South Korea Implements New Guidelines to End Unpaid Overtime

South Korea Cracks Down on ‘Free Labor’ with New Wage Guidelines

The Ministry of Employment and Labor (MOEL) of South Korea announced the implementation of new guidelines starting April 9th, aimed at preventing the misuse of the comprehensive wage system. This initiative seeks to eradicate “free labor,” a term referring to unpaid overtime, and ensure workers receive fair compensation for their actual hours worked. The move follows an agreement reached last December 30th by a tripartite consultative body comprising labor, management, and government representatives, alongside experts, to address prevalent unfair practices.

The comprehensive wage system (known in Korean as Pogwalimgeumje) typically allows employers to pre-calculate and include a fixed amount for potential overtime, night work, and holiday allowances within a worker’s monthly salary, irrespective of the actual hours worked. While originally intended for roles where precise time tracking was difficult, this system has been widely criticized for its misuse, often leading to employees working beyond the agreed-upon fixed hours without additional or proper pay.

Key Obligations for Employers

Under the new directives, employers must adhere to fundamental principles for wage calculation and payment. They are required to clearly distinguish basic salary from various allowances in wage ledgers and pay stubs. Crucially, employers must calculate and pay overtime, night work, and holiday work allowances based on the actual hours an employee has worked. The guidelines explicitly prohibit bundling various allowances or combining statutory overtime, night, or holiday pay into a fixed sum. Even in cases of existing “fixed overtime agreements,” employers are mandated to pay the difference if the agreed amount falls short of the legally required allowance for the actual hours worked.

Enforcement and Support Measures

MOEL has clarified that failing to pay the difference when a fixed overtime agreement results in less than statutory pay for actual hours will be treated as wage theft, subject to strict handling and corrective actions. Accurate recording and management of working hours are paramount, and businesses will be inspected to ensure proper wage ledger and pay stub creation. For workplaces that historically struggled with time tracking, MOEL encourages utilizing special provisions like the “deemed working hours outside the workplace” or “discretionary working hours” systems as alternatives to comprehensive wage agreements.

To assist businesses in transitioning to fair wage systems, MOEL is offering “Comprehensive Wage Improvement Consulting” and support through “private HR platforms.” Furthermore, the ministry continues to operate an anonymous reporting center, launched in February 2023, where workers can report misuse of comprehensive wage or fixed overtime agreements without fear of exposure. Workplaces identified through these anonymous reports will be managed as “suspected” and become targets for ad-hoc or planned inspections by regional labor offices. MOEL also initiated “Basic Labor Order” inspections on February 26th, focusing on employers’ fundamental duties, with violations potentially leading to fines and strict corrective orders.

Minister Kim Young-hoon emphasized that ensuring fair compensation for actual hours worked is a fundamental responsibility for employers, urging businesses to correct unfair practices even before new legislation is passed. He reaffirmed the government’s commitment to supporting the swift passage of legislative amendments and gathering feedback from various industries, including construction, to effectively prevent comprehensive wage system misuse.

Source: 고용노동부 — Original Article (Korean)