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MOEL Issues Revised Labor-Management Guidance on Ordinary Wage in Response to Supreme Court’s En Banc Decisions

On February 6, 2025, the Ministry of Employment and Labor (the “MOEL”) released an updated labor-management guidance on ordinary wage (the “Guidance”) in response to the recent Supreme Court en banc decisions overruling its previous position on ordinary wage. The Guidance aims to clarify the newly established legal principle on ordinary wage and mitigate potential disputes and confusion surrounding its application.

On December 19, 2024, the Supreme Court issued two en banc decisions and overruled its previous decision on ordinary wage (i.e., the December 18, 2013 en banc decision, the “2013 Supreme Court Decision”) by eliminating the “fixed” element of the requirement of ordinary wage.

The 2013 Supreme Court Decision held that wage items that are paid to employees only if the employee is employed at a particular time are not “ordinary wage” because they are neither compensation for “prescribed labor” nor meet the “fixed” requirement for ordinary wage. Although this has been considered a well-established court precedent on this issue, the Supreme Court recently overruled this position and presented a new basis for determining which wage items should be included in ordinary wage.

The new en banc decisions abolished the “fixed” element and reestablished the definition of ordinary wage as “…compensation for prescribed labor that is paid on regular and uniform basis…” In other words, the Supreme Court held that employees who provide prescribed labor in its entirety will not be denied the inclusion of relevant wage items in ordinary wage merely because there are certain conditions attached to the payment of such wage items (e.g., the condition that the employee must be employed on the day of payment or that the employee must work a minimum number of days during the prescribed working days to receive the wage item).

The Guidance summarizes the MOEL’s response to some of the most frequently raised questions surrounding the Supreme Court’s en banc decisions in a Q&A format. We highlight some of the key clarifications below.

(1) Should a wage that is conditioned on current employment (i.e., employed on the day of payment) be considered ordinary wage?

  • If the wage is pre-determined in consideration of the prescribed work and is paid on a “regular” and “uniform” basis, it will fall under the scope of ordinary wage even if it is conditioned on current employment.

  • Case example: Regular bonuses paid quarterly to current employees constitute ordinary wage.

    • (2) For a new employee who has not yet become eligible to receive a regular bonus due to his/her short tenure, would the regular bonus still fall under ordinary wage?

  • If the regular bonus meets the requisite criteria and is thus treated as ordinary wage, it should be included in the calculation of ordinary wage even if the employee has not yet become eligible to receive it.

  • Case example: Even if an employee joins the company after the bonus payment date and is thus not yet eligible to receive the bonus, the annual regular bonus should nonetheless be included in the ordinary wage for the calculation of overtime work allowance.

    • (3) How should a regular bonus be factored into the calculation of ordinary wage?

  • Pursuant to Article 6, Paragraph 2, Items 5 and 7 of the Enforcement Decree of the Labor Standards Act, ordinary hourly wage shall be calculated by dividing the “annual aggregate regular bonus” by the “annual total hours for the calculation of ordinary wage.”(4) Should wages conditioned on “current employment” or the “number of completed working days” be paid in proportion to the completed service period?

  • In line with the Supreme Court decision, the validity of the conditions attached to the “payment” of a regular bonus should be reviewed separately from the question of whether it should be included in ordinary wage. Therefore, unless there is a reason to determine otherwise, such “payment” conditions are valid and employers are not obliged to pay such regular bonus if its conditions are not satisfied.To facilitate the seamless application of the new legal principle and the updated guidelines under the Guidance, the MOEL announced that it will (i) conduct labor-management explanatory sessions and meetings, (ii) provide guidance on updating collective bargaining agreements, rules of employment and employment agreements, and (iii) assist businesses in restructuring their compensation structures.

