Opposition from Business Community to Bill on Severance Pay for Less Than One Year of Work, Citing "Employment Avoidance" Concerns

KCCI Submits Opposition to Labor Standards Act Amendment on 23rd
"Contrary to the Essence of Retirement Benefit System... Side Effects on Personnel Management"

KCCI CI (Photo by KCCI)

[Asia Economy Reporter Kim Ji-hee] The Korea Employers Federation submitted its opposition to the legislation regarding the "Partial Amendment to the Employee Retirement Benefit Security Act," which was introduced by Representative Lee Su-jin of the Democratic Party of Korea, to the National Assembly on the 23rd. The proposed amendment includes provisions to grant retirement benefit entitlement to employees with continuous service periods of less than one year and those working less than 15 hours per week, who are currently excluded from retirement benefit payments under existing law.

In its statement, the Federation said, "Shortly after the opening of the 21st National Assembly in June, 17 Democratic Party lawmakers, including Representative Lee, proposed an amendment mandating employers to pay retirement benefits to employees with continuous service periods of one month or more, regardless of prescribed working hours." They argued, "This directly contradicts the essence of the retirement benefit system, which is to reward long-term service, and combined with frequent employee turnover and moral hazard, it causes adverse effects on corporate personnel management." They added, "The burden of labor costs would be concentrated on small and micro enterprises and small business owners, raising concerns about a reduction in employment opportunities for vulnerable worker groups."

The Federation pointed out, "Although it is a discretionary system, countries like Japan and Germany, which operate retirement benefit systems fully borne by companies like Korea, exclude employees with less than one year of service from eligibility." They noted, "The current level of retirement benefit payments in Korea is already excessive compared to global standards, and expanding the scope of eligible recipients could impose an even heavier burden on corporate management."

They further emphasized, "The period of less than one year after new hires in general companies corresponds to the time for education and training as part of the company's investment in human capital for full practical deployment." They stressed, "Forcing long-term service rewards during this initial stage of less than one year, where mutual trust is still being established and before expected productivity is met, does not align with corporate personnel management practices or the principle of good faith."

According to the Korea Employers Federation's 2016 survey on new employee recruitment, the early resignation rate within one year for college graduate new hires was 27.7%. Especially in workplaces with fewer than 300 employees, this rate rises to 32.5%. This could exacerbate difficulties for small and medium-sized enterprises facing severe recruitment challenges, and companies might expand hiring experienced workers instead, making it even harder for young people to enter the labor market, the Federation explained.

Moreover, the Federation estimates that the proposed amendment would increase the annual number of retirement benefit recipients by about 6.28 million and raise additional corporate retirement benefit costs to approximately 6.7092 trillion won. They argue that expanding the scope of retirement benefit payments could lead to reduced new hiring and wage adjustments for new employees. Considering that 78.5% of retirees with less than one year of service work at businesses with fewer than 300 employees, the burden on small and micro enterprises and small business owners would be further intensified.

The Federation stated, "Despite the amendment's intent to protect vulnerable worker groups, the additional labor cost burden could lead to employment avoidance, thereby reducing employment opportunities for vulnerable workers such as youth, women, and the elderly who engage in short-term part-time jobs of less than one year or seek voluntary and temporary economic activities." They concluded, "Given the worst management and employment crisis faced by companies due to the COVID-19 pandemic, this amendment should be withdrawn."

This content was produced with the assistance of AI translation services.