Notices

The number of workplaces suspected of disguising themselves as businesses with fewer than five employees has more than doubled over the past seven years. These workplaces report fewer than five individuals as wage earners for tax purposes, but their total workforce reaches five or more when individuals reported as business income earners are included.

According to income reporting data obtained from the National Tax Service (NTS) by Representative Lee Yong-woo of the Democratic Party of Korea, a member of the National Assembly's Climate, Energy, Environment and Labor Committee, the number of such suspected workplaces increased from 68,942 in 2018 to 149,537 in 2025, representing a 2.17-fold increase. The figures were disclosed on October 25. These workplaces are suspected of misclassifying employees as independent contractors or business income earners to make their workforce appear smaller than five employees.

By industry, the restaurant and accommodation sector accounted for the largest number of suspected workplaces, with 29,719 in 2025, a 5.3-fold increase from 5,606 in 2018. The wholesale and retail sector followed with 23,560 workplaces, while the service sector accounted for 22,608. Together, these three sectors represented 50.7% of all suspected workplaces. In the restaurant and accommodation sector, where many workers perform their duties at fixed locations and during designated working hours, there is a particularly strong need to examine whether individuals reported as business income earners should legally be classified as employees.

Under Korea's Labor Standards Act, workplaces with fewer than five regularly employed workers are exempt from certain statutory labor protections, including the 52-hour weekly working-hour limit (including up to 12 hours of overtime), statutory annual paid leave, and premium pay for overtime, night work, and holiday work. These exemptions have contributed to recurring practices in which employers allegedly misclassify employees as independent contractors or divide their businesses into smaller establishments to avoid the application of labor laws.

Labor organizations have called for stronger government oversight and penalties against workplaces that falsely claim to employ fewer than five workers. Ha Eun-seong, a certified labor attorney affiliated with the Labor Attorneys for Labor Rights (NoNoMo), stated:

"Under the current system, even when an employer's misclassification is discovered, the consequences are generally limited to requiring the employer to pay outstanding wages based on the legal standards applicable to workplaces with five or more employees. Such measures are insufficient to eradicate the practice of disguising workplaces as having fewer than five employees."

He added:

"To reverse this growing trend, the government should impose financial penalties on the economic benefits obtained through such misclassification or introduce separate administrative fines for deliberate attempts to evade the Labor Standards Act."

Concerns have also been raised about potentially inadequate labor inspections as the government prepares to delegate authority to conduct labor inspections of workplaces with fewer than 30 employees to local governments. Among the workplaces suspected of disguising themselves as businesses with fewer than five employees in 2025, a total of 138,015 workplaces, or 92.3%, would have had between five and fewer than 30 workers if individuals reported as business income earners were included. However, the target number of labor inspections to be conducted by local governments in 2027 is only 15,000 workplaces.

Representative Lee Yong-woo expressed concern over the proposed transfer of inspection authority, stating:

"If the Ministry of Employment and Labor delegates labor inspection authority over workplaces with fewer than 30 employees to local governments without adequate preparation, workers will ultimately bear the consequences."

He further emphasized:

"The Ministry of Employment and Labor must undertake institutional reforms to eliminate the practice of disguising workplaces as having fewer than five employees and establish uniform standards for determining employee status under labor law."

By Eom Jae-hee  Published: October 26, 2026, 6:30 a.m. Email: eom@labortoday.co.kr

Source: Labor Today (Maeil Labor News)  https://www.labortoday.co.kr