10 Trillion Won Corporate Welfare Fund to Use 30% During Disasters Like COVID-19

Ministry of Employment to Reannounce Enforcement Decree and Rules of the Labor Welfare Basic Act on the 14th
Dispatch and Subcontracted Workers Must Receive at Least 50% of the Primary Contractor Workers' Benefit Amount

[Asia Economy Reporter Kim Bo-kyung] Legal grounds will be established for companies to additionally use the 'In-house Workers' Welfare Fund' for employee welfare during disaster situations such as the novel coronavirus infection (COVID-19). The In-house Workers' Welfare Fund, introduced in 1983 and accumulated by domestic companies to date, has exceeded 10 trillion won. However, controversy is expected as there is a prerequisite that a portion of the amount used must be spent on the welfare of dispatched and subcontracted employees.

On the 14th, the Ministry of Employment and Labor announced the legislative notice of the Enforcement Decree and Enforcement Rules of the Framework Act on Workers' Welfare, allowing up to 30% of the basic property (reserve funds) of the In-house Workers' Welfare Fund to be used when a large-scale disaster occurs or when the employer faces managerial difficulties. A ministry official stated, "As the number of companies struggling due to the COVID-19 situation increases, contributions to the fund have decreased, and there is a risk that worker welfare projects may be reduced or suspended, prompting us to pursue amendments to the law."

The In-house Workers' Welfare Fund system refers to a system where the employer contributes a portion of profits to create a fund used for worker welfare projects. It is used for workers' housing purchase subsidies, scholarships, disaster relief funds, maternity protection, and work-family balance expenses, among others, to stabilize workers' lives and improve welfare. From the employer's perspective, contributions to the fund are exempt from corporate tax, and workers also receive tax benefits on the goods and money supported through the fund. For example, if a workplace without an In-house Workers' Welfare Fund provides tuition support, it is combined with earned income and increases earned income tax, but if tuition support is provided through the fund, workers can enjoy benefits without tax burdens.

As of the end of 2018, 1,672 companies had established In-house Workers' Welfare Funds, with the total accumulated basic property amounting to 10.7845 trillion won. The reason for the large accumulation of reserve funds is that the current law strictly limits the annual usage cap of the fund for worker welfare projects. Large companies can use up to 50% of the fund contributions for the year, and small and medium enterprises (SMEs) up to 80%, with the remainder incorporated into the basic property. The basic property is managed through financial product investments to ensure stable and sustainable welfare projects.

Through this amendment, the Ministry of Employment and Labor allows up to 30% of the basic property to be used only when a large-scale disaster such as COVID-19 occurs or when the employer faces managerial difficulties. Managerial difficulties include ▲an increase in average monthly inventory by 50% or more compared to the previous year or ▲a decrease in production volume by 15% or more. The ministry initially announced a legislative amendment on July 6 allowing up to 30% of the total basic property to be used in cases of managerial difficulties, but after reflecting the opinions of the Federation of Korean Trade Unions, it re-announced the legislation including provisions for use during disaster situations.

The issue lies in the prerequisite condition for using this basic property. At least 50% of the benefit amount per worker in the workplace must be used for the welfare of subcontracted and dispatched workers. For example, if the benefit amount per worker at the primary contractor (large company) is 1 million won, at least 500,000 won per worker at the partner company (SME) must be mandatorily spent. A ministry official explained, "This restriction on the use of the basic property is to prevent the welfare gap between large and small-medium enterprises from widening if the restriction is lifted unconditionally."

The business community argues that if profits decrease due to basic property expenditures, it could have a long-term negative impact on worker welfare. It is also questionable whether primary workplaces in difficult management crises have the capacity to use the fund for dispatched and subcontracted workers. A Korea Employers Federation official said, "If the basic property can be depleted every time a disaster occurs, the sustainability of the fund will be compromised, and the capacity to provide welfare to workers will be weakened," adding, "Additional measures such as temporarily relaxing regulations on fund usage for one year are necessary."

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