Last March, the various political parties discussed ways to reduce working hours. According to the current Labor Standards Act, the maximum number of working hours per week is 68. Lawmakers are seeking to cut this to 52 with an eye on improving quality of life and creating more jobs.
However, the ongoing discussion seems to lack sufficient consideration of possible repercussions on industries. Concerns are quite strong that cutting the maximum working hours will result in unwanted economic side effects such as increasing production costs, lower production and the confusion caused by sudden changes to working arrangements. If companies are not given time to adjust to the reduction of working hours and fall behind in global competition, shorter working hours will likely lead to further job losses, not job creation.
Therefore, companies should be prepared beforehand by closely examining how legislative changes on working hours could impact their businesses. For this, let’s review the issues and controversies over reducing working hours and what companies should do to prepare in terms of HR management and collective bargaining.
Debate over working hours
The current Labor Standards Act stipulates a 40-hour work week, with an additional 12 hours allowed as extended work per week. The Ministry of Employment and Labor has not seen holiday work as extended work; therefore, the maximum legal limit for working hours has stretched to 68 a week – 40 hours on weekdays, 12 hours of extended work and 8 hours each on Saturday and Sunday. The Supreme Court also drew a line between extended work and holiday work, and recognized only hours exceeding an 8-hour work day during holidays as extended working hours. If an employee worked for 8 hours or less on a holiday, the hours worked are calculated as holiday working hours, not extended working hours.
Nevertheless, some lower courts have made decisions on working hours which are contrary to precedent cases and practices since 2011. These courts have ruled that employees should receive double payment (100%) for holiday work (50%) and extended work (50%) if the employees worked on holidays after working 40 hours or more during the week, which indicates that the statutory limit for working hours is 52. Currently in the Supreme Court, there are 14 cases pending regarding the weekly working hour limit and double payment for holiday work.
Meanwhile, in early 2012, the government announced its plans to consider holiday work as extended work when calculating weekly working hours. Along with these plans, revising the current Labor Standards Act is under debate in the National Assembly.
In 2015, representatives from the government, labor and management agreed through social dialogue to set the weekly working hour limit at 52. However, this tripartite stated that special extended working hours (8 hours) were needed and that the shorter working hours would be applied in a gradual manner (in 4 steps) by company size, taking consideration of possible impact on industries.
Last March, lawmakers also agreed to cut the weekly working hour limit to 52, but failed to reach an agreement on other issues such as allowing a four-year grace period for workplaces with 300 employees or fewer to have an additional 8 hours, offering double payment for holiday work (50% or 100%), and expanding flexible working hours.
Although the ruling and opposition parties failed to reach a final agreement on reducing working hours, the new government is likely to push ahead with a reduction. Therefore, companies need to be prepared if they wish to adapt smoothly to the new legislative changes.
Relevant HR measures & collective bargaining
Companies need to reform their current wage structures and HR regulations. First, the current wage calculation systems based on employee hourly rates or seniority need to be shifted toward performance-based wage systems. At the present time, workers in Korea work long hours, but labor productivity is considerably low. As of 2014, Korea’s labor productivity was equivalent to only 68% of the OECD average. Changing the current seniority-based wage structure to one that is performance-based will provide a way to reward excellent-performing employees and boost overall labor productivity.
Companies which provide more recess hours or pay more for extended/holiday work than the amount prescribed by law need to reform their internal regulations so they comply with the Labor Standards Act. Regulations on the fixed overtime allowance also need to be reviewed. If the Labor Standards Act is revised as the political parties have discussed, the current regulations recognizing 12 or more hours worked on holidays and overtime would be a violation of labor law. Hence, the fixed overtime allowance for this should be amended reflecting the real period of overtime work. In order to reduce labor costs once legal working hours are shortened, overall HR regulations and collective agreements should be reviewed and reformed according to the impending revisions to labor law.
Also, companies that run work shifts should take comprehensive steps to redesign their current systems in preparation for the shortened working hours. Such measures include recruiting and reorganizing their workforce to allow rescheduling (from a two-shift to a three-shift system, etc.), rearrangement work procedure, and increase the number of holidays and days off.
Reduction of working hours is likely to be the most significant issue in collective bargaining for the next two to three years. Unions have been demanding to have the same workload but shorter working hours without wage cuts. When the 40-hour work week was adopted in 2004, labor had the same demands when they staged strikes. However, adjustment of wages is inevitable when reducing working hours. Otherwise, labor productivity has to be improved to maintain current production volumes. In this regard, employers should not accept union demands to keep wages the same when reducing working hours.
Companies also need to reform any unreasonable clauses in their collective agreements during collective wage negotiations in preparation for the reduced working hour limit. They will need to make every effort to adjust the vested interests of their unions and their employees, to expand the performance-based wage system and improve work efficiency in order to maintain current production volumes. If trade unions refuse to veer from their vested interests and simply make excessive demands, they will not enjoy the support of many workers or union members any longer.
Shorter working hours may be an unavoidable change in Korea. Companies would do well to prepare by improving productivity beforehand. The key is worker competency and productivity, not the amount of work.