Korean Minimum Wage in 2022 and the Employer’s Obligations

Minimum Wage in 2022 and the Employer’s Obligations?

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I. Introduction?

?In July 2021, the Minimum Wage Council decided that the minimum wage, to be applied in 2022, would be KRW 9,160 per hour, which is equivalent to KRW 1,914,440 for a 40-hour week. This is an increase of 5.1% over the previous year. The increase in minimum wage is the most desirable way to reduce the difference in wages between regular and irregular employees, but a great change is expected in the case of SMEs and small-scale service companies that are unable to pay the minimum wage.???

According to the current minimum wage system in Korea, one minimum wage is applied at all workplaces, without distinction as to the type of 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.?

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II. Application of the Minimum Wage ?

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1. The employer’s obligations?

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

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2. Criteria for determining violation of minimum wage?

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, and 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 Regulation of the Act (Table 2). ?

Wages excluded from minimum wage rules are as follows (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 & 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. ?

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3. Hourly wage calculation for the minimum wage ?

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 Labor Standards Act) 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 of 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) Labor Ministry guideline ?

According to Article 5-2 of the Minimum Wage Act and Article 5 of the Enforcement Decree of 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 365/7 ÷ 12 ≒ 243 hours].?

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III. Practical Applications of the Minimum Wage ?

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1. Quarterly incentives, meal charge and vehicle maintenance expenses ?

(1) Quarterly incentives shall not be considered as part of the minimum wage.?

(2) The "meal charge (food expenses)" is paid regularly and uniformly to all employees 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, the meal charge is included as wages for the application of the minimum wage (it is applied gradually from January 1, 2019). A "vehicle management fee" is paid to the driving worker 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 the application of the minimum wage.?

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2. Bonuses and sales 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 bonus (based on results)?

The sales bonus, for which the monthly amount varies according to the sales results of the individual salesperson, is equivalent to a wage, in accordance with the sales incentive bonus set forth in Article 5 (2) of the Enforcement Decree of 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 tuition fee according to a predetermined payment condition and payment rate, such fee can be considered to be equivalent to a sales bonus and included in the minimum wage. Such sales bonus is calculated into hourly wage after it is divided 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.?

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3. Welfare benefits?

?(1) It is reasonable that a treatment improvement fee 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 stated in the collective agreement that it is a subsidy for living expenses or a benefit for welfare, according to Table 1 of Article 2 of the Enforcement Rule of the Minimum Wage Act, it shall be seen as a wage not included in the wage for the application of the minimum wage in terms of welfare benefits.?

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VI. Conclusion ?

This minimum wage increase, in addition to the court ruling in December 2013 concerning the enlarged ordinary wage, has had a considerable impact on the wage structure of companies. In particular, production workers in the automobile industry have fixed working hours of 243 per month, which was designed to lower the ordinary wage through the bonus system. Such companies have maintained long working hours by lowering the overtime, nighttime and holiday work allowances. However, it would not be possible to maintain this trend with the increased minimum wage. ?

??Three things are expected through the increase of the minimum wage. First, it will be an opportunity to simplify the current wage structure. There is a high possibility that the wage structure will be restructured with a base salary added to the minimum wage range, performance bonuses, and statutory allowances. Second, the steep increase in wages may lead to a reduction in hours of work and the creation of new employment. Third, it will be an opportunity to overcome polarization in the working conditions for regular and irregular workers. I expect the increase in minimum wage to have a positive effect on SMEs while it may be a burden to management.?

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