'Unable to Pay Salaries Due to COVID-19'... Last Year, Wage Claim Payments for Small Businesses Increased 1.5 Times

Korea Workers' Compensation and Welfare Service Secures 669.8 Billion KRW Budget for Wage Claim Payments This Year... Highest Ever Amount

[Sejong=Asia Economy Reporter Son Seon-hee] Worker A, who worked at a restaurant, received a sudden notice of retirement in the second half of last year. Due to business restrictions caused by the COVID-19 pandemic, the restaurant's sales sharply declined, putting restaurant employees in a position to quit. The owner, who immediately lacked even the money to pay rent, pleaded that they could not even provide severance pay. Facing a dire financial situation, A applied for the wage claim guarantee fund through the Ministry of Employment and Labor's website.

As the COVID-19 crisis prolonged, the amount of wage claim guarantee fund paid to small businesses with fewer than five employees nearly increased by 50% last year. The wage claim guarantee fund is a system where the Korea Workers' Compensation and Welfare Service pays a certain amount on behalf of the employer when a retired worker does not receive proper wages due to the company's bankruptcy or other reasons. This indicates a significant increase in small business owners facing critical situations where they cannot even pay monthly wages despite having few employees.

According to the annual wage claim guarantee fund payment status compiled by the Korea Workers' Compensation and Welfare Service on the 23rd, the total amount of wage claim guarantee fund paid last year was 579.69 billion KRW, a 26% increase compared to the previous year. The number of workers who received the fund also surpassed 100,000 for the first time in 2019 and increased by more than 10,000 in one year to reach 111,177. According to the Service, applications for the fund surged mainly in wholesale and retail, and food and accommodation industries, which were directly hit by COVID-19.

In particular, the wage claim guarantee fund paid on behalf of businesses with fewer than five employees last year amounted to 178.553 billion KRW, a 49.1% increase from 119.721 billion KRW the previous year. The number of small businesses where workers applied for the fund was 11,548, accounting for 64% of all businesses receiving the fund (18,017). Although the scale of fund payments was small, the actual cases of wage arrears were much more frequent in small businesses.

The wage claim guarantee fund has two types: ‘general,’ which pays up to 21 million KRW, and ‘small amount,’ which pays up to 10 million KRW (with a maximum of 7 million KRW per item such as wages and retirement benefits). Unlike the general fund, which can only be applied for after the company's bankruptcy is legally recognized, the small amount fund can be applied for as soon as a court ruling orders the payment of unpaid wages, making the process relatively quicker and simpler.

For this reason, the amount paid for the small amount fund increased significantly, while the amount for the general fund decreased. The annual amount paid for the small amount fund last year was 469.714 billion KRW, a 61.3% increase from the previous year.

The Korea Workers' Compensation and Welfare Service expects that cases of wage arrears due to the resurgence and prolongation of COVID-19 will continue to increase this year as well. Accordingly, this year's related budget was set at a record high of 669.8 billion KRW. The Service stated, "The number of workers needing the wage claim guarantee fund is expected to continue increasing for the time being," and added, "We will strive to ensure that workers with unpaid wages receive the fund promptly."