Inclusive Wage System Must Separately Calculate Base Pay and Extra Allowances... ‘Lump-Sum Employment Contracts’ Not Allowed [Kim Jun-hyuk’s JOB Thoughts]

[The Financial News] The Ministry of Employment and Labor (MOEL) has finalized its guidance on the Inclusive Wage System and is moving to prevent abuses in the field. The core of the guidelines is that so-called “lump-sum employment contracts,” which bundle base pay together with extra allowances for overtime, night work, and holiday work without distinguishing them, are in principle prohibited. The guidelines also state that even under a fixed overtime allowance system, where overtime pay is estimated and set in advance, employers must pay any additional difference if the employee’s actual working hours exceed the preset hours.
According to the government on the 11th, MOEL began enforcing the “Guidelines for Preventing the Misuse of Comprehensive Wage Systems” on the 9th. These guidelines reflect the current Labor Standards Act and relevant court precedents.
In the new guidelines, the ministry states that the time-rate pay system, which does not separate base pay from extra allowances, and the fixed allowance system, which treats various extra allowances as a single comprehensive allowance, are in principle prohibited. Base pay and all types of allowances must, as a rule, be calculated separately. The guidelines further explain that each allowance must be calculated and distinguished in advance in the wage ledger and written wage statement, and then disclosed to workers and agreed upon in the employment contract.
The fixed overtime allowance system, under which allowances are estimated and calculated in advance and written into the contract, will still be permitted. However, the guidelines clearly state that employers must pay any additional difference for actual working hours that exceed the working hours specified under the fixed overtime allowance system. If the allowance that should be paid for the excess working hours is greater than the agreed fixed allowance and the employer fails to pay the difference, this constitutes unpaid wages under the guidelines. This applies to any form of Inclusive Wage System.
The guidelines also require employers to verify that the wage ledger and written wage statements are properly prepared. This reflects the view that accurate recording and management of working hours are essential.
Although the government’s guidelines themselves do not have binding legal force, cases of unpaid wages or failure to prepare a wage ledger or written wage statements discovered during guidance and inspections can be punished under the current Labor Standards Act.
For workplaces that have applied the Inclusive Wage System on the grounds that it is difficult to calculate working hours, MOEL plans to encourage the use of existing special systems for calculating working hours, such as the Deemed Working Hours System for Work Outside the Workplace and the discretionary working hour system.
Minister of Employment and Labor Kim Young-hoon said, “Even under the current law, it is the employer’s basic responsibility to pay workers fair compensation for their labor based on their actual working hours, as recorded in the wage ledger, and on the clear distinction between base pay and statutory allowances.” He added, “With the introduction of these guidelines, we urge labor and management to correct the unfair practice of unpaid labor, even before any legislative changes are made.”
jhyuk@fnnews.com Kim Jun-hyuk Reporter