Holiday hour calculation may drive up labor costs

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Holiday hour calculation may drive up labor costs

A private research organization expressed concern Sunday that a government revision to minimum wage calculations next year could lead to a rapid rise in wages and could ultimately harm the economy.

The Korea Economic Research Institute (KERI) said it submitted a review opinion to the Ministry of Employment and Labor requesting that the ministry should maintain its current minimum wage regulations, arguing that the planned revision will result in wage discrepancies between companies and a further increase in wages.

With the new revision, average hourly wages will be calculated by dividing regular weekly earnings by the sum of working and paid legally-mandated holiday hours per week. The rule applies to those working more than 15 hours a week. The push to change minimum wage regulations is scheduled to be passed in a presidential cabinet meeting today.

KERI, a research organization under the Federation of Korean Industries - a business lobby group - stated that the inclusion will result in a wide range of real-world minimum wages, as paid holiday hours differ by company, and will lead to adverse economic consequences, such as an increased wage gap between companies.

A KERI survey found that 33.3 percent of large conglomerates have more than two paid holidays, including one legally-mandated and the other contractual, a week.

According to KERI, a company with only one legally-mandated holiday per week has to factor in an extra 35 holiday hours to the 174 working hours a month.

Considering next year’s minimum wage of 8,350 won ($7.47) per hour, the company will have to pay a monthly minimum wage of 1,745,150 won compared to the 1,452,900 won if only the working hours are used in the calculation.

Companies with two weekly paid holidays have to factor in an additional 69 paid holiday hours, totaling 243 hours a month, for a monthly minimum wage of 2,029,050 won. This comes to 11,661 won per hour actually worked, 39.7 percent higher than next year’s minimum wage.

KERI argues that it would be difficult for companies with two paid holidays, as they all have labor unions. It also expressed concern about the potential impact of the revision on small businesses having faced steep minimum wage hikes over the course of both this year and next.

“This revision may bring an additional increase in the minimum wage,” said Choo Kwang-ho, the head of KERI’s Employment Strategy Department. “Because it will have a significant ripple effect on the economy, there needs to be adequate consideration of the opinions of companies and small businesses that actually pay the minimum wage.”

The government has stated that its calculations will only include paid legally-mandated holiday hours.

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