Implications of the Supreme Court En Banc Rulings on Ordinary Wages (2013 and 2024)
Bongsoo Jung, Labor Attorney at KangNam Labor Law Firm
I. Introduction
In Korea, wages are classified into two key concepts: ordinary wages, a pre-determined notion, and average wages, a retrospective one. Average wages represent the total amount of actual wages received and are used in calculating severance pay and industrial accident compensation. Ordinary wages, on the other hand, refer to a pre-determined hypothetical wage stipulated in the employment contract for contractual working hours. This wage is used to calculate additional pay for overtime, night shift work, and holiday work.
Before the Supreme Court's December 2013 ruling, ordinary wages were defined as wages regularly and uniformly paid in a fixed manner within a single wage payment period. Consequently, many companies introduced bonuses and various allowances to limit ordinary wages to approximately 50% of total wages. However, the Supreme Court’s en banc decision in December 2013 expanded the definition of the wage payment period from monthly to yearly, recognizing all annual bonus payments as ordinary wages. This ruling brought significant simplification and transformation to Korea’s wage system. Nevertheless, the 2013 decision maintained the criterion of "fixedness" by defining ordinary wages as compensation for contractual work that is regularly, uniformly, and paid in a fixed manner.
The 2013 ruling excluded conditional bonuses tied to the employee’s presence on the payroll as of the final day of the wage payment period or contingent upon the number of days worked in the final month of employment. Even when such bonuses had been paid regularly and uniformly for decades, their conditional nature upon retirement excluded them from being classified as ordinary wages. As a result, many companies continued to implement bonuses contingent upon employment status or working days, leading to ongoing disputes over whether such bonuses should be included in ordinary wages. In December 2024, the Supreme Court issued another en banc ruling, removing "fixedness" from the definition of ordinary wages being compensation that is regularly and uniformly paid in a pre-determined amount for contractual work. This shift resulted in the inclusion of bonuses tied to employment status or working days within the scope of ordinary wages.
This paper seeks to understand the concept of ordinary wages and explore its application through analysis of the landmark Supreme Court en banc rulings of December 2013 and December 2024, which represent significant milestones in Korea’s history of wage-related jurisprudence.
II. Facts and Content of the Rulings
1. Supreme Court En Banc Ruling of December 2013
Gab-eul Autotech paid bonuses bi-monthly according to its bonus payment regulations. For employees who resigned during the bonus payment period, bonuses were calculated on a pro-rata basis based on the number of days worked. However, bonuses such as Chuseok (Korean Thanksgiving), Lunar New Year, and vacation allowances were only paid to employees who were actively employed on the payment date.
The Supreme Court en banc ruling stated that: (1) Even though bonuses were paid every two months—exceeding the one-month wage payment period, the regularity requirement was satisfied because payments were made consistently; (2) Since the eligibility and amounts of the bonuses were uniformly determined for all employees, the criteria of uniformity and fixedness were also met. The Court expanded the wage payment period applicable to determining ordinary wage from one month to one year, establishing that such bonuses fell under the category of ordinary wages.
However, the Court excluded Chuseok, Lunar New Year bonuses, and vacation allowances from ordinary wages because they were payable only to employees actively employed on the payment date. Bonuses that could not be received upon retirement, even if paid regularly and uniformly, were excluded from ordinary wages.
2. Supreme Court En Banc Ruling of December 2024
Hanwha Life paid annual bonuses equivalent to 850% of monthly base pay, divided into nine installments, including regular bi-monthly bonuses, Chuseok and Lunar New Year bonuses, and summer bonuses. These bonuses were only paid to employees who were actively employed on the payment date, therefore excluding those who had resigned prior to the payment date. Similarly, Hyundai Motor paid annual bonuses equivalent to 750% of ordinary wages, distributed bi-monthly and during Chuseok, Lunar New Year, and summer vacation. Employees who worked less than 15 days in the applicable month did not receive the bonuses.
In its December 2024 ruling, the Supreme Court redefined the concept of ordinary wages by removing "fixedness" from the definition of ordinary wages being compensation paid regularly and uniformly in a pre-determined amount. The Court emphasized that the essence of ordinary wages lies in compensation for contractual work. Therefore, bonuses tied to employment status on the payment date or contingent upon the number of days worked were also recognized as ordinary wages. To ensure legal stability and protect trust, the Court ruled that the new legal interpretation would only apply to ordinary wage calculations made after the ruling’s announcement date.
