Supreme Court Rules Holiday Allowance is Included in Minimum Wage

The Supreme Court of South Korea has ruled that the sum of a holiday allowance and a wage should be the yardstick in determining a violation of the Minimum Wage Act. The holiday allowance can be defined as an allowance given on a weekly paid holiday to a person who works at least 15 hours a week.

On Nov. 11, the Supreme Court acquitted a Japanese businessman, confirming the original verdict, at his appeal trial regarding the Minimum Wage Act.

The Japanese entrepreneur has been running an auto parts factory in South Korea. He was indicted for having paid an hourly wage of 5,543 won to one of his South Korean employees from July to December 2015 and 5,455 won to another one of the employees from January to December 2015, when the legal minimum hourly wage was 5,580 won.

The court acquitted the Japanese at the first and second trials. “The holiday allowance for eight hours on Sunday, which is included in the base pay, is given to an employee who finished a week’s work, which means the holiday allowance is one that is paid for certain work and included in the wage to be compared to the minimum wage,” the court said, adding, “However, the allowance for four hours on Saturday is paid regardless of certain work and not included in the wage.” It also explained, “The two South Korean employees’ respective hourly wages were 5,955 won and 5,618 won, above the legal minimum hourly wage at that time, when their monthly base wages excluding the Saturday pays are divided by 174 hours as their monthly working hours.”

Despite the ruling, those in industries remain confused with the South Korean government’s interpretation, which differs from judicial precedents when it comes to the length of working hours used in minimum wage calculation.

According to the court, the monthly pay of a person who works 40 hours a week should be divided by 174 hours when the monthly pay is converted into his or her hourly wage. The 174 hours does not include Saturday and Sunday.

Meanwhile, the government recently announced a partial amendment to the enforcement decree of the Minimum Wage Act so that the monthly pay is divided by 209 hours during the conversion. The 209 hours is the sum of the 174 working hours and 35 hours constituting each month’s weekly holidays.

According to the government’s calculation method, the actual hourly wage of a worker who works 40 hours and receives 400,000 won a week is not 10,000 won but 8,333 won, which is 17 won less than next year’s legal minimum hourly wage. In other words, businesses may or may not violate the Minimum Wage Act depending on which calculation method is applied.