Korean labor law for Foreign Employers

Information on employment laws of Korea

Contact me for questions on Korean labor law

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A manager of foreign companies can ask questions on Korean labor laws by clicking here.

Written by Sunny Lee

April 6th, 2013 at 11:56 am

What is the Maximum Overtime Hours allowed in Korea?

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What is the maximum work hours including overtime that you can implement in your workplace in Korea? The answer is currently 68 hours and it is likely to change sooner or later.

Now, here is the explanation on how we get 68 hours.

Legal weekly work hours based on the Labor Standards Act (LSA) is 40 hours.

Article 50 of the LSA – (1) Working hours per week shall not exceed forty hours excluding recess hours.

The maximum overtime hours allowed by the law is 12 hours per week.

Article 53 of the LSA - (1) If the parties concerned reach agreement, the working hours stipulated in Article 50 may be extended up to twelve hours per week.

It would appear that the maximum weekly work hours based on the above mentioned articles should be 52 hours per week. However, the LSA has no specific article about whether work hours on Saturday and Sunday should be included in the maximum overtime of 12 hours stated above or not. What we currently have is only the guideline by the Ministry of Employment and Labor that says work hours on Saturday and Sunday are not included in the maximum 12 hours overtime.

That leads to the following calculation.

40 hours (workweek) + 12 hours (max. overtime) + 8 hours (Saturday) + 8 hours (Sunday) = 68 hours

*You should, of course, pay premium rates for overtime and holiday work.

This 68 hours has been the practice in businesses for a long time. However, a number of lawsuits lodged by labor unions claiming that 52 hours, not 68 hours, should be the maximum based on the strict interpretation of the law led to debates among labor, management and the government. Moreover, reduction of overtime hours to improve worker’s quality of life has been one of the agenda pushed by the new government.

Labor, management and government have been discussing how to settle the issue of overtime limit for several months, but have yet to reach a conclusion. The government and the ruling party is pushing for 60 hours as maximum work hour and labor unions and opposition parties are for 52 hours. Eventually, the law will be amended and more specific and detailed restriction on overtime will be enforced but it is hard to say when an agreement will be made because discussions over labor-related issues in Korea have a proven record of getting postponed or protracted forever.

There was an interesting coincidence. While I was preparing a post on this topic, I got a question on the same subject from someone who used the question form on the top of this blog. Thanks to him, I was able to write this post faster than usual. :-)

Written by Sunny Lee

April 23rd, 2014 at 12:06 pm

Childcare Leave System in South Korea

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This post covers five important points on childcare leave based on the Equal Employment Act of Korea that governs the leave.

1.Who can request childcare leave?

An employee, male or female, who has a child aged not more than 8 years or a child in the 2nd or lower grade of an elementary school. Not only regular workers but also fixed-term workers and dispatched (leased) workers can request childcare leave. For fixed-term and dispatched workers, the term (duration) of their contract is suspended during the leave.

2. Who is not eligible for childcare leave?

- An employee whose consecutive period of service will be less than 1 year on the day prior to the day on which the childcare leave is supposed to begin.
- An employee whose spouse is on a childcare leave for the same child.

3. What is the maximum period of childcare leave?

Childcare leave can last up to 1 year.

4. Should an employer pay salary to an employee during his/her childcare leave?

An employer does not have a legal obligation to pay employees during their childcare leave unless company rules state otherwise. Employee themselves should request childcare leave benefits at the employment centers under the Ministry of Labor. The benefits are 40% of monthly ordinary wages.

5. What are other steps that an employer should ensure with regard to childcare leave?

The employer should reinstate an employee after childcare leave to his/her previous position or other position with the same level of salary. The employer should include the period of childcare leave in the period of service to calculate retirement pay, promotion and annual leave. Also, the employer should not dismiss or give disadvantageous treatment to workers because of childcare leave. An employer cannot dismiss workers during their childcare leave.

Written by Sunny Lee

April 18th, 2014 at 4:16 pm

Mandatory Retirement Benefits for employees under Korean labor law

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This post is a brief explanation of mandatory severance benefits that are required by Korean labor law.

Employee Retirement Benefit Security Act stipulates mandatory severance packages for employees who leave a company after at least one year of service.

The misuse of the word ‘retirement’ in the law confuses foreign managers. I think “severance benefits” is more appropriate term. The definition of retirement in Wikipedia is: “Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours. Many people choose to retire when they are eligible for private or public pension benefits.”

