'Ordinary wage' and 'average wage' are statutorily defined terms and used as the basis for calculating certain employee benefits, such as severance pay and various types of allowance. 'Ordinary wage' refers to the fixed amount to be paid to an employee on a regular basis for the agreed/total number of working hours. It serves as the basis for calculating, for example, allowance paid in lieu of a termination notice or overtime allowance.

'Average wage' refers to the total amount of wages already paid to an employee during a certain period. It serves as the basis for calculating, for example, severance pay, temporary shutdown allowance, annual leave allowance and workers' compensation.

Much attention has recently been given to the issue of what should be included in the calculation of ordinary wages – particularly with a focus on the inclusion or exclusion of regular bonuses – because of the financial impact that the definition could have on employers.

The Ministry of Labour and Employment, through its administrative interpretations, has customarily recognised regular bonuses as part of ordinary wages only when such bonuses are paid on a monthly basis; regular bonuses paid at intervals exceeding one month are excluded. Previous case law also indicates that regular bonuses do not form part of ordinary wages.(1)

However, on March 29 2012 the Supreme Court held that regular bonuses paid commensurate with years of service on a quarterly basis should be included in the calculation of ordinary wages.(2) In this case the company paid quarterly bonuses pursuant to a collective bargaining agreement, which provided for differing bonus amounts based on the length of employment, and allowed for a pro-rata bonus for employees who resigned mid-quarter. The Supreme Court concluded that such bonuses should not be excluded from the calculation of ordinary wages just because they were paid on a quarterly basis. The Supreme Court ruled that if bonuses were paid commensurate with the period of service, there was reason to regard them as fixed wages because the payment and amount were not dependent on employee performance. Therefore, such bonuses would be classed as ordinary wages.

In light of the Supreme Court's decision, it has become more likely that if the payment of bonuses is provided for in a collective bargaining agreement or employment contract in a way that an employee can expect a guaranteed bonus, such bonuses may constitute ordinary wages.

However, the inclusion of regular bonuses in the calculation of ordinary wages is not absolute, but must be considered on a case-by-case basis. Accordingly, employers should seek advice from legal experts on their existing bonus payment scheme in order to determine whether their bonus payouts could constitute ordinary wages.

For further information on this topic please contact Sang Wook Cho, Raymond Kang or Jae Woo Park at Yulchon by telephone (+82 2 528 5200), fax (+82 2 528 5228) or email (swcho@yulchon.com, rkang@yulchon.com or parkjw@yulchon.com).

Endnotes

(1) 89DaKa2292, 94Da19501.

(2) 2010Da91046.

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