The Supreme Court recently rendered a series of meaningful decisions, which set a standard for calculating hourly wages for purposes of determining whether minimum wage violations have been committed. 

Background:

To determine whether wages, which are commonly paid in the form of monthly salaries, exceed the minimum wage under the Minimum Wage Act, the following calculation should be made:
 

• Among the wage items paid monthly, divide the sum of wages or allowances paid regularly or uniformly at least once a month under a predetermined payment rate and conditions (the “reference wages”) by prescribed monthly working hours.  

• Then, this hourly wage should be compared to the applicable minimum wage for that year.  However, it should be noted that in the past, the scope of reference wages and the number of working hours used in the calculation have been subject to different interpretations and controversies.

Details of the Recent Supreme Court Decisions:

The Supreme Court has clarified in a series of decisions that to determine minimum wage violations, weekly holiday allowances should be included as part of the reference wages, but weekly holiday hours should not be included in the number of working hours used to determine the reference wages. 

If an employee receives wages in the form of a monthly salary, it would include not just compensation for the work performed by the employee in a given week, but also include compensation for paid holidays (i.e., weekly holiday allowances).  

The Supreme Court has repeatedly held in its decisions¹ that all components of a monthly salary, including weekly holiday allowances, should be used to calculate reference wages to determine potential minimum wage violations, and that there is no reason to exclude weekly holiday allowances from reference wages. 

On the other hand, when dividing monthly reference wages by working hours to determine the hourly wage, whether the weekly holiday hours² are included in the working hours has been called into question.  The Ministry of Employment and Labor (“MOEL”) continued to maintain its position that weekly holiday hours must be included in the number of working hours used to determine the hourly wage rate.  However, earlier in 2018, the Supreme Court held that only the actual prescribed working hours should be used for this calculation, and the paid weekly holiday hours are not included.³  

As such, it became clear that to convert an employee’s monthly salary to an hourly wage for reference to the applicable minimum wage, reference wages (including weekly holiday allowances) are divided by the prescribed monthly working hours.

Significance:

Nonetheless, in response to the controversy on whether weekly holiday hours should be included in the number of working hours used in the calculation discussed above, the MOEL pre-announced legislation on August 10, 2018, that would amend the working hours to the “sum of: (i) weekly prescribed working hours; and (ii) hours other than prescribed working hours, which are deemed as paid.”  The MOEL’s position is in direct opposition to the recent Supreme Court decisions.  

On December 24, 2018, the MOEL announced a proposed amendment that partially amends the Enforcement Decree.  According to the proposed amendment, “non-statutory paid holidays” are excluded from the calculation of the minimum wage, but the position regarding weekly holiday hours, which were the key issue of the aforementioned Supreme Court Decision, are maintained. 

For your reference, the minimum wage for 2019 is KRW 8,350 per hour.  Using the MOEL’s preferred calculation formula, if an employee works five days a week, and the rest of the week consists of one unpaid day off and one paid holiday (which is required by the LSA for employees who work a full weekly schedule), and receives a monthly salary of KRW 1,500,000, the hourly wage of the employee would be KRW 7,177 (1,500,000/209).  

This hourly rate would be in violation of the minimum wage requirement under the MOEL standard, but if calculated according to the above Supreme Court decisions, the hourly rate would be KRW 8,640 (1,500,000/173.4), which would not violate the minimum wage requirement.