Improving corporate culture is first

Suh Kyoung-ho
The author is an editorial writer of the JoongAng Ilbo.

Booyoung Group made headlines ahead of the Lunar New Year holidays by offering to reward each employee 100 million won ($75,000) for having a baby. It’s given a total of 7 billion won to its employees for having babies since 2021, including three families who had two children in a row and two families who gave birth to twins. Chairman Lee Joong-keun is famous for his generosity. He delivered up to 100 million won to each of his hometown residents in Suncheon, South Jeolla and his elementary, middle and high school alumni.

A private company voluntarily trying to boost the birthrate in a country infamous for the lowest birthrate among OECD members should be applauded. But the gesture became a headache for the government after the company asked for a tax deduction for its incentive program. When the payout is categorized as a gift, beneficiaries must pay a 10 percent tax, or 10 million won. But when it is counted as a bonus, the employee is subject to higher year-end income taxes based on his or her income bracket. For example, an employee earning 70 million won a year would have to pay 38 million won more for the 100-million-won of extra income.

Neither the paying company nor the receiving employees can be happy about the bulky loss of the money to tax. The Ministry of Economy and Finance responded lukewarmly to the idea at first, saying it would have to look into the matter. The issue took a sudden twist after President Yoon Suk Yeol took an interest in the issue. During his visit to Busan on Feb. 13 after the holiday break, he ordered his government to come up with various support programs, including tax breaks for corporate childbirth incentives. A few days later, Deputy Prime Minister Choi Sang-mok, who also serves as finance minister, said that the ministry is studying various ways to exempt companies and employees from their tax burden for the child bonus.

However, the plan poses several problems. First of all, it is against the principle of fairness in taxing. Not many companies can afford to dole out tens of millions of won to each employee like Booyoung can. Only a small number of big companies like Posco, Kumho and Yuhan offer cash rewards for their employees’ childbirths. A number of SMEs and their employees could feel dejected from a sense of relative deprivation.

Many employees still cannot fully enjoy their family tax deduction benefits. Up to 2.4 million won is tax-free annually for the allowances a company pays out to its employees for the birth or care of their children under the age of six. According to tax reports by salaried workers in 2022, the average allowances they filed for tax benefits for their child births and care incentives was only 679,000 won. Even employees who receive allowances for their child’s birth and care could enjoy just one-fourth of the full tax break.

Second, the tax code should not be amended in such an impromptu manner. Even at a presidential order, the matter should be addressed carefully. Still, it is not too late. For instance, the government can lower the tax burden for employees by extending the period for their tax payment even though the government classifies the bonus as an income. Or the tax exemption ceiling for the money can be raised.

Third, whether the corporate-level incentive can actually help raise the country’s dismal birthrate is uncertain. Booyoung Group has been handing out these rewards since 2021. The special bonus is for births as they are made. But whether the money really can motivate more births is unknown.

Booyoung Group Chairman Lee Joong-keun, center, poses for a photo after offering 200 million won ($150,000) in cash to one of his employees who gave birth to twins. The construction company since 2021 has been giving 100 million won per child for its workers who have kids, to help raise the ultralow birthrate in Korea. [YONHAP]

Certainly, cash rewards are great. But what’s more important is to create a work environment friendly toward family life. Male employees also should be able to take childcare leave without any constraints. Those returning from their leave should not be excluded from major jobs in their companies. If companies publicly disclose the male-female ratio of parental leave, it will likely help them compete to make their business environment more friendly toward family care. Booyoung’s share of parental leave was the lowest among the 30 top corporations in 2017. I wonder how much the company has improved since then.