Top court recalibrates base salaries

Economy

Published: 18 Dec. 2013, 21:30

Top court recalibrates base salaries

Yang Sung-tae, chief justice of the Supreme Court, center, and other justices make a ruling on base salaries yesterday at the Supreme Court in Seocho-dong, southern Seoul. The top court ruled that regular payments like bonuses should be included in calculations of base salaries. [NEWSIS]

The Supreme Court yesterday took the side of labor and ruled in favor of a group of workers who sued their company three years ago, saying it should include various regular payments such as bonuses and commuting fees when calculating their base salaries.

The ruling is expected to bring major new costs to companies, especially in retirement payments, overtime and payments for working on holidays, which are all established on base salaries. Around 180 similar suits are in Korean courts from other companies’ unions and yesterday’s decision is expected to serve as a precedent in those judgements.

According to the Supreme Court yesterday, payments that are given by companies to employees on a regular basis like bonuses, corporate payments into employees’ four state insurance plans, and expenses for things like meals should be included in calculations of base salaries.

“We confirm that any management-labor agreement is against the labor standards law if it excludes regular bonuses from the base salary as they are legally part of the base salary,” the court said.

The court also noted that payments included in base salaries must be given on a regular basis to employees. It excluded vacation allowances, for example, because they do not necessarily apply to all employees at all times.

If an employee joins a company in September, for example, and vacation allowance is distributed in August, then that employee doesn’t receive the allowance as other employees do.

The case began when 295 employees of an auto-parts manufacturer, KB AutoTech, and one retiree filed lawsuits against its management, arguing that the company based in Asan, South Chungcheong, should recalculate their base salaries and retirement payments. After several rulings and appeals, the Supreme Court yesterday ruled in favor of the employees.

However, the court held back from forcing the company to pay three years’ worth of retroactive pay. It said that in principle the back payments should be made, but if the company could prove that the retroactive payments would cause such a severe financial blow that the company’s existence was threatened, it need not pay.

Analysts said the decision gives some relief to companies that have expressed grave concerns over the extra costs they would have to shoulder.

But, going forward, unions are surely going to demand the recalculation of base salaries. Many will demand retroactive payments.

The federation expects payroll costs to rise up to 30 percent with the new calculation, which will cost all Korea companies more than 8.9 trillion won ($8.5 billion) per year.

The government yesterday said that it “respects” the court’s ruling. Deputy Prime Minister Hyun Oh-seok presided a meeting immediately after the court’s ruling to review the impact on the country’s economy, employment and company management.

BY LEE EUN-JOO [angie@joongang.co.kr]