Ordinary wage

The ordinary wage (통상임금/通常賃金) is referred to as the wage which is regularly and indiscriminately paid to a laborer. It is called hourly/daily/weekly wage or salary, which is the base for the calculation of such benefits as overtime and holiday allowance, and dismissal advanced notice allowance.

The term "wage" under the Labor Standards Act means wages, salaries and any other money and valuable goods an employer pays to a worker for his/her work, regardless of how such payments are termed. According to the Presidential Decree of the Act, the ordinary wages means hourly wages, daily wages, weekly wages, monthly wages, or contract wages which are determined to be paid periodically or in lump sum to a worker for his/her prescribed work or entire work.

Key words
ordinary wage, bonus, overtime allowance, regular, indiscriminate and fixed basis

What was at issue?
Until 2012, bonuses were not included in regular wages under the guideline of the Ministry of Employment and Labor. As a result, until then, the employers had established a number of allowances to meet the employees' demand for wage increase while keeping the base salary intact, thus distorting the wage system. Accordingly the debate on whether the periodic bonuses are included in the ordinary wages followed by the related judicial rulings and administration interpretation. It became a center of the storm in the businesses and industries in Korea.

The disputes over the calculation of ordinary wage caused an avalanche of lawsuits at innumerous workplaces. Trade union-supported collective lawsuits argue that the already paid ordinary wage did not include the fixed bonus, and accordingly the overtime allowances for the past three years should be recalculated and the extra money is to be paid in due course.

Previous Supreme Court case
In March 2012, the Supreme Court ruled in a lawsuit filed by the labor union of a local bus company that bonuses paid regularly should be counted as part of regular salary.

A four-justice panel of the Supreme Court held:
 * "Article 27 of the collective agreement between Geum Ah Limosine, the employer, and the trade union provides "Payment of bonus shall be made to the employees as of the end of each quarter. The retired are paid on a monthly basis." It means that the previous employees who resigned in-between are not excluded from the payees of bonus. . . Such bonus as is paid in proportion to the period of employment just like the base salary even though the previous employee resigned during the period when the bonus was regularly paid seems to be the ordinary wage which is paid periodically and uniformly regardless of the job performance of the employees."

According to the Supreme Court Decision 2010Da91046 the quarterly bonuses on a regular basis is equivalent to the ordinary wages, because it is a wage item which is determined to be paid regularly and uniformly to a worker. In this case, Plaintiffs, former bus drivers of Defendant, argued that the ordinary wage should be calculated including the long-service allowance (근속수당/勤續手當) and bonus (상여금/賞與金) in addition to the basic hourly wages (기본시급/基本時給). The court of first instance agreed with the Plaintiffs, but the appellate court said only the long-service allowance is included.

Aftermath of previous Supreme Court ruling
In his comment on the Law Times article, Attorney Dae-Hee Kim of Logos explained:
 * Under the Labor Standards Act, the ordinary wage means hourly/daily/weekly/monthly wages or salaries, or contract wages which are paid on a regular and indiscriminating basis to a worker for his/her prescribed work or entire work. The court rulings have added one more criterion such as regular, indiscriminate and fixed (regardless of retirement) basis.
 * In the Geum Ah Limosine case, while the bonuses were paid to the incumbent employees as of the end of each quarter, the employees who retired in-between were paid on a monthly basis. It means the bonuses are paid to the retirees in proportion to the period of their working, not to mention their job performance and achievement. And such bonuses fall under the ordinary wages paid on a regular, indisriminating and fixed basis.
 * On the contrary, the real bonus which are paid in view of the overall corporate performance, individual employee's achievement, etc. cannot be a wage to be paid as a compensation for his/her prescribed work. See Supreme Court Decision 90DaKa6948.

Professor So-Young Kim argued that the current wage system which is dualized into the ordinary wage and the average wage should be improved with a classifying criteria in rationality and fairness because it is very ambiguous and difficult to calculate the amount of a worker's ordinary livelihood wages.

While the news spread out in the industries, trade unions of Daewoo Shipbuilding & Marine Engineering (DSME), Hyundai Rotem, S&T Heavy Industry, Doosan Infracore, Ssangyong Motor, Hyundai Motors, Kia Motors, etc. are filing lawsuits against the employers which usually ordered overtime work at night and holidays.

Responses from the Industries
Take an example of GM Korea which was defeated in a series of lawsuits filed by its trade union. The disclosure that GM Korea had to reserve 810 billion won as long-term accrued charges (미지급비용/未支給費用) astonished the business circle. It means that other companies under like situations would face similar financial burdens. Analysts commented such financial blows would aggravate the productivity and competitiveness of local industries in the midst of overall slowdown of the nation's economy.

