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Subject   August 2017 - Minimum Wage and the Employer’s Obligations
Minimum Wage and the Employer’s Obligations

I. Introduction
On July 18, 2017, the Minimum Wage Council decided that the minimum wage, to be applied in 2018, would be KRW 7,530 per hour, which is equivalent to KRW 1,573,770 for a 40-hour week. This is an increase of 16.4% over the previous year, which is twice the average increase rate in the minimum wage, and it is expected that the impact on Korea’s small and medium-sized companies will be severe. To address this, the day after the announcement of the minimum wage the government announced that it would subsidize the additional labor cost with taxes in excess of the average increase rate of the previous minimum wage to alleviate the impact of the minimum wage and support the SMEs. In reality, however, it is unclear how much the government’s grant will help companies that have to fulfill the legal responsibilities of complying with the new minimum wage. 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.

II. Application of the Minimum Wage

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.

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:
Allowances paid to assist employees such as family allowances, meal allowances, housing allowances, transportation allowances, etc., or actual or similar expenses to support employee welfare such as meals, dormitory accommodation or other housing, company shuttle buses, etc.

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].

III. Practical Applications of the Minimum Wage

1. Transportation expenses / lunch expenses / quarterly incentives / meal allowances and vehicle maintenance expenses
(1) Since welfare benefits for employees are not appropriate to be included as wages for the minimum wage, transportation fees, meal allowances and quarterly incentives shall not be considered as part of the minimum wage.
(2) Even though 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, they cannot be included as wages for the application of the minimum wage, as such allowance is paid as a welfare benefit for the purpose of supporting the employees’ livelihood. However, 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.

2. Bonuses and sales bonuses
(1)        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 not included in the minimum wage, but in cases where a bonus is calculated based on a monthly period, it is included in the minimum wage. Bonuses that are calculated on a yearly basis based on a collective agreement and paid regularly and uniformly to all employees on a monthly basis are included in wages but not included in the minimum wage under Article 6 of the Minimum Wage Act. By stipulating that a "bonus calculated according to reason for a period of more than one month" is not included in the minimum wage, the "calculation period" of the bonus, not the "payment cycle" of the bonus, becomes the standard as to whether it is included in the minimum wage. In other words, even if the bonus is paid uniformly every month, if the bonus calculation period is longer than one month (i.e. the bonus is calculated on a yearly basis), the bonus is not added to the minimum wage prescribed in Table 1 of the Enforcement Ordinance of the same Act.
If the bonus is determined for a period exceeding one month, such as 800% per annum), and it is paid equally each month, this bonus is not included in the minimum wage calculation.
(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.

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.
4. Differences from ordinary wages
Item        Ordinary wage        Minimum wage
Definition/ Purpose        Ordinary wages means hourly wages, daily wages, weekly wages, monthly wages, or contract wages which are determined to be paid periodically or in lump sum to a worker for his/her prescribed work or whole work (Article 6 of the Enforcement Decree of the Labor Standards Act Enforcement Decree).        The purpose of this Act is to stabilize workers’ lives and improve the quality of the labor force by guaranteeing a minimum level of wages (Article 1 of the Minimum Wage Act).

Calculation method        Calculated into hourly wage rate (Monthly ordinary wage ÷ monthly contractual working hours).         Calculated into hourly wage rate (Monthly minimum wage ÷ monthly contractual working hours).
Legal enforcement        No legal enforcement.         Legal enforcement, with cases of violation being invalid.
Usage        Wages determined to be paid in advance; used for paid leave allowances.         Wages actually paid; used for guaranteeing employees’ livelihood.
(i) Regular meal charge         Included in ordinary wage.         Not included in the minimum wage.
(ii) Performance bonus        1) Fixed bonuses are included in ordinary wages.
2) Performance bonuses are recognized as ordinary wages to the extent that they are guaranteed to a minimum.
3) Sales bonuses are excluded.        1) Annual bonus payments are excluded.
2) Monthly bonuses are included in the minimum wage.
3) Monthly performance bonuses are included in the minimum wage.
4) Sales bonuses are included in the minimum wage.
(iii) Welfare allowance        Regular, uniform, and fixed welfare allowances are included.        Welfare allowances are excluded.


VI. Conclusion
The 2018 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.


[List]

144 (1/8)
No Subject
144 December 2017 - Explanation for Terms of Korean Labor Law  
143 November 2017 - Japan’s Foreign Employment System  
142 October 2017 - Annual Paid Leave and Foreign Workers  
141 September 2017 - Foreign Workers: the EPS and Human Rights  
August 2017 - Minimum Wage and the Employer’s Obligations  
139 July 2017 - Foreign Workers: Labor Rights & Limitations  
138 June 2017 - Checklist of Standard Working Conditions  
137 May 2017 - Certified Public Labor Attorneys and their Power of Attorney at Appeals Commissions  
136 April 2017 - A System for Employment of Foreign Worker: Domestic Workers  
135 March 2017 - Employment Systems and Employment Relations for Overseas Koreans  
134 February 2017 - Foreign Workers & the Social Insurances  
133 January 2017 - Equal Treatment: Criteria for Judgment & Related Cases  
132 December 2016 - Human Rights of Foreign Workers and Labor Law Applications  
131 November 2016 - The Kim Young-Ran Act and Joint Penal Provisions Related to the Employer’s Legal Liabilities  
130 October 2016 - Employment Relations by VISA Type  
129 September 2016 - Application of Korean Labor Laws at Foreign Embassies & Limits on their Korean Employees  
128 August 2016 - The Principle of Complete Payment of Wages & Exceptions  
127 July 2016 - Changes of the Employment Permit System for Migrant Workers  
126 June 2016 - Comparison between the Labor Relations Commission and the Teachers’ Appeals Commission  
125 May 2016 - Business Transfers & Employment Relations  

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