Hello, this is attorney Choi Jong-ha of Cheongchul Law Firm.

Every year when the minimum wage is announced, many companies quickly conclude that their employees’ monthly pay already clears it. However, minimum wage compliance is not judged by total monthly pay. It is determined by converting only the wages that fall within the statutory scope into an hourly amount and comparing that figure with the minimum wage. Unless employees’ pay far exceeds the minimum wage, a careful check is necessary.

So which wages count toward the ‘minimum wage’? Wages paid regularly at least once a month are in principle included in the minimum wage, but three categories are excluded.

First, wages other than those paid for contractual working hours or contractual working days are excluded. Article 2(1) of the Enforcement Rules of the Minimum Wage Act (시행규칙 제2조 제1항) lists wages for overtime and holiday work, premium pay for overtime, night and holiday work, and allowances for unused annual paid leave, among others.

Workplaces that use schemes such as fixed overtime allowances should pay particular attention to this exception. A fixed overtime allowance is a useful tool for reducing the cost of overtime that recurs every month, but if the comparison with the minimum wage, which rises every year, is neglected, it can easily become the cause of a Minimum Wage Act violation.

Second, a certain ratio of bonuses and similar wages prescribed by Ordinance of the Ministry of Employment and Labor is excluded. Article 2(2) of the Enforcement Rules of the Minimum Wage Act (시행규칙 제2조 제2항) specifies bonuses, incentive pay, efficiency allowances and long-service allowances calculated on grounds spanning more than one month, as well as diligence allowances paid according to attendance records over a period exceeding one month.

Third, among wages paid for employee welfare such as meal, lodging and transportation costs, wages paid in kind rather than in cash are excluded, as is a certain ratio of those paid in cash.

The ‘certain ratio’ in the second and third categories was set to decrease in stages under the 2018 amendment to the Act. The Addenda to the amendment set the bonus ratio at 20 percent for 2020, 15 percent for 2021, 10 percent for 2022, 5 percent for 2023 and 0 percent from 2024 onward, and the ratio for cash welfare benefits at 5 percent for 2020, 3 percent for 2021, 2 percent for 2022, 1 percent for 2023 and 0 percent from 2024 onward. Accordingly, from 2024, bonuses and cash welfare benefits paid regularly every month count toward the minimum wage in full with no excluded portion, and only welfare benefits provided in kind (such as meals served on site) remain excluded. However, because the main text of the Act defines the wages to be included as those “paid regularly at least once a month”, if bonuses are paid quarterly or annually, you should review both the payment method and the rules of employment.

In addition, it is commonly believed that an employer may pay less than the minimum wage during a probationary period. This applies only to workers who have entered into employment contracts of one year or longer, only within three months from the start of probation, and the reduction rate must follow what is prescribed by statute. Above all, occupations designated by public notice as simple labor are excluded, so the requirements must be checked before applying any probationary reduction.