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Korean Gov't Sets off Another Firestorm in Korean Business World with New Minimum Wage Proposal
More Troubles ahead for Korean Businesses
Korean Gov't Sets off Another Firestorm in Korean Business World with New Minimum Wage Proposal
  • By Michael Herh
  • December 26, 2018, 10:47
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The Korean government has set off another firestorm in the business world with a proposal to revise its enforcement decree for the Minimum Wage Act.


The Korean government’s proposal to revise its enforcement decree for the Minimum Wage Act has set off a firestorm in the Korean business world.

Korean industrialists are expressing strong disapproval of the proposal as it includes weekly holidays in working days in calculating the minimum wage. This would have the effect of lowering the minimum wages currently paid by employers. At many companies, the new calculation method would lower their minimum wages below the level set by the law, requiring employers to raise their minimum wages in order not to be punished for law violations.

Whether the proposal will be endorsed by the government despite strong opposition from the business community will be determined at a cabinet meeting slated for Dec. 31.

According to reports, large companies such as Hyundai Mobis, which pays employees a starting salary of over 50 million won a year, would become a law violator if the government’s enforcement decree is revised as proposed.

The government decided to give corporations six months to reform their wage systems to avoid being punished for their failure to comply with the revised enforcement decree. Yet it is virtually impossible for them to change their wage systems within six months because any attempt to alter wage systems need endorsement from labor unions.

Labor analysts say that the government’s revision draft will spark a new series of disputes between labor and management at many companies as hard-line labor unions will seek to maximize their benefits.

The revision proposal is spelling more trouble to self-employed people such as small business owners, who are already struggling. If the revised weekly holiday allowance is applied to the hourly wage system next year, the hourly wage will rise over 10,000 won, a level that many small business owners will not be able to afford.

It will obviously touch off confusion in the labor market. There is a big possibility that a slew of lawsuits will be filed over minimum wage violations, and the court may make a decision against the revised enforcement ordinance.

Yet the Korean labor community welcomed the proposal as it would be advantageous to workers.

"The government should strengthen the supervision of employers regarding the observance of the minimum wage law," the Korean labor world said with respect to the suspension of minimum wage violation punishments. This is the reason why labor relation experts say the amendment to the enforcement ordinance will spark off labor-management conflicts.

Labor analysts forecast that the revision proposal will make the job market bleaker as employers will be more troubled with labor cost burdens. The minimum wage growth rate for two years (this year and next year) will reach 29.1%. It has become more likely that not only small business owners on the verge of having to shut down their businesses but also Korean companies struggling under the global recession will hire fewer people next year.

The government has decided to postpone punishments related to the minimum wage for six months. This means that if a company with highly paid employees begins to reform its wage system such as changing the bonus payment period from twice a year to every month in order to include bonuses in the calculation of the minimum wage, the government will suspend the punishment of the company.

However, companies say the measure is unrealistic. "The reorganization of a wage system is subject to a collective bargain agreement, and the labor union's consent is needed to change a bonus payment period," an automobile industry official said. “It will not be proper as labor unions are for the revised bill.”

"The wage system has been formed over a long period of time," another official said. “It is impossible to change it abruptly.”

Experts say that the sudden change of the system that overturned a Supreme Court precedent (not including weekly holidays in working hours) cross the line that employers can tolerate. It is expected that laborers will file lawsuits as employers are not yet prepared for weekly holiday allowances.

Some of the bench and bar in Korea do not agree with the government's reversal of the Supreme Court precedent. They say that it runs counter to the principle of the prohibition of comprehensive delegation legislation to adhere to the enforcement ordinance different from the Supreme Court precedent. "When courts of all levels process lawsuits related to the minimum wage, they may come up with rulings different from the revised enforcement ordinance," a lawyer said. "This will undermine the stability of law and fuel market turmoil."