[Why&Next] It's Hard to Get Unpaid Wages... Delayed Interest Is Even Harder

Employees Also Subject to Delayed Interest Payment Under Labor Standards Act
Purpose Is to Prevent Wage Arrears, but Effectiveness Questioned

Calls for Active Administrative Guidance from Ministry of Employment
Need for Comprehensive Improvement of Wage Arrears System Highlighted

Starting next October, not only retirees but also currently employed workers will be able to receive high-interest delayed wages compensation. However, there are concerns that it will be difficult to enforce employers to pay the delayed interest, and workers must file civil lawsuits to receive the interest, making on-site application challenging. Additionally, there are no basic statistics available to assess the delayed interest.

The Ministry of Employment and Labor building in Sejong City. Provided by the Ministry of Employment and Labor

According to the National Assembly and the Ministry of Employment and Labor on the 18th, the scope of delayed wage interest payments was expanded as the partial amendment to the Labor Standards Act passed the plenary session of the National Assembly last September. This aims to increase the cost burden on employers who fail to pay wages on time, encouraging timely payments.

Previously, delayed interest at an annual rate of 20% was imposed if wages were not paid within 14 days from the date the payment obligation arose, applicable only to retirees. From next October, when the amendment takes effect, currently employed workers will also be eligible to receive delayed interest at an annual rate of 20%. This significantly raises the interest rate compared to the previous standards under the Civil Act (5%) or Commercial Act (6%).

Despite the expansion of the delayed interest system, concerns remain that its application will not be easy in practice. Delayed interest is not considered wages under the Labor Standards Act, and there are no penalty provisions for non-payment. To receive delayed interest, workers must first have their unpaid wages confirmed by the Labor Office and then file a civil lawsuit against the employer in court. Such lawsuits can drag on for years, making it difficult to actually receive the delayed interest, and many end up abandoning the lawsuit, according to experts.

Certified labor attorney Kim Jeong-sik explained, "Even if a court ruling is issued, it specifies the delayed interest period and rate but does not explicitly state the amount, so additional calculations are required, making the process complicated." He added, "There are very few cases where lawsuits are pursued solely to receive delayed interest." He also noted, "Although the scope of delayed interest has been extended to currently employed workers, it is unlikely to instill a real sense of crisis or caution in employers who withhold wages."

Despite the expanded application of delayed interest under the Labor Standards Act, it is difficult to obtain basic statistics that could serve as a foundation for assessing the current situation and making legal or institutional judgments. The Ministry of Employment and Labor, which oversees wage arrears, does not investigate or supervise delayed interest, so it does not separately calculate related figures. To obtain specific data, it would be necessary to individually identify wage arrears and delayed interest lawsuits handled by courts and then calculate the overall scale, a complex procedure.

The scene of the nationwide agency heads meeting on the eradication of wage arrears held last September at the Seoul Employment and Labor Office in Jung-gu, Seoul. Photo by Yonhap News

For this reason, calls for improvement measures have emerged. A report published last month by the office of Lee Yong-woo, a member of the Environment and Labor Committee of the National Assembly from the Democratic Party of Korea, included a recommendation that the Ministry of Employment and Labor should address the issue of unpaid delayed interest to enhance the effectiveness of the delayed interest system. The suggestion is that even if unpaid delayed interest is not subject to criminal prosecution, administrative guidance should be issued to ensure delayed interest is paid when handling wage arrears cases.

The government holds the position that realizing this is not easy. Due to the nature of wage arrears disputes between employers and workers, significant administrative effort would be required to investigate delayed interest. Moreover, since delayed interest is handled as a civil matter not only in Korea but also in many other countries, it is difficult to include it within the scope of labor supervision. A Ministry of Employment and Labor official stated, "Labor inspectors exist to impose penalties when employers violate the Labor Standards Act. They do not have the authority to handle civil matters."

Some voices also call for overall improvements to the wage arrears system, including delayed interest. Because wage arrears cases require going through at least three agencies?the Labor Office, the Korea Workers' Compensation and Welfare Service, and the Legal Aid Corporation?resulting in significant time and cost burdens, the burden on affected workers increases. It is reported that discussions on a one-stop processing system are underway in the National Assembly.