Understanding the Minimum Wage System: Key Points for Employees and Employers

The minimum wage is a system where the government intervenes in the wage-setting process between labor and management to establish a minimum wage level and legally mandates that employers pay at least that amount. Its purpose is to promote the stability of workers' lives and improve the quality of the workforce, thereby contributing to the sound development of the national economy. Beyond simply setting salary amounts, it serves as an important social safety net that ensures fairness in the labor market. To accurately understand the system, please first check these three key points. First, you must verify whether your wages are included in the scope of the minimum wage calculation. Second, you must be aware that the inclusion ratio of regular bonuses or welfare benefits changes every year. Third, you must clearly understand whether a reduced payment is possible during a probationary period and what the requirements are. Since the minimum wage is a mandatory regulation, any agreement between labor and management to set a wage lower than the minimum wage is void, and the legally established minimum wage will apply.

Minimum Wage Calculation Scope and Standard Hours

The minimum wage is basically calculated based on prescribed working hours. Prescribed working hours refer to the working hours agreed upon between the employee and the employer in accordance with the Labor Standards Act. It is important to note that additional allowances for overtime, night, or holiday work, as well as unused annual paid leave allowances, are excluded from the scope of the minimum wage calculation. A common mistake many people make is including these various allowances in the calculation, which is a clear violation of the law. When calculating the minimum wage, only items permitted by law among wages paid monthly should be aggregated and converted into an hourly rate.

Furthermore, some items specified by the Minimum Wage Act among wages paid regularly at least once a month are included in the scope of calculation. Unlike the past, when calculations were based primarily on basic salary, a certain percentage of welfare benefits and regular bonuses are now included in the minimum wage calculation. Therefore, you should carefully check your pay stub to see which items are included in the scope. Employers have an obligation to design their salary structure by checking the inclusion ratio announced by the Ministry of Employment and Labor each year. When calculating the scope, you must divide by the prescribed working hours for that month to convert it into an hourly wage; if the resulting amount is lower than the announced minimum wage, the difference must be compensated.

Employees should check whether their pay stub is simply marked as a 'total amount' or if basic salary, meal allowances, transportation expenses, bonuses, etc., are clearly distinguished. An undifferentiated salary structure can work to the disadvantage of the employee in the event of a future dispute. Employers should also manage these inclusion scopes clearly when preparing wage ledgers, as this is the first step in preventing wage arrears. In particular, even if meal or transportation allowances are tax-exempt, they must be examined carefully as they follow separate criteria for minimum wage inclusion. The key criterion for judgment is whether it is effectively a fixed wage paid regularly every month.

Minimum Wage Decision Procedure and Applicability

The minimum wage is determined by the Minimum Wage Commission under the Ministry of Employment and Labor. This commission consists of a total of 27 members: 9 labor representatives, 9 employer representatives, and 9 public interest representatives. After intense negotiations between labor and management, the minimum wage for the following year is decided and announced by August 5th each year. During this process, various economic indicators such as inflation rates, economic growth rates, and the degree of income distribution improvement are considered.

It applies to all workplaces that employ workers. It applies equally regardless of employment status, including regular employees, non-regular employees, part-timers, and foreign workers. However, there are exceptional cases, such as when a person has significantly low working capacity due to mental or physical disabilities and has received authorization from the Minister of Employment and Labor. However, since it has legal effect without exception in most general part-time or workplace situations, employers must strictly comply with it. In particular, it should be noted that it applies without exception to workplaces with one or more employees. To be excluded from the application, one must go through an official government authorization process rather than relying on simple assumptions, so employers should be careful not to judge arbitrarily.

