Ordinary Wage – Labor InFocus

After the Supreme Court and other lower courts ruled last year that “regularly paid bonuses are included in the calculation of ordinary wage”, the controversy surrounding the issue has been heating up in workplaces across Korea. Ordinary wage is a ‘wage which has been paid ordinarily’ and serves as the standard for various statutory allowance calculations.

[Table 1] Criteria for Calculation of Statutory Allowances

Calculation based on ordinary wage	Calculation based on average wage
◇ Allowance for dismissal without notice in advance (Labor Standards Act Article 26) ◇ Allowance for extended work, night work and holiday work (Additional payment of 50% or more of ordinary wage, Labor Standards Act Article 26) ◇ Other allowances stipulated in the law	◇ Retirement benefits (Employee Retirement Benefit Security Act Article 8) ◇ Accident compensation for items such as inability to perform work, disability, funeral expenses etc. (Labor Standards Act Article 79~85) ◇ Limitation on wage reduction (Labor Standards Act Article 95)
◇ Allowances during suspension of business (Labor Standards Act Article 46), Annually paid leave (Labor Standards Act Article 60): average wage or ordinary wage

The term “Ordinary wages” was first introduced in 1953 as a standard for calculating additional allowances for extended work and annually paid leave. In 1982, a definition of ordinary wage was added in the Enforcement Decree of the Labor Standards Act. According to the Enforcement Decree, “Ordinary wages” means hourly wages, daily wages, weekly wages, monthly wages or contract wages which are determined to be paid periodically and uniformly to a worker for his/her prescribed work or entire work (Article 6). The scope of ordinary wage began to take shape after establishment of the Guidelines for Ordinary Wage Calculation in 1988.
Based on the Enforcement Decree and MOEL regulations, administrative interpretation recognized ordinary wage as a wage given to workers ① regularly in 1 unit of wage payment (every month), ② uniformly, ③ in a fixed amount, ④ for his/her prescribed work. Judicial rulings shared this view on ordinary wage until the mid 1990s. At that time, courts began to rule that living expenses or welfare paid for a period exceeding 1 payment unit are also ordinary wages if these are paid regularly, uniformly and in a fixed amount.

[Table 2] Court Rulings on Regularly Paid Bonus

Recognized as ordinary wage	Guma Limousine (Supreme Court, 2012) GM Korea (Seoul High Court, 2013) TATA Daewoo (Seoul Central District Court, 2013) etc.
Not recognized as ordinary wage	Medical Insurance Union (Supreme Court, 1996) Driving Academy (Supreme Court, 2007) Samhwa Express (Incheon District Court, 2013) etc.

Business proposed to revise the current ‘Enforcement Decree of the Labor Standards Act’, citing that, if regularly paid bonuses are included into the calculation of ordinary wage, it would result in an increase of labor costs (estimated at 34 billion US$) as well as serious job losses (estimated at 370,000 jobs).

[Table 3] Ongoing Lawsuits Regarding Ordinary Wage

verview	Among 9,580 workplaces with more than 100 employees, 135 workplaces (1.41%) are currently being sued for ordinary wages (May 2013) * by respective umbrella union, 58 of these lawsuits have been put forward by the FKTU, 51 by the KCTU and 26 by others.
By size	Mostly large enterprises such as GM Korea
By industry	Transportation: 92 workplaces or 68.1% Manufacturing: 34 workplaces or 25.2%

Meanwhile, labor is demanding that the Ministry of Employment and Labor modify its guidelines on ordinary wage calculation in accordance with the recent Court rulings. In addition, as labor tries to politicize the issue of ordinary wages, some have filed lawsuits demanding that their employers pay additional allowances over the past three years by including bonuses as ordinary wages.

Currently, a revised bill to the Labor Standards Act, which includes regularly paid bonuses and other allowances in the calculation of ordinary wage, has been submitted to the National Assembly. While the opposition Democratic Party says the Court’s decision should be reflected in the related law, the ruling Saenuri Party remains more cautious, stating that the ordinary wage issue needs to be addressed through tripartite agreement in the Economic and Social Development Commission and after sufficient field research.

The government also agrees that consultation with experts and social dialogue is essential to address this issue; however, it is taking a passive approach to the demand for immediate change to the current labor law. In the field of academia, though some are divided on the interpretation of this issue, there is a clear consensus that the definition of ordinary wage in the law should be clarified and the current complex wage system should be simplified as well.

In the coming days, conflicts over the ordinary wage are expected to continue. Fortunately, in some workplaces, labor and management are making efforts to resolve this issue on their own. At the workplace level, calculation of ordinary wages and wage system reform are expected to be actively discussed in collective bargaining. However, in the public sector lawsuits related to ordinary wage are likely to increase.

Enterprises in Korea are advised to take the ordinary wage issue as an opportunity to establish a more future-oriented and reasonable wage system. When improving the wage system, enterprises should consider all the various factors, such as the decisions of the Supreme Court, existing labor practices and their potential impact on wages, working hours and overall employment.

The Supreme Court is also well aware of current conflicts and the confusion over the ordinary wage issue and therefore this issue is expected to be addressed though a full-member court comprising all of the Justices. Business expects the Supreme Court to fully consider existing labor practice and the reality of Korea’s industrial situation, and then make a reasonable decision on the ordinary wage issue in accordance with the clear principles of law.