Wages Shifted by Unethical Employers Paid by Government
Last Year's Total Payment Amounted to 724.2 Billion Won... 2.7 Times More Than 10 Years Ago
23.3 Billion Won Paid from January to April This Year Alone... Annual Payment Amounts to 600 Billion Won

The use of the government’s substitute wage payment system, which pays workers’ wages that employers fail to provide, is rapidly increasing, leading to a swift depletion of the Wage Claim Guarantee Fund (WCGF), the financial source for these payments. The number of unethical employers who intentionally delay wage payments is rising, and as the government fails to recover the arrears after making substitute payments, the WCGF is being exhausted at an accelerating rate. Although the government covers the shortfall with taxpayer money every year, there is growing criticism about the waste of public funds, as there are no clear measures to increase the recovery rate.

According to data titled “Annual Substitute Wage Payment Status” received by Democratic Party lawmaker Kim Jooyoung’s office from the Ministry of Employment and Labor on June 22, a total of 39,858 workers received substitute wage payments amounting to 233.051 billion won from January to April this year alone. Of this, simplified substitute payments accounted for 214.03 billion won (9,649 workplaces and 37,070 workers), while bankruptcy substitute payments totaled 19.048 billion won (486 workplaces and 2,788 workers). The simplified substitute payment can be applied for when a company has not gone bankrupt but is unable to pay wages due to temporary financial difficulties, with a payment cap of 10 million won per person. The bankruptcy substitute payment, which applies when a business has gone bankrupt, has a maximum cap of 21 million won per person.

Last year, substitute wage payments reached 724.2 billion won, which is 2.7 times higher than 10 years ago (263.2 billion won in 2014). At the current pace, this year’s total could soar to 900 billion won, surpassing last year’s figure. Over the past five years (2020?2024), the annual average for substitute wage payments has been about 600 billion won.

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By industry, the manufacturing sector received the largest amount of substitute wage payments at 72.249 billion won, followed by transportation, warehousing, and communications at 4.623 billion won, construction at 3.219 billion won, agriculture at 668 million won, and finance and insurance at 264 million won. Notably, 133.827 billion won, accounting for 57% of the total, was paid in Seoul and the Gyeongin region, where population and jobs are concentrated. This was followed by Busan (32.9 billion won), Gwangju (28.5 billion won), Daejeon (18.3 billion won), Daegu (14.6 billion won), and Gangwon (4.7 billion won).

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The problem is that as substitute wage payments increase, the size of the WCGF is shrinking. In 2020, the fund stood at 679.8 billion won, but by 2024, it had dropped to 324 billion won. Even though the average annual return on fund management, which is invested in bonds and stocks, was 4.41% over the past five years, the fund has effectively been cut in half during this period.

Despite poor fund finances, cumulative recovery rate remains at 30%
Wage Claim Guarantee Fund halved in five years, yet no countermeasures

The government is filling the financial gap in the fund, caused by employers’ wage arrears, with additional budgets funded by taxpayers. In April, the Cabinet allocated an extra 81.9 billion won solely for substitute wage payments. Last year, 221.6 billion won was similarly injected during the legislative session.

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It is not easy for the government to recover the overdue wages it has paid on behalf of employers. The cumulative recovery rate remains at around 30% each year.

Yang Seungyeop, Associate Research Fellow at the Korea Labor Institute, said, "The financial condition of the fund is deteriorating. It’s to the point where I wonder if we should even tap into lottery funds," and suggested, "If the government applies the same procedures as collecting delinquent taxes to recover wage arrears, it could help replenish the fund." He added, "While there are quite a few employers who genuinely lack the ability to pay, so the recovery rate is unlikely to rise dramatically, it would send a strong warning signal to unethical employers."

Lee Byounghoon, Professor Emeritus of Sociology at Chung-Ang University, pointed out that the WCGF is a protective measure for vulnerable workers, so some level of deficit is inevitable. He said, "Wage arrears are especially common among small and micro businesses," and explained, "Since the fund was created to protect workers when employers are genuinely unable to resolve wage arrears, deficits are unavoidable."

Nevertheless, he emphasized, "If it is confirmed that a business operator has the ability to pay but is maliciously evading wage payments, the government should prioritize recovery. Beyond merely recovering arrears, there needs to be a strong effort to impose criminal penalties and eradicate the practice of dodging wage payments."