The Supreme Court has recently ruled that certain “non-fixed” wage items (i.e., whose payment is subject to specific preconditions) must be considered as part of “ordinary wages” paid to employees. Consequently, other employer payments to employees that are defined in terms of ordinary wages may increase going forward.
In a ruling released on December 19, 2024, the Supreme Court partially reversed its 2013 decision that a wage item must be paid in a regular, uniform and fixed manner in order to be considered as part of ordinary wages. The new ruling eliminates the requirement that the payment be fixed, meaning that compensation that is paid regularly and uniformly for an employee’s regular contractual work, but is subject to preconditions such as continued employment up to the payment date (“payment date requirement”) or a minimum number of days worked during the payment period (“service period requirement”), must be considered ordinary wages. According to the court, the new ruling applies prospectively, with the exception of pending lawsuits on the same issue, to which it may apply retroactively.
Some Korean companies have had a long practice of paying a significant part of employees’ compensation through regular guaranteed bonuses that have been excluded from ordinary wages, consistent with the court’s 2013 ruling. The new broader definition of ordinary wages may increase employer labor costs and liabilities related to payments that are calculated based on ordinary wages, such as overtime, pay in lieu of notice, pay for unused leave and retirement/severance benefits. Employers should consult with their legal counsel on the implications of the ruling and review their compensation policies to ensure that they remain in compliance.
