[News Terms] Standard for Ordinary Wages Changed After 11 Years... Conditional Regular Bonuses Included

The standards and scope of ordinary wages have changed for the first time in 11 years. The Supreme Court has ruled that regular bonuses with specific conditions, such as "only given to employees employed as of December 31 every year" or "paid if worked for more than three months immediately before the payment date," are also included in ordinary wages. The reason for this is that excluding such bonuses from ordinary wages due to attached conditions prevents fair compensation as stipulated by law. Conditional regular bonuses are bonuses that set conditions such as employment status on a specific date or achieving a minimum number of working days when determining the recipients. Ordinary wages refer to wages regularly paid to workers as compensation for prescribed work.

The Supreme Court overturned its 2013 precedent. At that time, in the case of Gapul Autotech, an automobile parts company, the Supreme Court ruled that conditional bonuses were not ordinary wages. The Court set the standard that all three requirements?regularity, uniformity, and fixedness?must be met for wages to be recognized as ordinary wages, and judged that wages paid only upon fulfilling separate conditions lack fixedness and thus are not ordinary wages. However, this time, the Supreme Court abolished the fixedness requirement. The Court pointed out that "the concept of fixedness unjustly narrows the scope of ordinary wages and contradicts the purpose of the Labor Standards Act, which corresponds to overtime and night work."

Accordingly, workers are likely to receive more allowances and severance pay. If conditional regular bonuses are included as ordinary wages, various work allowances such as overtime, night, and holiday work allowances will increase. Ordinary wages serve as the basis for calculating overtime, night, and holiday work allowances. As the average wage increases, severance pay also rises. It is also expected that retroactive settlement can be demanded for previously underpaid allowances.

On the other hand, companies may face increased financial burdens. The Korea Employers Federation analyzed in last month's report titled "Economic Costs and Ripple Effects of Including Conditional Regular Bonuses in Ordinary Wages for Employees" that if regular bonuses are included in ordinary wages, additional labor costs of 6.7889 trillion KRW per year will occur. Companies affected by the inclusion of ordinary wages account for 26.7% of all member companies, and these companies are estimated to bear additional labor costs equivalent to 14.7% of their one-year net income.

The wage gap between large corporations and small and medium enterprises is also expected to widen. With the inclusion of regular bonuses in ordinary wages, the total monthly wage gap between workers at workplaces with 29 or fewer employees and those with 30 to 299 employees (based on benefiting workers) will increase by 131,000 KRW from the existing 1,071,000 KRW to 1,202,000 KRW. The total monthly wage gap between workers at workplaces with 29 or fewer employees and those with 300 or more employees will also increase by 298,000 KRW from the existing 3,219,000 KRW to 3,517,000 KRW.