When determining applicability, many employers argue for exemptions based on 'family management' or 'hiring relatives,' but this is a mistaken judgment. If the relationship is recognized as an employee under the Labor Standards Act, the Minimum Wage Act applies even if they are family. Also, for part-timers, the hourly minimum wage must be observed regardless of how short the working hours are. Clearly defining working hours and break times in the employment contract and transparently disclosing the process of calculating whether the hourly wage is above the minimum wage is the core of trust-based management. Even ultra-short-time workers are not excluded from the protection of the Minimum Wage Act, and the wage calculated in proportion to working hours must not be lower than the hourly minimum wage rate.

Misconceptions and Truths About Minimum Wage During Probation

Many workplaces pay less than the minimum wage under the guise of a probationary period. However, strict requirements apply here. First, a probationary period can only be set if the employment contract period is one year or longer. It is impossible to apply a reduction during a probationary period for short-term contract workers of less than one year. Also, even if a reduction is applied, at least 90% of the minimum wage must be paid, and if the employee is engaged in simple labor designated by the Minister of Employment and Labor, reduction is prohibited even during the probationary period.

In practice, many disputes arise because employers do not check in advance whether the job is eligible for a probationary reduction. Simple manual labor includes convenience store part-timers, gas station attendants, cleaners, etc. They are not eligible for probationary reductions because it is judged that they do not require significant job proficiency. Employers must reflect these legal requirements when drafting employment contracts, and employees also need the wisdom to check if their job is subject to reduction. If a reduction contract is signed despite the job being simple manual labor, that contract clause becomes void, and there is an obligation to retroactively pay the unpaid difference. Additionally, the probationary period can be set for a maximum of 3 months, and after this period ends, at least the normal minimum wage must be paid.

When operating a probationary period, it is important to note that the 'probationary period' itself must be specified in writing in the employment contract. If you only agree verbally or if there is no mention of a probationary period in the contract, a reduction is impossible. It is also recommended to guide employees in advance on the process of evaluating work attitude or performance during the probationary period to decide on permanent employment. This serves as a guideline for employees to adapt to their work and acts as a mechanism for employers to increase the efficiency of personnel management. Keep in mind that since dismissal notice procedures under the Labor Standards Act must be followed even if the employment contract is terminated during the probationary period, the probationary period is not a period of unlimited freedom to dismiss.

Response Measures and Checklist for Minimum Wage Violations

Violating the minimum wage can result in imprisonment for up to 3 years or a fine of up to 20 million KRW. If an employee discovers that they are being paid less than the minimum wage, it is recommended to politely inform the employer and request correction. It is possible that it is a simple oversight. If it is still not corrected, a complaint for wage arrears can be filed through the Ministry of Employment and Labor's civil service office. In this process, it is most important to secure supporting documents such as pay stubs, employment contracts, and working hour records in advance. Since wage arrears are a serious matter that can lead to criminal punishment, employers should transparently manage the basis for salary calculations at all times.

The checklist for employers is as follows: 1) Are you aware of the announced minimum wage amount? 2) Are the items within the scope of inclusion clearly distinguished on the pay stub? 3) When applying a probationary reduction, did you confirm whether the contract is for one year or more and whether it is simple manual labor? 4) Did you exclude additional allowances from the minimum wage calculation? 5) Have you updated the inclusion scope regulations that change every year? Regularly checking these items alone can prevent most legal disputes. Do not forget that the minimum wage is the minimum promise to maintain trust between labor and management. It is also important to maintain legal validity by renewing employment contracts or re-signing annual salary contracts whenever minimum wage increases are reflected.

Finally, since the minimum wage changes every year, you should always check the latest announcements. Bookmark the Ministry of Employment and Labor website or the official Minimum Wage Commission website, and check the minimum wage applicable for the next year announced after August each year in advance so that there are no setbacks in business operations or household economic planning. For complex matters where legal disputes are expected, it is wise to seek advice from experts such as labor attorneys. Receiving basic legal counseling through the Ministry of Employment and Labor Counseling Center (1350 without an area code) is also a good method. As labor law is the minimum mechanism to protect the socially vulnerable, both employers and employees need to maintain an attitude of mutual respect and compliance with relevant regulations.