The Korea Employers' Federation (한국경영자총협회) argued in the report, "The Social Influence of Expanded Ordinary Wages (통상임금 범위 확대에 따른 사회적 영향)", that, if bonuses are calculated into the ordinary wages, the increase of wages to be paid to employees additionally by the whole industries would amount to 38.5 trillion won.

Concerns are mounting over possibility of an ordinary wage rise, which could add to the financial burden on corporations and ultimately reduce employment. The wage hike also might put a stumbling bloc on President Park Geun-hye’s initiative to raise the employment-to-population ratio to 70 percent.

The Korea Chamber of Commerce and Industry (KCCI 대한상공회의소) submitted a petition expressing such concern before the Supreme Court. In a survey of 126 small and midium-sized manufacturers conducted by the KCCI, 65.1 percent of respondents said they would reduce new hiring if ordinary wage is upped. 19.8 percent of the surveyed said they would even trim the existing workforce on their payroll. In sum, 84.9 percent of respondents said changes in ordinary wage would negatively affect employment.

The companies would cut jobs because expanding ordinary wages increases labor cost. Another survey of 1,000 companies with 100 or more staff on their payrolls conducted by the Ministry of Employment and Labor found 79.9 percent of the companies estimated a labor cost rise if periodical bonuses are factored into ordinary wages. The respondents who said labor cost would increase estimated an average 16.3 percent rise.

In May 2013, Minister of Employment and Labor Phang Ha-nam proposed to solve the dispute over wage calculation through the tripartite government-labor-management dialogue platform. But unfortunately the firm position of each group has been in parallel each other. Only the court ruling is expected to provide a solution on this matter.

Latest Supreme Court full bench ruling
On September 5, 2013, the Supreme Court held hearings on a case concerning ordinary wages in open proceedings. The trial was presided over by the Chief Justice, and all the 13 justices were seated.

Finally, on December 18, 2013, the Supreme Court full bench rendered two conclusive decisions that various regular payments such as bonuses, corporate payments into employees' four state insurance plans, expenses for meals and commuting should be included in calculating ordinary wages. The ruling is expected to bring major new costs to companies, especially in retirement payments, overtime and payments for working on holidays, which are all established on the ordinary wages. The Supreme Court excluded vacation and festive holidays allowances, for example, because they do not necessarily apply to all employees at all times.

However, the Supreme Court held back from forcing the company to pay three years’ worth of retroactive pay on the basis of the principle of trust and good faith (신의성실의 원칙). It said that in principle the back payments should be made, but if the company could prove that the retroactive payments would cause such a severe financial blow that the company’s existence was threatened, it need not pay.

Supreme Court pointed out that the employees' argument of invalidity of the agreement between labor and management and subsequent claims for additional legal allowances would not be accepted unless the following three special conditions are met:
 * employees' claims are related only with regular bonuses (정기상여금에 관한 청구일 것);
 * the agreement between labor and management on the wage increase has been concluded on the basis of the aggregate wage amount regardless of the nature of the regular bonus (임금총액을 기준으로 임금협상을 단행했을 것); and
 * the management's unexpected financial burden as a result of the recalculation of such regular bonuses into the ordinary wage has put material managerial difficulties on the company (사용자는 예측하지 못한 새로운 재정적 부담을 지게 되어 중대한 경영상의 어려움을 초래하게 될 것) while the employees gain windfall profits after taking into consideration overall situation of the company (임금협상의 실태, 피고가 부담하게 될 추가 법정수당액, 전년도 대비 실질임금 인상률, 피고의 재정 및 경영상태, 상여금의 구체적 지급 방식 등을 종합적으로 고려할 것).

Prospects
Analysts say the Supreme Court decision gives some relief to companies that have expressed grave concerns over the extra costs they would have to shoulder. But, going forward, unions are surely going to demand the recalculation of ordinary wages. Many will demand retroactive payment by filing lawsuits against their employers.

Therefore, a uniform rule concerning what kind of allowances should be included into an ordinary wage is in great need. Actually the Ministry of Employment and Labor and the Tripartite Commission (노사정 위원회/勞使政委員會) have started to study how to advance the wage system. Also two or three bills to revise the Labor Standards Act have been proposed by lawmakers. Otherwise, an increasing number of businesses are supposed to adopt the so-called annual salary system (연봉제/年俸制) subject to not-so-easy labor-management agreement or compromise.