Retirement Benefits under the act is not only for retirees who are at the closing stage of their professional life. Regardless of whether an employee is going into retirement or not, he is entitled to the benefits upon termination of the employment relations as long as he worked for a company more than 1 year.  Every kind of termination is covered by the law. An employee may resign, may be laid off, or even be fired for making serious mistakes that brought damage to the company. For example, for the last situation, the employer should pay him retirement pay and try to claim damages through a lawsuit.  In a nutshell,  an employee is entitled to retirement benefits described in the law for all kind of termination. 

Retirement pay to be paid to a worker is average wage of 30 days for 1 year. If a worker leaves the company after 1 year and several months, retirement pay for those additional months should be calculated on a pro rata basis.

If an employer established a company and makes no decision about mandatory retirement package, retirement pay system is automatically adopted. Some Koreans use the word “severance pay”, which means the same thing as retirement pay.

Under the Employee Retirement Benefit Security Act, labor and management can choose retirement pension system instead of retirement pay. An employer should obtain an agreement of a majority union or majority of workers (if there is no majority union) to decide on retirement benefit system. They may choose retirement pay or retirement pension.

Retirement pension has two types. One is defined contribution (DC) and another is defined benefit (DB).

Under the DC program, an employer contributes predetermined money, which is 1/12 of the annual total wage of workers to the individual accounts of workers at the financial institutions chosen as pension providers by labor and management. It is up to workers to manage the fund based on advice by the financial institutions. Upon termination of the employment relations, the financial institution pays pension as annuity or lump-sum to workers.

Under the DB program, the amount of pension benefit payable to the workers is predetermined. The contribution to be made by the employer vary depending on the outcome of the fund management which is the responsibility of financial institution. The amount of pension benefit under the DB program is the same as retirement pay, which is average wage of 30 days for one year of service.

Written by Sunny Lee

April 14th, 2014 at 4:24 pm

Links to Major Korean Labor Laws in English

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This post aims to provide  links to major Korean labor laws that are on the website of Korean Ministry of Employment and Labor. I hope this will make it easier for foreign managers to find laws they are looking for.  All links are for downloadable pdf files.

1. Labor Standards Act and Enforcement Decree

Basic law governing legal standards for employment contract, wage, work hours, holidays, leave, dismissal and work rules.

2. Trade Union and Labor Relations Adjustment Act

Basic law governing labor relations, unions, labor disputes and strikes

3.  Act on the Protection, etc. of Fixed-term and Part-time Employees and Enforcement Decree

Law governing the use of fixed-term contract workers and part-time workers

4. Employee Retirement Benefit Security Act and Enforcement Decree

Law governing the mandatory retirement benefit system for employees. Employers should implement either retirement pension or retirement pay for their employees.

5.  Act on the Protection, etc., of Dispatched Workers and Enforcement Decree

Law governing the use of dispatched workers  (leased workers) and requirements for setting up staffing companies. The law requires staffing companies to “directly employ” workers and then dispatch them to clients.

6. The Act on Equal Employment and Support for Work-Family Reconciliation and Enforcement Decree

Law governing gender equal treatment, sexual harassment, and childcare leave

7. Occupational Safety and Health Act and Enforcement Decree

Law governing matters pertaining to workplace safety and health regulations

8. Industrial Accident Compensation Insurance Act and Enforcement Decree

Law governing benefits provided by the Korean Workers’ Compensation system.

Written by Sunny Lee

March 13th, 2014 at 5:48 pm

A report on the Supreme Court ruling on ordinary wage in December 2013 by the Korea Employers Federation

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On December 18th, 2013, the Supreme Court of Korea issued a ruling with regard to ordinary wage. The lengthy and complicated ruling was an attempt to resolve the controversy on the definition and scope of ordinary wage that have been creating much confusion and debate between labor and management. It is imperative for HR managers to understand the intent of the ruling because it will have a major impact on labor relations and compensation management in workplaces.

The Korea Employers Federation (KEF), an umbrella employers’ association in Korea, recently published an English report on ordinary wage that summarizes the Supreme Court ruling and also provides relevant background information related to the controversy over ordinary wage. I contacted Ms. Seonkyung CHOI, chief of the International Affairs Team of the Korea Employers Federation and obtained the text of the report. What you read below is the full text of the report. I thank Ms. Choi for kindly allowing me to post the report on this blog. I hope this report will help foreign managers to better understand the issue of ordinary wage in Korea.

