[Saving SMEs Through Labor Flexibility]①Labor Regulations That Even 'Baeknyeongage' Cannot Withstand

Orders Are Overflowing, but Hiring Is Impossible
SMEs Cry Out Under the 'Working Hours Shackles'
Rising Concerns Over Pledge to Apply Rules to 'Businesses with Fewer Than Five Employees'
"Smaller Businesses Face Even Greater Constraints from Working Hour Regulations"

Editor's NoteLabor regulations such as the 52-hour workweek, which were introduced with the intention of creating advanced working conditions, continue to burden both businesses and workers across various industrial sites. The problem is becoming increasingly recognized, especially as small and medium-sized enterprises (SMEs) face significant difficulties due to the combination of a structural economic downturn, management challenges, and labor shortages. Amid this situation, the Lee Jaemyung administration is accelerating the introduction of a '4.5-day workweek without wage reduction,' which is further heightening anxiety among SMEs?the backbone of the economy and industry, yet also its most vulnerable link. As smaller and less-resourced companies suffer more under rigid, uniform regulations, there is a growing call to urgently consider a work culture based on flexibility and autonomy. Asia Economy seeks solutions based on the realities faced by SMEs.

[Saving SMEs Through Labor Flexibility]①Even 'Baeknyeongage' Cannot Withstand Labor Regulations

[Saving SMEs Through Labor Flexibility]②Rigid Labor Regulations Actually Undermine 'Work-Life Balance'

[Saving SMEs Through Labor Flexibility]③Criminal Penalties Even When Labor and Management Agree?No Other Country Does This

[Saving SMEs Through Labor Flexibility]④The Overlapping Burden of the 4.5-Day Workweek May Only Widen the Gap Between Large and Small Companies

[Saving SMEs Through Labor Flexibility]⑤"SME Jobs, the Backbone of Industry, Must Be Protected Through Flexibility and Autonomy"

On May 28, a car repair shop in Donggu, Daejeon was bustling with vehicles arriving early in the morning. Cars lined up waiting to be lifted, but the work was progressing slowly. Due to the busy workload, oil boxes and parts containers were scattered across the floor. Despite the high demand, only two workers keep this repair shop running. The shop is open every day except Sunday, but hiring additional staff is out of the question. Even as the workload increases, the inability to hire more employees vividly reveals the harsh reality of labor hour regulations that are strangling small businesses.

Cars waiting for maintenance are lined up at a repair shop located in Donggu, Daejeon. Photo by Lee Sungmin

"This is the most difficult time we've ever faced," confessed Kim Sungho (alias), whom we met at the site. This repair shop is a leading local car maintenance business founded by Kim's father 25 years ago. The company has steadily built trust within the community, to the extent that the government designated it as a 'Baeknyeongage' (century-old business). However, Kim lamented, "Electricity bills and parts costs keep rising, but repair fees remain the same. We can't even keep up with inflation, and the law only tightens further?it's incredibly frustrating."

His explanation highlights the low productivity and high labor cost structure unique to the repair industry, which the law overlooks. Car repairs take a long time, and most of the work is done by people, not machines. Kim said, "It's difficult to sustain this business with just eight hours a day, five days a week." The 52-hour workweek law restricts the number of hours that can be worked by law, without regard for on-site realities or industry characteristics. Kim pointed out, "Our country's man-hour productivity is lower than that of advanced nations, but even the only way to compensate for this?longer working hours?is being regulated."

As a desperate measure, this repair shop operates with 'five or fewer' employees. It's impossible to sustain the business with reduced working hours, but hiring more staff to handle the increasing workload would only trigger the 52-hour rule, leading to a vicious cycle of declining productivity. However, even this precarious survival strategy would disappear if the new administration's pledge to fully apply the Labor Standards Act to workplaces with fewer than five employees becomes reality. Kim questioned, "If the law is implemented as is, businesses like ours will all be affected. There are no people, and the work keeps piling up?how are we supposed to deal with a situation where we can't assign or hire more staff?"

According to the government on June 24, President Lee Jaemyung has made the full application of the Labor Standards Act to businesses with fewer than five employees, and the expansion of the 52-hour workweek, a core national policy. Businesses with fewer than five regular employees account for 84.7% of all workplaces and more than 30% of all workers. While the government aims to address blind spots in labor rights, the SME sector is expressing concern, calling it a blanket expansion that ignores reality.

The 52-hour workweek, introduced in 2018, was first applied to businesses with 300 or more employees and public institutions. It was then expanded to businesses with fewer than 300 employees in 2020, and to those with fewer than 50 employees in 2021. From this year, the grace period has ended, and the rule is now fully enforced even for businesses with fewer than 30 employees. With this regulation having been in place for five years for SMEs, signs of strain are emerging throughout the sector. Industries like car repair, where labor costs are high and it is difficult to secure skilled workers, are particularly hard hit by the blanket application of the regulation. According to a survey by the Korea Federation of SMEs, 39.6% of small manufacturing companies cited labor shortages as their biggest challenge since the implementation of the 52-hour workweek.

The situation is not much different for IT-based startups. Lee Inkyu, CEO of AI-based recruitment startup Wayple, said, "Once the number of employees exceeds five, various legal regulations begin to apply. Even if we want to hire more talent, we have to be extremely cautious about employment decisions." In organizations like startups, where flexible workforce management is crucial, labor hour regulations act as a decisive constraint on developing HR strategies for growth. Lee explained, "A significant number of startups still operate mainly through in-person work. Especially for manufacturers or IT maintenance companies, it is often impossible to adjust work hours because they must meet the schedules set by their main clients."

A recent survey by the Korea Venture Business Association found that 41.1% of responding companies reported 'difficulty' complying with the current 52-hour workweek. The biggest challenges cited were 'declining productivity and operational disruptions (42.5%)' such as meeting deadlines and giving up orders. This was followed by 'labor issues (30.1%)' such as recruitment difficulties and increased labor costs, and 'cost burdens (17.1%)' such as increased investment in equipment and management costs.

The fundamental reason these problems have accumulated is the uniform application of the same standards regardless of industry or company size. This is why there are calls to relax the requirements for introducing flexible work hours by industry, and to provide more flexible options such as extending the settlement period to a monthly or quarterly basis. Lee Myungro, head of the HR Policy Division at the Korea Federation of SMEs, said, "SMEs can suddenly receive a surge of orders depending on contracts from major clients, and in order to meet deadlines, intensive work over a short period is inevitable. Allowing monthly flexibility would enable practical responses. The more successful a company is, the greater the demand for overtime, but a system that restricts companies with more work from moving forward is not efficient."