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Is 50 million won a year below minimum wage?

Push to include leisure hours may leave some jobs below threshold

Dec 12,2018
Minister of Employment and Labor Lee Jae-kap speaks at the ninth meeting of the Presidential Committee on the Fourth Industrial Revolution held on Monday at the KT Gwanghwamun Building in central Seoul. [NEWS1]
A government move to include resting hours in wage calculations could see jobs paying as much as 50 million won ($44,000) no longer considered as legally over the minimum wage threshold.

Hyundai Mobis, the seventh largest auto-parts maker globally, is a dream employer for many job seekers. According to job portal Job Korea, new recruits receive an average salary of 50 million won.

The Ministry of Employment and Labor, however, recently ordered the Hyundai Motor Group affiliate to make changes to its wage policy as it has failed to pay this year’s minimum wage of 7,530 won.

The hourly minimum wage, calculated by dividing wage by working hours, is intended to ensure that workers are paid above a certain amount. The government’s recent decision reflects wages and working hours that are different in practice from how they appear on paper.

A new employee at Hyundai Mobis receives 21 million won for their base salary, 13.4 million won in bonus pay, 7 million won in performance-related pay and 8.4 million won in benefits.

When taking into account the 200,000 won worth of coupons given by the employer, the salary of a new employee amounts to 50 million won. Dividing a new Hyundai Mobis’ employee’s monthly pay of 4.17 million won, derived from the 50 million won salary, by the 174 work hours in a month results in an hourly wage of 24,000 won, more than three-times the minimum wage.

The government, however, only counts base salary and fixed regular payments in its calculations. The bonus pay that amounts to 26.8 percent of the entire salary is left out as it is given every other month and is therefore not a monthly wage.

Even with that exclusion, Hyundai Mobis still pays more than the minimum wage. But the government’s interpretation of working hours is different from that of Hyundai Mobis - the government also counts resting hours.

Resting hours are based on resting allowance, extra pay given to workers for resting periods in a week, usually one or two days of a weekend, as a form of compensation for fully working the legally mandated work hours. The government includes Hyundai Mobis’ 69 monthly resting hours in its wage calculation, resulting in a total of 243 working hours a month.

With this calculation, new employees at Hyundai Mobis only earn 7,270 won per hour, short of the minimum wage.

The government’s decision comes as it is preparing to change the regulations under the minimum wage law to include resting hours in working hours to calculate the minimum wage.

The amendment, which was first announced in August, is currently under review by the Ministry of Government Legislation. The change will likely be passed early next year.

According to the minimum wage law, if wages amount to less than the minimum wage, the employer faces criminal punishment of up to three years of detention or a fine of up to 20 million won.

The Labor Ministry’s interpretation, however, doesn’t align with decisions made by the Supreme Court. The court has consistently ruled that resting hours do not need to be considered when calculating the minimum wage and that actual working hours should be the standard.

For example, working 40 hours a week results in 174 work hours a month. But when an extra eight resting hours a week are added, the total number of work hours amounts to an average 209 hours.

A monthly wage of 1.5 million won would follow the standard of the court as it equates to 8,620 won per hour for 174 working hours, but would be illegal under the eyes of the Labor Ministry as it would be paying 7,177 won for the total 209 hours.

The situation is more complicated for Hyundai Mobis, as businesses in the auto-parts industry agreed to 16 hours of resting hours per week in negotiations with the Korean Metal Workers’ Union. This would amount to a total of 243 working hours. A monthly wage of 1.5 million won would only amount to an hourly wage of 6,173 won, under the Labor Ministry’s calculations.

The Korea Employers Federation (KEF) and the Federation of Korean Industries (FKI), two major business lobbying groups, have expressed opposition to the amendment, arguing that it will pressure small and medium-sized businesses.

In a review opinion submitted to the Ministry of Government Legislation on Nov. 16, the KEF stated that, even when the same amount of labor is provided, the minimum wage payment could change as much as 40 percent based on the number of resting days negotiated.

“As resting allowances were created to ensure wages for workers in an industrialized age, raising the minimum wage should either lead to eliminating the resting allowance or choosing a rational standard for minimum wage hours,” said a KEF official.

The recent move by the government has also raised questions on legal certainty.

“While the minimum wage law outlines actual working hours, the inclusion of paid [resting] hours cannot escape the criticism that it doesn’t align with the parent law,” said Jung Jong-chul, a labor attorney at Kim & Chang law firm.

The Korea Economic Research Institute (KERI), a research institute under the FKI, recently released a report on the minimum wage hike and the effect of including the resting hours in its calculation.

The KERI report, which considered a minimum wage of 8,350 won in 2019, 9,185 won in 2020 and 10,000 won in 2021, said minimum wages would realistically be at 9,842 won in 2019, 10,761 won in 2020 and 11,658 won in 2021 if resting hours are included.

The report also predicted that such a rise would result in a decrease of 98,000 jobs in 2019, 156,000 in 2020 and 153,000 in 2021.


BY MOON HEE-CHUL AND LEE DONG-HYUN [chae.yunhwan@joongang.co.kr]


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