 

 A Report on the Supreme Court ruling on ordinary wage (Korea Employers Federation, Feb. 5th, 2014) 

 

I. Controversy on ordinary wage

A. Concept of ordinary wage

1. “Ordinary wage” is defined as wages given to workers on a regular basis and in a uniform manner at a pre-determinable rate for performance of their prescribed work. The Labor Standards Act stipulates ordinary wage to be used as the basis for calculating overtime pay and allowance for unused leave days.

 

ordinary wage diagram

 

2. Ordinary wage is the standard for calculating various allowances. It is not the actual amount of pay which employees receive. If the scope of ordinary wage increases, various allowances would grow accordingly, increasing cost burdens on companies. For example, if regularly paid bonuses are included in ordinary wage calculations, overtime pay and unused leave day compensation would increase, as would social insurance costs.

 

<Table 1> Impact of Increased Scope of Ordinary Wage

Regularly paid bonuses included in ordinary wage  ⇨  ordinary wage increase  ⇨  overtime pay and unused leave compensation increase  ⇨  average wage, severance pay and other social insurance costs increase

B. Controversy on ordinary wage

3. Labor and management have followed the government’s administrative guidance that ‘regular bonuses are not included in ordinary wage.’

  • 1982: Definition of ordinary wage inserted in the Enforcement Decree of the Labor Standards Act
  • 1988: Inclusive & exclusive allowances listed in the administrative guidance

4. The courts had shared this view with the government, but since 1996 they have been expanding the scope of ordinary wage. In March 2012, the Supreme Court ruled that “regular bonuses are ordinary wage,” followed by a rapid increase in lawsuits. Beginning 5 years ago, in particular, trade unions have been filing lawsuits on ordinary wage, denying existing agreements with management. Currently, 187 companies are faced with lawsuits connected to ordinary wage (as of August 2013).

picture 1

 

C. Background to the Supreme Court Ruling

5. There was a slim chance for business to win the lawsuit when the disputes began. Business has focused on the possible financial burden that expansion of the scope of ordinary wage would cause: increasing labor costs, discouraging companies from investing and creating jobs, polarizing the labor market, and creating more conflict between labor and management.

 

graph 1

6. The Supreme Court made a full-member decision, reflecting on the long-held practices of labor-management agreement and the possible side effects highlighted by business (including decrease of job growth). The KEF has been preparing business strategies while supporting individual companies facing lawsuits.

 

D. The Supreme Court Ruling

7. With the increasing number of lawsuits and deepening confusion at workplaces due to contradictory rulings by lower courts, the Supreme Court made a full-member decision on December 18th, 2013.

 

court ruling

⇨ ⓐ, ⓑ, ⓓ resolved, ⓒ remains as a burden on companies

⇨ Companies to reform their wage systems to deal with ⓒ

  • Regular bonuses are included in ordinary wage in 50% of companies where wages would increase by 7~8% on average.

⇨ ‘Fringe benefits’ excluded from ordinary wage

 

II. Major criteria in the ruling

A. Decision on Ordinary Wage

8. The Supreme Court of Korea defines ordinary wage as money and valuables given to workers on a regular basis and in a uniform manner at a pre-determinable rate for performance of their prescribed work. Given the fact that most allowances are paid on a regular and uniform basis in Korea, the most critical condition for ordinary wage is ‘pre-determinable.’

 Criterion 1: Regularity

  • Allowances paid to employees at regular intervals

⇨ Payment interval can exceed 1 month (2 months, 3 months, 6 months etc.)

 Criterion 2: Uniformity

  • Allowances paid to ‘all employees’ or ‘some employees who fulfill certain conditions’

⇨ ‘Certain conditions’ shall be related to employee jobs such as duties, skills or career experience. For example, if an allowance is paid only to employees with children, it is not given in return for the work they have done ⇒ no uniformity

 Criterion 3: Pre-determinable

  • Key factor to deciding whether an allowance is included in ordinary wage

⇨ The Supreme Court ruled that payment and amount shall be determined in advance regardless of employee achievement, performance or other additional conditions.

 

9. Therefore, if an allowance is ‘pre-determinable,’ it could constitute ordinary wage. Currently, the following types are the commonly paid allowances in Korea.

Type 1. Calculated according to days worked⇒ pre-determinable

(Example) Payment to retirees based on actual number of days worked (e.g. 17 of 60 days)

※ Type 1 is the most common type

Type 2. Paid only to those who have worked a certain number of days

⇒ not pre-determinable
(Example) Payment only to employees who have served at least 15 days per month

Type 3. Paid only to incumbent employees ⇒ not pre-determinable

(Example) Payment only to incumbent employees at the time of payment of regular bonus

※ Despite a bonus regulation that fits Type 3, if the bonus is paid based on a daily calculation under Type 1, it may be considered ‘pre-determinable.’

