Company A has a wide range in average working hours according to season, with extended and night work during peak seasons and a lighter workload in off-seasons. Additional wages for extended and night work during peak seasons is a burden for the company, and workers even consider taking leave days during off-seasons rather than come in to work with very little to do. Under these circumstances, the company is considering adoption of a system which both labor and management can find satisfactory.
What is a Compensatory Leave System?
For companies like Company A which have a wide range of average working hours, the Labor Standards Act allows for a ‘compensatory leave system’ to alleviate the burden from paying extra wages for extended or night work and to guarantee time off for workers. A compensatory leave system grants workers leave days in lieu of extra wages for extended work, night work, or holiday work if there is a written agreement that has been concluded between the employer and the labor representative. The system offers more choice in wages and leave days to employers and workers.
A compensatory leave system can resolve problems at the workplace where trade unions demand extended/night/holiday work in order to secure extra wages. The system can also contribute to guaranteeing time off for workers and reducing the number of hours worked.
Criteria for Introduction of Compensatory Leave System
Introducing the system requires a written agreement between the employer and the labor representative, and cannot be adopted only with the consent of individual workers. This written agreement between employer and labor representative is mandatory as it is stipulated in the Labor Standards Act. “Labor representative” refers to an organized labor union that represents a majority of the workers at the business or workplace, or, if there is no such organized labor union, a person who represents the majority of the workers. “Written agreement” refers to a document signed by both parties.
Contents to be Included in the Written Agreement
The Labor Standards Act only stipulates that labor and management can introduce a compensatory leave system after a written agreement has been made, and leaves the details to the discretion of labor and management. According to guidelines from the Ministry of Employment & Labor, the agreement shall indicate whether the leave days are given according to worker requests for specific dates or dates designated by the employer, and whether the system applies to all workers or applies only to those who wish to participate. It should also be indicated whether the worker can choose between extra pay or time off. The agreement also shall indicate the days that shall be worked and the days that shall be granted as leave days.
If the agreement applies the system to all workers and recognizes only the right to use leave days for extended/night/holiday work, the employer is not obliged to pay wages instead of offering leave days.
Standards & Hours for Calculation of Compensatory Leave
Since compensatory leave is given in lieu of wages for extended/night/holiday work, the wages for such work should have the same value as the leave days. Therefore, compensatory leave would include wages for both the regular and additional work hours. For example, if a worker works 4 hours of extended work, the wage is equal to 6 hours of wage (workers get 150% of ordinary wage for extended work). Thus, compensatory leave in this case should be 6 hours of time off. This is one difference between compensatory leave and ‘substitute holiday’ which allow workers to work on holidays and take other days as leave days.
Labor and management also can include in their written agreement applicable hours for compensatory leave, such as counting the total wages as the value for calculating compensatory leave or counting only the additional wages. Of particular note is that applying a compensatory leave system to night work during contractual working hours does not align with the purpose of the law.
Granting Compensatory Leave
Compensatory leave shall be granted during contractual working hours, and workers are paid during the leave days. Labor and management can decide if the leave is granted on an hourly or daily basis. Compensatory leave can also include wages and leave. For example, 8 hours of work on a holiday requires wages for 12 hours of work during regular business days (Ordinary wage for 8 hoursⅹ150% = ordinary wage for 12 hours). Under a “wages and leave” compensatory leave system, 8 hours can be granted as leave and the remaining 4 hours paid as wages.
Unused Leave Days & Obligation to Pay
Since compensatory leave is granted in lieu of wages, employers should pay wages if workers do not take their compensatory leave. For instance, if a worker is granted 4 days of compensatory leave but took only 3 days, the employer is obliged to pay ordinary wage for the unused day.
Workers can request wages the next day after it is confirmed that the worker is unable to use the compensatory leave. Failing to pay for such unused leave is considered a legal violation. However, paying workers for the unused leave on the first payday from the day after it is confirmed that the worker is unable to use the compensatory leave is not.
The day when it is confirmed that the worker is unable to use the leave is determined by the written agreement between labor and management. If a worker leaves a company while still having unused leave days, then the employer should pay wages for that unused leave within 14 days. Statements in a written agreement on compensatory leave such as “the employer is not obligated to pay wages for leave that is unused within the eligible period for using compensatory leave,” are null and void. Unlike annual paid leave, employers must still pay wages for unused compensatory leave even if employers took measures to urge workers to take the leave.
Differentiating between Compensatory Leave & Substitute Holiday
Another paid leave system is the substitute holiday system. Substitute holiday sets a holiday as a working day and another working day as a substitute for the holiday. The law does not contain a specific clause for the system, but judicial precedent recognizes it. Stipulating substitute holiday in the rules of employment or announcing a specific date for substitute holiday (with consent from the individual worker required) is considered legitimate unless otherwise arranged. In this case, a holiday becomes a business day which makes the work on the holiday contractual work. Therefore, the employer does not have to pay additional wages for holiday work.
A big difference between the two systems is whether leave days are pre-determined or not. Days for substitute holiday should be pre-determined such as “This Sunday will be substituted by next Tuesday, so next Tuesday is a day off.” On the other hand, compensatory leave does not specify leave days, instead the intention is, for example, “This Sunday is a working day, and workers may select a working day next month for a day off.”
Alleviating the Practice of Long Working Hours
As of 2014, the annual hours worked by the average Korean worker recorded 2,057 hours, longer than any of the major OECD countries. Meanwhile, the burden of wages for extended/holiday/night work is increasing as the scope of ordinary wage is extending. Thus, companies are advised to actively monitor their compensatory leave system and ensure thorough understanding in order to reduce long working hours and the associated wage burden. Companies will thus be better able to respond to changes in the market, while workers will be better able to balance work and family life.