III. Concept and Functions of Ordinary Wages as Interpreted by the Supreme Court En Banc Rulings
1. The Concept of Ordinary Wages
The Supreme Court emphasized the compensatory nature of ordinary wages for contractual work and removed the requirement for fixedness. In 2024, the Court ruled:
"Article 6, Paragraph 1 of the Enforcement Decree of the Labor Standards Act defines ordinary wages as the amount paid to employees for contractual work or total work on a regular and uniform basis, including hourly, daily, weekly, monthly, or contractual amounts. In accordance with the purpose and definition in the regulations, ordinary wages refer to wages paid regularly and uniformly as compensation for contractual work. As ordinary wages serve as the basis for calculating various other wages under the Labor Standards Act, their essence lies in evaluating the value of work provided during contractual work hours. Regularity and uniformity are conceptual markers supporting the idea that the wage is compensation for contractual work. Wages paid regularly and uniformly, as agreed upon, are considered ordinary wages, regardless of any conditions attached to their payment or the likelihood of fulfilling those conditions. While conditions attached to wages can be considered when determining whether the wage truly compensates for contractual work, the mere uncertainty of condition fulfillment does not negate the wage’s status as ordinary wages. The concept of ordinary wages implicitly carries the meaning of 'pre-determined regulation regarding wage payment,' so any payments made on a temporary or fluctuating basis, regardless of contractual work, remain excluded from ordinary wages."
2. The Functions of Ordinary Wages
The Court provided five reasons for excluding the requirement of fixedness from ordinary wages, which can also be understood as the functions of ordinary wages:
First, ordinary wages are based on legal provisions. Article 6, Paragraph 1 of the Enforcement Decree of the Labor Standards Act defines ordinary wages as amounts paid regularly and uniformly for contractual or total work. Ordinary wages represent the value of contractual work converted into wages, with the fundamental criterion for determining ordinary wages being the "compensatory nature of contractual work." Regularity and uniformity are typical characteristics of wages paid for contractual work, ensuring that the scope of ordinary wages is determined in advance in a reasonable manner by setting clear payment terms and conditions.
Second, ordinary wages are a pre-determined concept used to calculate statutory allowances. Ordinary wages are linked to mandatory legal provisions that ensure appropriate compensation for overtime, etc. Therefore, ordinary wages are an obligatory concept that cannot be arbitrarily altered by the parties involved.
Third, ordinary wages reflect contractual work, regardless of actual work performed. In this regard, ordinary wages differ from average wages, which are determined after the fact based on the total wages actually received. Ordinary wages, as a theoretical construct, are based on the idea of "an employee providing the full contractual work." When this condition is met, the hypothetical wage paid for it constitutes the ordinary wage.
Fourth, ordinary wages are determined before overtime work or additional work is provided. This is necessary so that both employers and employees can predict the costs or compensation associated with overtime work and make decisions regarding the provision of such work. When overtime is actually performed, additional pay can be immediately calculated. The key consideration for ordinary wages is the amount determined for the contractual work. The "likelihood of meeting the conditions to receive that wage" is not a factor in determining ordinary wages.
Fifth, the concept of ordinary wages aligns with the policy goal of the Labor Standards Act to discourage overtime work. According to the Act, employers must specify the "contractual working hours" when entering into employment contracts (Article 17, Paragraph 1, Item 2), and the total weekly working hours, excluding break times, must not exceed 40 (Article 50, Paragraph 1). Since overtime work causes greater fatigue and restricts employees' free time, the Labor Standards Act limits overtime and provides for additional pay of at least 50% of the ordinary wage for overtime work (Article 56), along with penalties for violations related to overtime (Articles 109 and 110). The purpose of these provisions is to reduce overtime, ensuring that workers have a dignified life and are compensated appropriately for working overtime.
IV. Conclusion (Implications of the Supreme Court En Banc Rulings on Ordinary Wages)
The Supreme Court en banc rulings on ordinary wages in 2013 and 2024 have reformed Korea’s wage system significantly and clarified the compensatory nature of wages for contractual work. These rulings played, and are playing, a pivotal role in improving employee quality of life by increasing ordinary wages and restricting excessive overtime.
First, the rulings brought groundbreaking improvements to the wage system. Before 2013, most companies defined ordinary wages as fixed payments made during a single wage payment period. This led to an abnormal salary structure where bonuses accounted for over 50% of annual salary. The 2013 ruling simplified the wage system by redefining the wage payment period from a monthly to an annual basis.
Second, the rulings established that ordinary wages are compensation for contractual work. Article 17 of the Labor Standards Act explicitly states that ordinary wages are those paid as compensation for contractual working hours, emphasizing their role as pre-determined wages regularly and uniformly paid for contractual work.
Third, the rulings resulted in an increase in ordinary wages. When ordinary wages are correctly reflected, additional allowances for overtime and holiday work—calculated at 50% of actual wages—substantially increase employers' labor costs. This financial burden incentivized employers to limit overtime and holiday work, thereby contributing to the improvement of overall quality of life for their employees.
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