Type 4. Non-uniform performance bonuses ⇒ pre-determinable (△)

(Example) Minimum amount of bonus is regarded as pre-determinable
• Employee A $300/ B $200/ C $150 = $150 (the minimum) is considered ordinary wage
• Employee A $300/ B $200/ C $0 = no ordinary wage ($0 is the minimum)

※ Type 4 is applicable to cases where an employer has an obligation to pay a performance-based bonus. If bonuses are given in return for ‘fulfilling certain conditions’ such as achieving business goals they are not regarded as wage.

 

B. The Principle of Good Faith: Restriction on Retroactive Wage Claims

10. If labor and management agree to exclude regularly paid bonuses from ordinary wage, such agreement is to be regarded as null and void. In this case, companies should re-calculate the amount of ordinary wage and other allowances, and pay additional wages to employees based on that calculation.

11. However, the Supreme Court ruled that employees cannot claim retroactive wages ‘for the past 3 years’ if the principle of good faith applies. The ‘principle of good faith’ according to the Civil Act of Korea means that legal rights shall not be exercised against trust and good faith.

12. When it comes to the principle of good faith, the Supreme Court ruled that requiring payment of retroactive wages may bring ‘serious financial difficulties’ (of which the Court gave several situations, listed below) for the affected companies and, if so, trade union claims would breach trust with the company. The principle of good faith is expected to apply to most pending lawsuits regarding ordinary wage.

 

<Table 2> Situations Causing Serious Financial Difficulties for Companies

  • The amount of regularly paid bonuses is considerable (e.g. 600% of base pay)
  • If additional payment were to be made, the rate of real wage increase would exceed the agreed rate in the wage agreement
  • If each allowance is negotiated after the total amount of wage is decided during wage bargaining
  • If payment of the additional wages would break the average wage increase in the past years
  • If the additional financial burden would take up most of the company’s net profits

C. Application of the Supreme Court Ruling

13. The principle of good faith may apply to labor-management agreements made prior to this ruling, but from the time when a new labor-management agreement is negotiated, companies need to carefully take the Supreme Court’s decision into account when setting the scope of ordinary wage. It is recommended that labor and management calculate ordinary wage according to objective factors and conditions.

14. There are different views on the interpretation of ‘when a new scope of ordinary wage should be set’ if a valid collective bargaining agreement still exists.

  • The Supreme Court ruled the principle of good faith cannot be applied to ‘new agreements after this ruling.’
  • Two interpretations of ‘new agreements after this ruling’ include:

A: The current CBA is valid until a new CBA is negotiated;
B: Immediately after the Supreme Court ruling on December 18, 2013, the scope of ordinary wage should be adjusted and allowance for overtime work needs to be re-calculated based on the new scope of ordinary wage.
* CBA: Collective Bargaining Agreement

 

15. The Ministry of Employment & Labor, according to interpretation A above, announced a guideline on ordinary wage saying that existing CBA are valid, with the Supreme Court ruling to be reflected in new collective bargaining agreements.

 

picture 2

 

16. If there is no collective bargaining agreement with only Rules of Employment in place, the timing of new wage arrangements in the past could be considered as times when new labor-management agreements were made. For example, if promotions and wage arrangements are decided April 1st every year, this could be considered a tacit labor-management agreement.

 

<Reference>  Government Guideline on Ordinary Wage

  • The government issued ‘Guideline on Ordinary Wage’ reflecting the Ruling of the Supreme Court made last December in order to prevent confusions and unnecessary conflicts in workplaces.

Labor and management are encouraged to have dialogue pursuant to the principle of good faith.

⇨ Guide to simplify wage items and to reform wage systems into job/performance-based ones

In case of changing Employment Rules in relation to payment conditions of ordinary wage, due procedures to be followed.

⇨ Labor and management need to go through consultations in case of changing regulations on ordinary wage

⇨ Any unfavorable change in the regulations requires approval of a majority employees

※ Ensure the regulation does not change without consultation with employees.

The principle of good faith applies up until the expiry date of the existing CBA (before new agreement is made).

⇨ Guide labor and management to reach an agreement through compromise and dialogue within the 1st half of this year

Provide guidance on reforming wage system based on job /performance

⇨ Simplify the composition of wages with base pay, performance-based bonus and certain allowances.

(End of the report)

Written by Sunny Lee

February 6th, 2014 at 5:59 pm

Posted in labor news