[Exclusive] Government to Link 'Sahdogeupgikimi' with 'Sangsaeng Payment' to Enable Subcontractor Wage Payments Without Prime Contractor Approval

[Construction Crisis Report] Measures to Eradicate Wage Arrears
Sangsaeng Payment Allows Direct Receipt by Subcontractors and Workers
Controversy Over Public Interest as Private Electronic Payment Systems Spread
"Standards Such as Prohibiti

The government is moving forward with a plan to partially link the "Hadogeupjikimi" electronic payment system, which is currently mandatory at public construction sites, with the "Sangsaeng Payment" method. By integrating these two systems, subcontracting payments can be made automatically without the need for approval from the primary contractor. As of August 5, it has been confirmed that the Public Procurement Service under the Ministry of Economy and Finance and the Ministry of SMEs and Startups have begun working-level discussions, with the Ministry of Land, Infrastructure and Transport, which oversees construction, also participating as a reference agency.

The government has initiated institutional reforms to address the widespread issues of illegal subcontracting and delayed wage payments in the construction industry. By linking the two systems, labor costs can be paid without seizure even if the subcontractor enters rehabilitation proceedings, and arbitrary payment delays by the primary contractor can be prevented. As a result, the integration is expected to be effective in reducing unfair trade practices.

President Lee Jaemyung also recently highlighted unfair practices in the construction industry at consecutive Cabinet meetings, instructing authorities to "strictly crack down on illegal activities related to construction subcontracting." His repeated references to the issue since taking office suggest that he believes industry self-regulation alone is insufficient to resolve these problems. According to the Ministry of Employment and Labor, total unpaid wages in the first half of this year reached 1.1005 trillion KRW, the highest figure on record. The ministry stated that "illegal subcontracting and unfair trade practices in the construction industry are the main structural causes of wage arrears," and announced plans to strengthen labor supervision and sanctions against employers.

Overview of the electronic payment system for subcontracting fees, "Hadogeupjikimi," operated by the Public Procurement Service under the Ministry of Economy and Finance. It is mandatory for all public institutions using the Korea On-line E-Procurement System (KONEPS) and construction sites with public orders exceeding 30 million KRW. To receive subcontracting fees, the subcontractor must first submit an invoice to the primary contractor and request approval. The primary contractor reviews this and then requests final approval from the ordering party. If the ordering party finds no issues, it deposits the construction payment into the primary contractor's account, and the primary contractor pays the subcontractor. The labor costs paid into the subcontractor's account are separately distributed by the subcontractor to the workers. Hadogeupjikimi does not have a system-level function to directly verify the actual payment of wages to workers.

Sangsaeng Payment: No 'Primary Contractor Approval' Required, Funds Held in Public Institution Accounts

Overview of the electronic payment system "Hadogeup Sangsaeng Payment" operated by the Foundation for Large and Small Enterprises and Agriculture-Fishery Cooperation under the Ministry of SMEs and Startups. Sangsaeng Payment is utilized in various fields such as public institution construction orders and supply-service contracts between large corporations and small businesses. Construction payments are held in a deposit account under the name of the public institution and are automatically transferred to each recipient on the payment date.

Hadogeupjikimi and Sangsaeng Payment are public electronic payment systems introduced to prevent wage arrears for subcontracted workers. Hadogeupjikimi is operated by the Public Procurement Service, while Sangsaeng Payment is managed by the Foundation for Large and Small Enterprises and Agriculture-Fishery Cooperation under the Ministry of SMEs and Startups. Both systems use an escrow method, where construction payments are held in a separate account before being paid to subcontractors or workers. In the case of Hadogeupjikimi, payments are deposited into an account in the company's name and can only be withdrawn with primary contractor approval, whereas Sangsaeng Payment automatically disburses funds held in a public institution's account.

There are significant differences in the payment process. Sangsaeng Payment, used in public procurement and private manufacturing sectors, deposits funds into a dedicated account under the foundation's name and automatically transfers payments on a set date. In contrast, Hadogeupjikimi requires approval from the primary contractor before the subcontractor can receive payment, which can lead to delays or even seizure of funds during rehabilitation proceedings.

Additionally, the accounts are in the name of the company, not the public institution. Labor costs are deposited into the subcontractor's account, and the company is responsible for distributing wages to workers. While Hadogeupjikimi manages records of labor cost payments to subcontractors, it does not verify whether payments are actually made to workers, necessitating separate administrative oversight.

In response, the government has been reviewing a reform plan to incorporate some aspects of the Sangsaeng Payment method. Since 2019, only Hadogeupjikimi has been applied at the request of the Korea Construction Association and the Korea Specialty Contractors Association, but ongoing operational burdens and confusion at construction sites have increased the need for system improvements.

Mandatory Electronic Payment Systems for Private Construction Projects Also Under Consideration

The government is also considering making electronic payment systems mandatory for private construction projects. Lawmakers from both ruling and opposition parties on the National Assembly’s Land, Infrastructure and Transport Committee have already proposed amendments to the Framework Act on the Construction Industry to this effect.

Since June, the Ministry of Land, Infrastructure and Transport has been conducting a preliminary study through the Korea Procurement Research Institute to amend the relevant enforcement decrees, and is simultaneously conducting practical research on linking electronic cards and expanding the system to the private sector.

The Fair Trade Commission also commissioned a research project in March to the Chonbuk National University Industry-Academic Cooperation Foundation regarding the mandatory use of electronic payment systems under the Subcontracting Act.

The government is currently reviewing whether, when mandating electronic payment systems for private construction projects, the system should continue to be operated primarily by public institutions or in parallel with private platforms.

Investing Subcontractor Funds in Financial Products: Private Systems Lack Public Accountability

Recently, private electronic payment systems such as "Nomubidotcom" by Nice DnR and "Cleanpay" by Cleanpay have been rapidly spreading at construction sites. These systems use a "withdrawal restriction method," requiring approval from the primary contractor before the subcontractor can access payments. Some systems also require detailed input of cost information, such as labor, materials, and equipment expenses.

Concerns have also been raised regarding the fund management practices of private system operators. These companies invest construction payments deposited by ordering parties into short-term financial products to generate profits. Critics argue that using funds meant for subcontractors and workers as investment vehicles undermines public accountability. Furthermore, the fact that all system operators managing construction payments worth tens of millions of KRW are small or medium-sized enterprises increases the risk of default.

Experts emphasize the urgent need to establish public-level guidelines for private operators before mandating electronic payment systems.

A legal expert stated, "If construction companies, unaware of the differences between public and private systems, adopt private systems at the recommendation of private operators, the disadvantages will be passed on to subcontractors and workers. Once a system is adopted, it is difficult to switch, and most private systems are designed with the primary contractor as the 'client,' putting subcontractors at a perpetual disadvantage."

The expert added, "There is a need for public-level guidelines that prohibit operators from profiting by investing payments or that impose sanctions such as business suspension in the event of withdrawal delays. If the focus is solely on expanding electronic payment systems, it will not prevent wage arrears and may only lead to new forms of unfair practices."