wages involves wages that already belong to individual workers, and the union cannot be forced to abandon individual member property rights. Wages returned by workers come from the workers' income and are returned voluntarily, and the employer is not obligated to return them again to the worker. Returned wages are included in the calculation of average wages as they are wage bonds that were given to the employee and then returned to the employer by the employee. Examples of cases where a return of wages was not recognized:

(1) To waive unpaid wages for which individual workers have the right to claim payment due to the arrival of the payment period, a collective agreement with the labor union is not enough for the workers to be deemed to have agreed to waive the unpaid wages. It can only be done to the extent that the company has received individual and explicit consent from the workers in advance to waive their right to the unpaid wages. Even if a labor union agrees to give up some worker wages in the collective agreement or through labor-management consultations, this has no effect on labor union members who have not individually consented.

(2) Even if wages and bonuses are returned in accordance with a revised collective agreement, if a worker does not individually consent to the return of wages and bonuses incurred by his/her previous work, that worker shall not have their wages returned. If the workers who did not agree to the return of wages and bonuses later resigned after those wages/bonuses were deducted without their individual consent, those returned wages will be considered unpaid wages.

(3) Daegu 00 Company gave a donation to help Daegu citizens suffering from the corona pandemic in April 2020 by resolution of its labor-management council. It then informed the employees of the council’s decision, and deducted KRW 10,000 from each individual. In response, the new labor union filed a complaint with the Daegu Labor Office for violation of Article 43 (Wage Payment) of the Labor Standards Act as these wages were deducted without the individual consent of the workers. The company then requested individual consent from all the workers, but only 50% agreed, so the deducted wages had to be returned to those workers who did not submit individual consent forms.

(4) If each worker agrees to return the allowance for unused annual leave that has occurred, it cannot be considered a violation of the law if the employer does not pay an allowance within the agreed range for unused annual leave. However, if the return of unused annual leave allowance agreed upon by the worker also applies to leave that will occur in the future, procedures must be followed that allow a collective agreement or the employment rules to be changed disadvantageously.