[2024 Tax Revision] 'Integrated Employment Tax Credit' Applies Even if Temporary and Short-Hour Workers Increase

From now on, companies that increase employment of temporary and ultra-short-hour workers will also be eligible for integrated employment tax credit benefits.

On the 25th, the Ministry of Economy and Finance held a Tax System Development Deliberation Committee meeting and unveiled the "2024 Tax Reform Proposal" containing these details. The integrated employment tax credit has been a tax benefit granted for up to three years to companies that increased employment compared to the previous tax year. Under the current system, companies that expanded employment by increasing regular workers or hiring young regular employees, persons with disabilities, seniors aged 60 or older, and women with career interruptions receive a tax credit of up to 15.5 million KRW per person. However, there were no separate tax benefits for fixed-term workers employed for less than one year or part-time workers working less than 15 hours per week.

Going forward, tax credits will also be available for companies that increase ultra-short-term workers. The Ministry of Economy and Finance plans to support a fixed rate on the total increase in labor costs incurred by companies. For small and medium-sized enterprises (SMEs), if the wage increase rate is between 3% and 20%, they can receive a 20% credit on the increase amount; if the wage increase rate exceeds 20%, they can receive a 40% credit on the portion exceeding 20%. For mid-sized companies, the credit rates are 10% and 20%, respectively. However, companies must meet the condition of maintaining or increasing the number of "continuous employees" (regular workers who have worked continuously for more than one year without a fixed contract period) to qualify for the tax benefits.

The Ministry of Economy and Finance's expansion of tax benefits to companies that increase ultra-short-term workers is based on the judgment that the current system, which focuses on regular workers, lacks sufficient employment incentives. The ministry stated, "A tax law revision was necessary to improve conditions for workers for whom conversion to regular employment is difficult or inappropriate, such as retirees, voluntary non-regular workers, and simple labor workers."

However, there are concerns that this reform might encourage companies to expand ultra-short-term employment. In response, the ministry explained, "The current concept of regular workers includes fixed-term workers employed for more than one year and part-time workers working more than 15 hours per week, so there was an unreasonable aspect where companies could receive high credits even by increasing low-wage non-regular employment. This aspect has been reformed." The ministry added, "Since the number of continuous employees must be at least maintained to receive benefits for flexible employment expansion, concerns about the proliferation of non-regular workers should be regarded as misunderstandings."

Tax benefits for companies that increase "continuous employment" will also be expanded. For companies that increase workers who have worked continuously for more than one year, the maximum tax reduction, which was up to 15.5 million KRW, will be significantly increased to up to 24 million KRW. Local SMEs that have expanded continuous employment of youth, persons with disabilities, seniors aged 60 or older, and women with career interruptions will be able to receive an additional tax benefit of about 9 million KRW per person. However, the support period will be reduced from the existing three years (excluding large corporations) to two years.

Instead, the system has been changed to provide an additional one-year credit incentive to companies that maintain employment. This is to provide employment incentives through additional credit benefits. Furthermore, the ministry plans to abolish companies' post-management obligations. The current regulation that requires companies to repay credits if employment decreases after the second year compared to the initial credit year will be eliminated.

The separate credit system that was applied for one year only to regular employment conversions or employees returning from parental leave will be discontinued. A ministry official explained, "Regular employment conversions are included in continuous employment and thus qualify for tax credits, and employees returning from parental leave will receive tax benefits for two years if employment increases after their return. Although there is no separate track, it should be understood that the period has been extended from one year to two years."