"Additional Labor Costs of 6.8 Trillion Won Arise When Conditional Bonus is Included in Ordinary Wages"

KCCI Report "Significant Financial Burden on Companies"

An analysis has emerged that if conditional regular bonuses given only to current employees are included in the ordinary wages as claimed by labor groups, companies would incur additional costs amounting to 6.8 trillion won.

The Korea Employers Federation (KEF) stated this in a report titled "Economic Costs and Ripple Effects of Including Conditional Regular Bonuses for Current Employees in Ordinary Wages," released on the 10th.

The report was prepared in light of the ongoing legal dispute involving special steel manufacturer SeAH Besteel, regarding whether regular bonuses paid only to employees currently in service should be included in the calculation of ordinary wages.

In 2013, the Supreme Court's full bench ruled against recognizing conditional payments to current employees as part of ordinary wages, but recently, lower courts have issued rulings denying this precedent.

First, based on a survey of member companies and data from the Ministry of Employment and Labor's "Survey on Working Conditions by Employment Type," KEF estimated that including conditional regular bonuses in ordinary wages would result in an additional annual labor cost of 6.7889 trillion won.

The companies affected by the inclusion of these bonuses in ordinary wages account for 26.7% of all companies, and this amount corresponds to 14.7% of the one-year net income of these companies.

Furthermore, assuming a scenario where three years' worth of retroactive payments must be made at once, the affected companies would have to pay additional labor costs equivalent to 44.2% of their total net income.

KEF explained that this amount corresponds to labor costs sufficient to employ more than 92,000 people annually and, based on last year’s figures, could provide 27.94 million won per year per person to all unemployed youth in South Korea.

According to KEF, including regular bonuses in ordinary wages would widen the total monthly wage gap between workers at workplaces with fewer than 29 employees and those at workplaces with 30 to 299 employees from the current 1,071,000 won to 1,202,000 won, an increase of 131,000 won, based on workers who benefit.

The monthly total wage gap between workers at workplaces with fewer than 29 employees and those at workplaces with 300 or more employees would also increase from 3,219,000 won to 3,517,000 won, a rise of 298,000 won.

Looking at the wage increase rates for workers benefiting from the inclusion of conditional regular bonuses in ordinary wages, workplaces with fewer than 29 employees saw only a 0.6% increase, while those with 30 to 299 employees experienced a 3.4% increase, and workplaces with 300 or more employees saw a 4.9% increase.

KEF expressed concern that if conditional regular bonuses are recognized as ordinary wages, companies will face significant financial burdens, wage disparities will widen, and the dual structure of South Korea’s labor market will deepen.

KEF advised, "Considering the burden on companies and confusion in the field, the legal principle regarding the fixed nature of ordinary wages as ruled by the Supreme Court’s full bench in 2013 should be maintained."

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