Welfare Benefits Surpass Wages... Samsung Electronics Increases 'Tax-Free' Benefits Over 10 Years

Operating Profit and Salaries Decreased, Yet Annual Growth Continues
Utilizing Tax-Exempt Internal Funds Benefits Both Labor and Management

Samsung Electronics has increased the amount spent per employee by more than 60% over the past 10 years. Employee compensation at the company can be broadly divided into salary (including retirement pay) and welfare expenses. Welfare expenses refer to money spent on benefits such as children’s tuition fees, medical expense burdens, transportation costs, various welfare facilities, and in-house club operation costs. This is a concept distinct from salary. Over the past 10 years, Samsung Electronics’ welfare expenses have nearly doubled, with an increase rate of 93%. In contrast, wages increased by 58%.

Although salaries have generally risen, they have decreased three times over the past 10 years due to economic downturns, performance declines, and the effects of wage and collective agreements. Samsung Electronics gives employees up to half of their annual salary as an Over-Profit Incentive (OPI) bonus when performance is good. Conversely, when performance is poor, the bonus is significantly reduced. On the other hand, welfare expenses have increased every year regardless of the company’s situation. Unlike salaries, welfare expenses incur less tax burden.

Samsung Electronics Chairman Lee Jae-yong visiting Samsung SDS Jamsil Campus in Songpa-gu, Seoul on August 30 last year and taking a commemorative photo with employees.
[Photo by Yonhap News]

The average salary of a Samsung Electronics employee this year is 138.95 million KRW. According to calculations based on National Tax Service standards, Samsung Electronics employees must pay an average earned income tax of 33.73 million KRW. Since the annual salary is high, the four major social insurance premiums are also considerable. Taxes are incurred when receiving salary, but welfare expenses are tax-exempt. Employees can feel greater satisfaction than the amount received because there is no tax burden. From the company’s perspective, a smaller amount of money can achieve a greater effect.

If the company provides tuition fees through the in-house labor welfare fund, it can receive tax-exempt benefits. This is because it does not correspond to earned income that the company is obligated to pay as salary. Tuition fees account for a large portion of welfare expenses. Providing welfare expenses allows broader utilization of tax-exempt benefits compared to salary payments.

Analysis of Samsung Electronics’ audit reports submitted to the Financial Supervisory Service over the past 10 years shows that operating profit per employee increased by 38% over the decade. It rose from the 200 million KRW range 10 years ago to the 280 million KRW range. During the same period, welfare expenses per employee nearly doubled, increasing from the 11 million KRW range to the 20 million KRW range. Salary (including retirement pay) increased by 58% to the 130 million KRW range. Well-performing companies generally significantly increase welfare expenses. For example, SK Hynix’s welfare expenses per employee increased by 126.6% over 10 years, reaching the 4.2 million KRW range.

It is natural that compensation increases as employees have earned more money over the past 10 years. The increase rate of welfare expenses is overwhelmingly higher than the growth rate of performance. Over 10 years, welfare expenses increased by 93%, which is 2.5 times higher than the 38% increase in operating profit. Notably, even in years when company performance and salary payments decreased, welfare expenses increased every year. Samsung Electronics’ operating profit per employee decreased three times in 2014, 2015, and 2019 over the past decade. Salaries also decreased three times in 2014, 2017, and 2019.

The labor union demands increases in tuition fees and other benefits during labor-management negotiations. Of the 50 demands the National Samsung Electronics Labor Union made to management on the 2nd, 40 were related to welfare provisions. This is due to tax reasons. A representative example is the demand to support 100 million KRW in housing costs interest-free over 20 years.

If paid as salary, taxes must be paid, but if processed as tax-exempt welfare expenses, the company only needs to pay interest costs. Both labor and management benefit. According to data from the Korea Federation of Banks, as of the 22nd, the basic interest rates for one-year fixed deposits (simple interest) at the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) range from 2.60% to 3.70%. Applying an interest rate of 3.7% to Samsung Electronics’ average annual salary of 138.95 million KRW results in 5.14 million KRW. Samsung Electronics stated, "It is difficult to confirm the detailed breakdown of welfare expenses."

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