[Exclusive] Sweat and Toil on Construction Sites... Even Major Builders Cannot Avoid Wage Arrears [Construction Crisis Report]

Wage Arrears at Construction Companies
Controversy Over Illegal Sub-subcontracting by Subcontractors
Unless Backward Subcontracting Structure Is Reformed,
Wage Arrears Will Inevitably Continue
Effective Institutional Reforms Are Needed

The crisis in the construction industry does not simply end with subcontractors bearing the brunt. Ultimately, it falls on the shoulders of the on-site workers who sweat and toil at the construction sites. This is the result of the structural problems inherent in the industry's multi-layered subcontracting system. Construction payments flow from the client to the main contractor, then to the subcontractor, and finally get stuck at the sub-subcontractor level. When this happens, it becomes difficult to hold anyone accountable, leaving only the workers as victims.

Under current law, sub-subcontracting is prohibited. However, industry insiders commonly explain that the sub-subcontracting ecosystem remains robust through various methods, such as appointing an "executive director" to manage operations. The longer the chain of subcontracting, the more companies there are taking intermediary profits, and the daily wages of construction workers at the very end of the chain disappear. Experts point out that unless the deeply entrenched practice of sub-subcontracting in the construction industry is addressed, workers' livelihoods cannot be protected even in times of crisis.

On Site, Workers Go Months Without Pay

At a data center construction site in Geumcheon-gu, Seoul, currently being built by DL E&C, which ranks fifth in construction capability evaluation, there are about 30 daily workers who have not received their wages for May 2025. The wages for April were only paid belatedly on July 10, after Asia Economy began its coverage of the issue.

A DL E&C representative said on June 30, "We have paid G Company the full amount of the original contract price," adding, "Additional construction costs incurred afterward were under internal review, and we agreed to pay them in July." The representative continued, "We made an advance payment to G Company for a portion of the additional costs, but it appears that this money was not used for workers' wages. We only became aware of the unpaid wages about a week ago and have requested G Company to pay the wages as soon as possible." However, as of one month later, the wages for May still have not been paid.

G Company continues to delay payment. They have also told workers, "The payment of additional construction costs is a matter to be coordinated with the site manager." Workers have pointed out that the company is shifting its responsibilities onto its own employees, calling this a typical case of illegal sub-subcontracting. According to the workers, the site manager, known as the "executive director" on site, is an individual who has signed a labor contract with G Company and is considered part of G Company's workforce.

In a normal contractual relationship, if additional construction costs arise, G Company, as the subcontractor, should pay the workers' wages. In fact, the workers signed contracts under G Company's name and were dispatched to the site. Any additional settlement with the main contractor is a separate matter for G Company to negotiate, and using this as a reason to delay wage payments is not justified, according to industry sources. One worker lamented, "We signed a contract with G Company, so how does it make sense for us to be told to demand our wages from an individual called the executive director?"

At a youth housing construction site in Jungnang-gu, Seoul, being built by Taeyoung Construction, which ranks 24th and is currently undergoing a workout (corporate restructuring), wage arrears have also occurred. More than 30 workers, including plasterers and bricklayers, have not received about 200 million won in wages for March and April. On July 1, seven tile workers even staged a protest at the site office.

Subcontractor A, working under Taeyoung Construction, has repeatedly stated that "settlement with the client has not been completed." In contrast, the developer IRDB and the main contractor Taeyoung Construction have drawn a clear line, saying, "We have paid all amounts due and therefore have no legal responsibility."

As the dispute over responsibility drags on, wages have gone unpaid for several months. At this site, suspicions have also been raised about a lack of transparency in financial management.

Wage Arrears Erupt as 'Borrowing from Peter to Pay Paul' Fails Amid Construction Slump

Workers are walking near an apartment construction site in Namgu, Daegu. Photo by Kang Jinhyung

The Framework Act on the Construction Industry fundamentally prohibits sub-subcontracting. However, in practice, the deeply rooted custom of circumventing the law through sub-subcontracting remains prevalent. The main contractor assigns work to a first-tier subcontractor, which in turn passes it on to a second- or third-tier subcontractor. On paper, all necessary documents-such as labor contracts and wage payment statements-are prepared, making it difficult to detect actual sub-subcontracting based solely on documentation.

Sub-subcontracting is not always illegal. If the client gives written consent, it is exceptionally permitted. However, if such approval is granted, the client or main contractor must also take responsibility if problems arise later in the project. For this reason, officially approved sub-subcontracting rarely occurs.

Sub-subcontracting is often used as a means to make a profit without actually performing any work. For example, if a specialized construction company wins a 1 billion won contract from a construction firm and then subcontracts it to another company for 800 million won, it can pocket 200 million won without doing any actual work. When intermediary profits are siphoned off through sub-subcontracting, there is less money left for labor and materials, which leads to wage arrears and shoddy construction.

Kim Taejun, Director of the New Growth Strategy Research Division at the Construction Policy Research Institute, said, "In the past, site managers could cover losses at one site with money from another, but now that's no longer possible. The overall volume of construction has declined, so there are no other sites to draw funds from." He added, "As this situation continues, wage arrears are erupting everywhere, and productivity keeps falling."

Experts stress the urgent need to reform the unfair subcontracting system. Shin Youngcheol, President of the Korea Institute of Construction Technology, said, "From the moment subcontracting begins, on-site workers are exposed to the risk of wage arrears. Unless we fix this backward, developing-country-style subcontracting structure, wage arrears will inevitably continue to occur."

Park Seungkuk, Senior Research Fellow at the Construction Policy Research Institute, also stated, "Most domestic construction projects are completed through subcontracting, and subcontracting transactions are so fundamental to the construction industry's production system that they have a huge impact. However, unfair business practices that exploit the superior position of contractors still persist, making it a reality that subcontract payments are not made on time." He added, "Rational and effective institutional reforms are necessary."

According to the Ministry of Land, Infrastructure and Transport, in the first half of this year, 520 illegal acts were uncovered at 167 out of 1,607 construction sites nationwide, with illegal subcontracting accounting for 197 cases (37.9%), the highest among all violations.

Order of Articles in the 'Construction Crisis Report' Series

<1-1> Construction Sites at a Standstill, Lives of Day Laborers Collapsing
<1-2> "Three to Four More Bankruptcies Expected"...Mid-sized Builders on the Chopping Block
<2-1> Project Financing: From Lifeline to Trap
<2-2> Easing Multi-homeowner Regulations, Key to Reviving Regional Real Estate
<3-1> "Every Day Is Nerve-racking": Subcontractors and Downstream Industries Shaken
<3-2> Even Major Firms Cannot Avoid Wage Arrears
<3-3> Wage Arrears at Public Corporations and Local Governments
<3-4> Even the President Steps In...Urgent Need for Vertical Structure Reform
<3-5> The Company That Survived Without Illegal Sub-subcontracting
<3-6> Joining Hands at Collapsed Sites
<4-1> Foreign Construction Workers Encroaching on Domestic Jobs
<4-2> From 'Regulating Foreigners' to 'Protecting Domestic Workers'
<4-3> The Root Cause of Deteriorating Profitability: Frequent Rework