Business measures regarding ordinary wage calculation

A problem in workplaces is appearing due to a misinterpretation of a recent ruling by the Supreme Court that indicated that fixed bonuses at a certain company should be included in ordinary wage calculation. Some trade unions are demanding that fixed bonuses be included, and a push for this seems to be gradually spreading. However, the Supreme Court’s ruling was about one specific company, and application to all companies is not appropriate. Possible rulings on similar cases in the future may result in other allowances such as payment for overtime, night, and weekend work being calculated as ordinary wages, resulting in an enormous increase of the financial burden on companies.

Allowances and bonuses, as defined under the Labor Standards Act, are determined based on ordinary wages. Therefore, increasing ordinary wages puts a greater burden on companies by increasing the cost of labor. Of particular note, increasing ordinary wages through inclusion of fixed bonuses also increases other related allowances such as payment for overtime, night shift, and weekend work. This will also increase indirect costs, such as payments upon retirement and premiums for the 4 social insurances, by increasing total and average wages.

The Supreme Court ruling is only for a certain company in particular circumstances, and cannot be applied to all companies. If the ruling is applied as a general case, companies should prepare for an extra burden by reconstructing their wage systems.

Law	Administrative Interpretation	Judicial Precedent
The term “ordinary wages” means hourly wages, daily wages, weekly wages, monthly wages, or contract wages which are determined to be paid periodically or in lump sum to a worker for his/her prescribed work or entire work. (Article 6(1) of Enforcement Decree of Labor Standards Act)	Wages used for the calculation of ordinary wage are base wages and fixed wages which are determined to be paid periodically or in lump sum for 1 wage calculation period (generally 1 month), set out in labor contract, the Rules of Employment, or collective agreement. (Article 3(1),  Established Regulations of Ministry of Employment and Labor)   <Money and valuables not included in ordinary wage>   Wages that are determined to be paid in excess of 1 wage calculation period (generally 1 month): Regular bonuses, physical training allowance, profit sharing, incentives, etc.	◦ Regular bonuses which are paid every quarter in different pay rates according to service period (6 months, 3 years, 8 years, 12 years), and paid under monthly calculation for workers retired  during the bonus payment period, are included in ordinary wage. (Supreme Court, 2010-91046)   ◦ Regular bonuses which are paid every even numbered month in different pay rates according to service period (1 month, 3 months, 6 months) and paid under daily calculation for workers taking leaves, are included in ordinary wage. (Inchon Regional Court, 2011-6096)