New wage calculation could add to labor costs

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New wage calculation could add to labor costs

The government revised wage calculations on Monday in a way that could possibly raise labor costs for businesses beyond the 10.9 percent minimum wage hike that goes into effect today.

At the last cabinet meeting of 2018 held at the Seoul government complex, the government approved a revision to the wage regulations suggested by the Ministry of Employment and Labor that will include legally-mandated paid holiday hours as part of wage calculations.

The revised regulation, to be enforced from today, will calculate workers’ wages by dividing weekly pay by the sum of actual working hours plus legally-mandated paid holiday hours. The former calculation method only considered actual working hours.

Under the Labor Standards Act, paid holiday is given to employees who work more than 15 hours a week.

For an average local employee who works 40 hours a week, the new method will add 35 extra hours of monthly legally-mandated holiday hours to the actual working hours of 174 hours per month for calculating his or her wage.

The increase in the total hours could put companies paying the lowest legal wage based on working hours in violation of this year’s hourly minimum wage of 8,350 won ($7.51).

Under the past regulation that only considered actual working hours, or an average monthly standard of 174 hours, businesses would have to pay around 1.45 million won a month to not be in violation of the hourly minimum wage. However, the new regulation considers 209 hours a month, which would require paying nearly 1.75 million won a month to be above the minimum wage.

Even before the government approved the revision on Monday, the issue sparked concern among business owners who worried it will lead to a further increase to labor costs.

However, Prime Minister Lee Nak-yon, who attended the cabinet meeting, rejected such complaints, emphasizing that the revision is not another increase of the minimum wage. The government’s stance is that the regulation simply outlines a practice that has been customary in business.

“The revision is putting down an established interpretation into a regulation, it is not an extra raise to the minimum wage,” said Lee.

The announcement immediately faced backlash from some of the country’s largest business lobbying groups.

“The difficult business environment and the desperate sentiment of local companies were not considered,” said the Korea Employers Federation. “This one clause added to the regulation will deal serious blows to companies’ finances and rights.”

The Korea Economic Research Institute (KERI), a research body under the Federation of Korean Industries, argued that the revision would hurt the competitiveness of local firms by increasing costs.

“The revision will increase the burden on small businesses that are already going through a lot of difficulty due to a minimum wage hike of 29.1 percent in the last two years,” said Choo Kwang-ho, who heads the job research team at the KERI.

He added that decisions regarding the minimum wage “should come from a comprehensive consideration of different factors including a currently difficult economy, the fact that paid holiday hours barely exist in advanced countries … and the capacity of small businesses to cope with the change.”

The Korea International Trade Association also released a statement saying it is “unreasonable” for a company to pay for working hours during which there was no actual labor.

The Korea Federation of Micro Enterprise, which represents small business owners, went one step further and filed a constitutional appeal on Monday. It cited a Supreme Court precedent in 2007 that concluded paid holiday hours should not be counted for calculating the minimum wage as they do not involve actual labor. It gave the same conclusion multiple times including in July and October of 2018.

“The Labor Ministry did not follow a Supreme Court precedent and went further as to make paid holiday hours legally mandatory,” it said in a statement. “The Supreme Court’s stance has been consistent on the matter, and the Labor Ministry is sure to lose if the case is brought to court. The administration’s revision is an act that disregards the jurisdiction and legislation.”

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