Businesses reel after $4.7B bombshell wage ruling by top court
Published: 17 Jan. 2025, 16:27
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- SHIN HA-NEE
- [email protected]
![Supreme Court in Seocho District, southern Seoul, on Feb. 11, 2019 [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2025/01/17/4b99ac06-e102-408b-9579-a78b589a1745.jpg)
Supreme Court in Seocho District, southern Seoul, on Feb. 11, 2019 [YONHAP]
A recent Supreme Court ruling redefining ordinary wages that is projected to cost companies an extra 6.8 trillion won ($4.7 billion) a year has thrust the Korean business sector into sudden chaos.
Grappling with mounting questions that have no clear answers yet, human resource (HR) teams at major companies are anxiously waiting for the government to outline guidelines to navigate uncharted waters amid growing cost woes.
On Dec. 19, the Supreme Court ruled that conditional bonuses — granted to employees based on criteria such as the number of days worked or whether they remain employed at the time of payment — should be included in ordinary wages.
Ordinary wages, defined as compensation provided to workers in exchange for labor, serve as the basis for calculating additional pay and severance pay.
The decision overturned a previous ruling back in 2013, when the Supreme Court decided that conditional bonuses should not be considered part of ordinary wages, citing the “regularity, consistency and fixity” of payment as essential requirements for classifying a wage as ordinary.
Conditional bonuses, therefore, were initially excluded for their lack of fixity, as they depend on specific conditions being met.
But the latest ruling decided that employment status or the number of days worked bears no influence on the fixed nature of conditional bonuses.
Considering the significance of the decision, the court ruled that the newly established legal definition of an ordinary wage would apply to wages calculated from the day of the ruling, Dec. 19, onward.
![Pedestrians walk across a crosswalk on a rainy morning in Gwanghwamun, central Seoul, on Sept. 12, 2024. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2025/01/17/5dc13a67-1942-4967-8d0d-6498574fe2cf.jpg)
Pedestrians walk across a crosswalk on a rainy morning in Gwanghwamun, central Seoul, on Sept. 12, 2024. [NEWS1]
A November report by the Korea Enterprises Federation estimated that the inclusion of bonuses tied to employment status in ordinary wages would cost companies an additional 6.8 trillion won annually.
“Bonuses take up about 10 percent of the annual salary at our company, quite a significant portion,” said an HR team head at a financial firm.
“This would cost us tens of billions of won with other extra pay tied to ordinary wages such as overtime pay, merit pay, private pensions and vacation pay increasing altogether.”
Another HR team insider who works at a major company was left baffled about how to proceed.
“We’re not sure about what to do with stipends for unused vacations and severance pay for 2024,” they said.
“I’ve been told that not paying [the correct amount] can be wage arrears starting the next payday, but even law firms have different opinions on whether [the new ruling] applies to paid time-off granted to employees on and after Dec. 19, or to stipends for unused vacations granted since then.”
No one has a clear answer to their question yet.
The government is set to announce a guideline on ordinary wage rules this month due to inquiries flooding in.
However, “the guideline would not be able to cover all possible cases,” said an official from the Ministry of Employment and Labor, adding, “We will answer questions regarding any unclear points.”
Reflecting growing concerns, recent seminars hosted by major law firms have drawn a flood of attendees and questions. An online seminar on ordinary wages hosted by Yulchon on Jan. 5 attracted 3,000 registrations and 2,500 concurrent viewers, a new record for the law firm’s events.
The two biggest concerns for companies are whether other types of extra pay, such as holiday or performance bonuses, would also be included in ordinary wages in the future and how they would mitigate the sudden increase in labor costs.
“Other additional pay granted based on certain conditions may also be subject to litigation or disputes in the future,” Kim Sang-min, a partner at Bae, Kim & Lee LLC, said.
The rise in labor costs can be addressed through negotiations with employees and labor unions. One potential solution is to increase the proportion of performance-based bonuses while reducing fixed ones, but labor unions are unlikely to accept such an adjustment, with some major unions already issuing internal guidelines to “strongly resist any attempt to change fixed wages into performance-based pay.”
Ongoing uncertainties are likely to persist for a while, especially with other high-profile labor-related lawsuits awaiting final results this year, such as disputes involving Samsung Electronics, LG Display and other major companies over whether performance bonuses should be factored in calculating severance pay.
“Considering that wage-related issues have a significant implication on labor-management relations, the government or the National Assembly should take the initiative to prevent any confusion on the ground through legislative measures, instead of leaving the decision wholly to the Supreme Court,” said Lee Jeong, a professor at Hankuk University of Foreign Studies.
BY KIM YEON-JOO, SHIN HA-NEE [[email protected]]
with the Korea JoongAng Daily
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