[Startup Must-Know Laws] Redefining Employer-Employee Relations Following the Ordinary Wage Ruling

Supreme Court Redefines Ordinary Wages
Conditional Bonuses Now Included in Ordinary Wage Calculations
Companies Face Higher Labor Costs and System Overhauls
Ruling Expected to Strengthen Worker Protection and Clarify Legal Obligations

Attorney Ahn Hee-cheol

The Supreme Court's plenary decision delivered on December 19, 2024, redefined the concept and scope of ordinary wages. The main legal issue was whether regular bonuses with a condition of a minimum number of working days qualify as ordinary wages. In conclusion, the Supreme Court abolished the fixedness requirement that had been used as the standard for determining ordinary wages.

Examining the facts of this case, the company set the condition for paying regular bonuses as "working at least 15 days within the reference period," and did not pay bonuses to employees who did not meet this condition. The employee argued that this condition could not undermine the essence of ordinary wages and claimed the difference in overtime pay recalculated by including the bonus as ordinary wages. On the other hand, the company argued that the conditional bonus lacked fixedness and could not be considered ordinary wages, leading to a sharp dispute over whether such conditional bonuses should be included as ordinary wages.

Ordinary wages refer to wages regularly and uniformly paid as compensation for the employee’s prescribed working hours, serving as the basis for calculating overtime, night, and holiday work allowances as well as retirement benefits, making it a very important wage concept for both companies and employees. The Supreme Court ruled that the essence of ordinary wages lies in wages regularly and uniformly paid as compensation for prescribed work, and even if conditions are attached, if the conditions fall within the prescribed working days, the ordinary wage nature cannot be denied. However, if conditions exceed the prescribed working days, they are regarded as compensation for additional work and excluded from ordinary wages.

Due to the expansion of the scope of ordinary wages following this Supreme Court ruling, employees will be able to receive more statutory allowances, but from the company’s perspective, labor costs will increase, and there is a greater possibility that wage systems will be reset to favor the company. In particular, considering the increased likelihood that various conditional wage items, including regular bonuses, will be included as ordinary wages, many companies are expected to respond quickly and closely.

In the short term, disputes surrounding ordinary wages are expected to increase. However, in the long term, once related wage systems are established, the labor market will stabilize further. It is hoped that this Supreme Court ruling will both strengthen the protection of workers’ rights and clarify companies’ legal obligations regarding wages, thereby advancing the Korean labor market.