"By Next Year, All Foreign Workers Will Leave"... No Cause for Laughter for SMEs

8-Hour Additional Overtime System Expires at Year-End... Auto Parts Industry on Alert
Foreign Workers Prefer Extra Shifts... Cannot Retain with 52-Hour Workweek
Even with Auto Industry Recovery and Increased Work, Sales Hit Due to Inability to Handle Volume
91% of Small Businesses with Fewer Than 30 Employees Highly Dependent on Additional Overtime System

A plating company that promoted factory automation due to labor shortages.

[Asia Economy Reporter Kwak Minjae] Company A, an auto parts manufacturer located in Namdong Industrial Complex, Incheon, is facing the departure of a significant number of its foreign workers as early as next year. Foreign workers prefer overtime work, but with the expiration of the 8-hour additional overtime system at the end of this year, there will be no way to assign extra work even if desired. This system was introduced in 2018 alongside the 52-hour workweek to ease the impact on small businesses by allowing companies with fewer than 30 employees to permit 8 hours of additional overtime per week.

Company A has been working 2.5 hours of overtime daily to handle production volume. The CEO of Company A said, "Foreign workers often say they will leave the company if they are not given overtime. We are already short-staffed, and if six out of the total 17 employees who are foreign workers leave, it will be practically impossible to handle the workload," adding, "If the volume we can handle decreases, we expect a sales hit of about 30%."

As the expiration of the 8-hour additional overtime system approaches at year-end, the auto parts industry is on high alert. There is growing concern that without the ability to work extra hours, they may not be able to cope with increasing production volumes. In fact, automobile production showed an upward trend last month. According to the ‘September 2022 Automobile Industry Trends’ report released by the Ministry of Trade, Industry and Energy on the 14th, last month’s automobile production increased by 34.1%, domestic sales by 23.1%, and exports by 27.5%, all showing growth in preliminary figures.

Even if the automobile industry enters a recovery phase, auto parts companies find it difficult to expect increased sales. While finished car manufacturers could endure to some extent despite interest rate hikes due to a backlog of orders, parts manufacturers are struggling to pay interest, making it practically impossible to hire new workers to handle the increased workload. Lee Myungjae, CEO of Company B, an auto parts manufacturer located in Siheung, said, "We took out loans to purchase factory land and machinery, but due to interest rate hikes, the monthly interest burden has doubled from 5 million won to 10 million won," adding, "Sales dropped by 50% during the COVID-19 period, and operating profits have been in the red continuously. It is difficult to even retain existing staff, so how can we hire new people?"

[Image source=Yonhap News]

In fact, small and medium-sized enterprises (SMEs) with fewer than 30 employees show a high dependence on the 8-hour additional overtime system. According to a survey report released by the Korea Federation of SMEs on the 10th, 91% of the 400 companies with fewer than 30 employees that responded said they rely on the 8-hour additional overtime system. 75.5% answered that they have no countermeasures if the system expires. Regarding anticipated problems upon the system’s expiration, 66% of the responding companies said, "Even if work increases, we cannot work more, leading to decreased operating profits." Next, 64.2% cited "loss of existing workers and worsening labor shortages due to reduced overtime options," and 47.2% mentioned "breach of delivery deadlines causing contract termination and compensation claims." Experts urge a temporary extension of the expiration period, as internal combustion engine auto parts companies struggling amid the accelerating electric vehicle industry find it difficult to hire new workers.

Researcher Noh Minseon of the Korea Institute for Small and Medium Enterprises and Startups said, "Small auto parts companies, already at their limit due to the global auto industry downturn and the triple challenges of high interest rates, high inflation, and a strong dollar, have reduced investment capacity and find it difficult to expect new workforce inflows due to the shift to electric vehicles, making them highly dependent on this system," adding, "In the short term, it is necessary to extend the expiration deadline, and in the long term, efforts to improve productivity in response to reduced working hours should be strengthened."

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