I am currently working as a marketing manager and the labor contract I signed with the company states that 10% of the base salary includes all statutory allowances under Korean Labor Law. If so, because of the 10% statutory allowance included in my base salary, is it impossible to get extended work allowance even if I work overtime?
The employer shall, in concluding an employment contract, decide on the basic wage for the workers, and on the basis of this, the sum of the allowance shall be added and paid in total. However, the inclusion of fixed statutory allowances for basic wages is known as an “inclusive wage system.” Under the Korean Labor Law, there is no legal definition or grounds for such an inclusive wage system, but its effectiveness has been recognized under certain requirements by judicial precedent and administrative interpretation of the government.
In order to facilitate the convenience of calculation and to motivate employees, in consideration of the working hours, the types of work, and the nature of the work, such an inclusive wage system—in which basic wages are not calculated in advance and workers receive a fixed amount that includes all allowances on a monthly or daily basis, or in which a fixed amount being paid as a monthly allowance is included in the wage payment contract—can be considered valid by the courts if there are no disadvantages and it is justified in light of all circumstances.
The criteria for recognizing the validity of inclusive wage systems have become increasingly strict. Recently, the court has not been accepting their validity in principle, if a certain amount is paid as statutory compensation allowance irrespective of the number of working hours, unless it is unreasonably difficult to calculate the working hours when considering the types and nature of the work, such as with surveillance or intermittent work.
If the duties as a marketing manager are performed mostly in the workplace, it is difficult to see it being difficult to calculate working hours. Therefore, in principle, it would be difficult to justify the validity of such an inclusive wage system.
However, since a labor contract has been concluded that stipulates that at least 10% of the basic salary includes statutory allowances, this may be valid as long as it is equal to or less than the statutory allowance payment that would be made under normal circumstances.
For example, if the 10% of base salary included as statutory allowance in the labor contract amounts to KRW 1 million, but the actual value of extended, night and holiday hours worked equals KRW 2.5 million, the company will be obliged to pay an additional statutory allowance of KRW 1.5 million in compliance with the principle of enforcement and subsidiarity in the Labor Standards Act.