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Measures needed to minimize concerns from ordinary wages ruling

Measures needed to minimize concerns from ordinary wages ruling

Posted December. 19, 2013 00:32,   


The Supreme Court ruled Wednesday that the amount of paid bonuses vary depending on the employment period, but such bonuses are part of ordinary wage when paid out regularly and uniformly. The landmark ruling was in favor of labor in a prolonged and major dispute between labor and management over the scope of "ordinary wages." The top court also decided that even if labor and management agreed in the past to exclude regular bonuses from ordinary wages, such pacts are invalid because they violate the Labor Standards Act. The Supreme Court also added other types of bonuses including technical allowance, continuous service allowance and family allowance, if paid regardless of the number of dependents, into ordinary wages.

However, the top court ruled that fringe welfare benefits given to workers who are not on leave, such as holiday or vacation season bonuses and performance-based bonuses, cannot be viewed as part of standard wages. Despite the inclusion of regular bonuses as ordinary pay, the court also determined that workers cannot make backward claims for the last three years, the expiration period of corporate wage liabilities, as such claims would put "excessive burdens" on companies and be against the principle of goodwill.

The ruling concluded two lawsuits filed by current and retired workers of a local auto parts maker demanding the company include bonuses and summer vacation benefits into ordinary wages. There are some 160 lawsuits in process regarding ordinary wages, which are used as the basis for calculating certain employee benefits, such as overtime pay, holiday shift, paid annual leave, severance pay and other allowances. The latest ruling has put significant burdens on businesses.

Disputes over ordinary wages stem from complicated compensation systems at Korean companies. As wage increases during the period of rapid industrialization put upward pressures on prices, the government imposed guidelines for wage hikes. In order to circumvent the guidelines, companies and labor unions made it a practice to keep wages low in return for increasing various types of bonuses and allowances.

The landmark ruling is meaningful in that it specifies the scope of ordinary wages under the circumstances with no clear legal provisions on the issue. In order to be recognized as ordinary wages, bonuses should be paid on a regular and uniform basis and in fixed amounts in return for work. The government`s 1998 administrative guideline says that bonuses that are not paid on a monthly basis and fringe welfare benefits are not recognized as ordinary wages. However, the guideline is subordinate to the Supreme Court`s ruling. At this opportunity, companies need to reorganize their compensation systems consisting of complicated allowances in accordance with annual salary standards.

The latest ruling will significantly increase the burden of manpower costs on companies. Organizations representing businesses project that the ruling will add nearly 8.9 trillion won (8.5 billion U.S. dollars) to their manpower costs annually, starting next year. It is worrisome that the ruling will make it even more difficult for young job seekers to find jobs amid job market squeeze. The government and the National Assembly should study ways to resolve the ordinary wage issue in a way that does not add burdens to the slumping economy.