    • Employers that have the payment of certain wage items conditioned on the employee being employed on the day of payment or on the employee having to work a minimum number of days will have to review and revise their salary system and/or prepare for potential disputes. Unions will also take a keen interest on the development of these issues.

    https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=31856

     

      On February 6, 2025, the Ministry of Employment and Labor (the “MOEL”) released an updated labor-management guidance on ordinary wage (the “Guidance”) in response to the recent Supreme Court en banc decisions overruling its previous position on ordinary wage. The Guidance aims to clarify the newly established legal principle on ordinary wage and mitigate potential disputes and confusion surrounding its application.

    On December 19, 2024, the Supreme Court issued two en banc decisions and overruled its previous decision on ordinary wage (i.e., the December 18, 2013 en banc decision, the “2013 Supreme Court Decision”) by eliminating the “fixed” element of the requirement of ordinary wage.

    The 2013 Supreme Court Decision held that wage items that are paid to employees only if the employee is employed at a particular time are not “ordinary wage” because they are neither compensation for “prescribed labor” nor meet the “fixed” requirement for ordinary wage. Although this has been considered a well-established court precedent on this issue, the Supreme Court recently overruled this position and presented a new basis for determining which wage items should be included in ordinary wage.

    The new en banc decisions abolished the “fixed” element and reestablished the definition of ordinary wage as “…compensation for prescribed labor that is paid on regular and uniform basis…” In other words, the Supreme Court held that employees who provide prescribed labor in its entirety will not be denied the inclusion of relevant wage items in ordinary wage merely because there are certain conditions attached to the payment of such wage items (e.g., the condition that the employee must be employed on the day of payment or that the employee must work a minimum number of days during the prescribed working days to receive the wage item).

    The Guidance summarizes the MOEL’s response to some of the most frequently raised questions surrounding the Supreme Court’s en banc decisions in a Q&A format. We highlight some of the key clarifications below.

    (1) Should a wage that is conditioned on current employment (i.e., employed on the day of payment) be considered ordinary wage?

  • If the wage is pre-determined in consideration of the prescribed work and is paid on a “regular” and “uniform” basis, it will fall under the scope of ordinary wage even if it is conditioned on current employment.

  • Case example: Regular bonuses paid quarterly to current employees constitute ordinary wage.

    • (2) For a new employee who has not yet become eligible to receive a regular bonus due to his/her short tenure, would the regular bonus still fall under ordinary wage?

  • If the regular bonus meets the requisite criteria and is thus treated as ordinary wage, it should be included in the calculation of ordinary wage even if the employee has not yet become eligible to receive it.

  • Case example: Even if an employee joins the company after the bonus payment date and is thus not yet eligible to receive the bonus, the annual regular bonus should nonetheless be included in the ordinary wage for the calculation of overtime work allowance.

    • (3) How should a regular bonus be factored into the calculation of ordinary wage?

  • Pursuant to Article 6, Paragraph 2, Items 5 and 7 of the Enforcement Decree of the Labor Standards Act, ordinary hourly wage shall be calculated by dividing the “annual aggregate regular bonus” by the “annual total hours for the calculation of ordinary wage.”(4) Should wages conditioned on “current employment” or the “number of completed working days” be paid in proportion to the completed service period?

  • In line with the Supreme Court decision, the validity of the conditions attached to the “payment” of a regular bonus should be reviewed separately from the question of whether it should be included in ordinary wage. Therefore, unless there is a reason to determine otherwise, such “payment” conditions are valid and employers are not obliged to pay such regular bonus if its conditions are not satisfied.To facilitate the seamless application of the new legal principle and the updated guidelines under the Guidance, the MOEL announced that it will (i) conduct labor-management explanatory sessions and meetings, (ii) provide guidance on updating collective bargaining agreements, rules of employment and employment agreements, and (iii) assist businesses in restructuring their compensation structures.

    • Employers that have the payment of certain wage items conditioned on the employee being employed on the day of payment or on the employee having to work a minimum number of days will have to review and revise their salary system and/or prepare for potential disputes. Unions will also take a keen interest on the development of these issues.

    https://www.kimchang.com/en/insights/detail.kc?sch_section=4&idx=31856

     

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