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'Leave me out of the four social insurances and just pay me that much more in cash.' Employees not infrequently make this request themselves, citing credit problems or other income, or saying they are half freelancers anyway. Since the employee asked for it, it is tempting to think going along is fine, but the answer is that you should not.

That social insurance is mandatory and cannot be excluded by agreement is explained with case law in Social Insurance Waiver by Employee Is Void. This post looks, provision by provision and focusing on employment insurance and industrial accident insurance, at what actually happens to the employer when the non-enrollment continues.

[Contents]

1. It Cannot Be Waived by Agreement or a Signed Statement

2. If an Industrial Accident Occurs – the Employer Bears Up to Half the Benefits

3. The Employee Can Request Confirmation at Any Time Later

4. Filing Deadlines and Administrative Fines

5. If the Request Is 'Treat Me as a Freelancer'

It Cannot Be Waived by Agreement or a Signed Statement

The employer and employees of a business covered by the Employment Insurance Act automatically become insured under employment insurance, and the employer of a business covered by the Industrial Accident Compensation Insurance Act automatically becomes insured under industrial accident insurance (Article 5(1) and (3) of the Act on the Collection of Insurance Premiums for Employment Insurance and Industrial Accident Compensation Insurance (보험료징수법, the 'Premium Collection Act')). The insurance relationship arises on the day the business starts (Article 7 of the same Act).

The Supreme Court has likewise held that the insurance relationship for employment and industrial accident insurance arises automatically when the business starts, and that an employer cannot escape its duty to report and pay premiums on the ground that it was unaware the relationship had arisen (Supreme Court Decision 2011Du6745, February 13, 2014). For the national pension, it held that even a statement in which the employee said they 'wished not to have the enrollment period applied retroactively and would raise no objection whatsoever' was void (Supreme Court Decision 2008Du20444, January 28, 2010). In other words, an employee's request or signed statement does not remove the employer's obligations.

If an Industrial Accident Occurs – the Employer Bears Up to Half the Benefits

The biggest risk is an industrial accident during the period of non-enrollment. Because the insurance relationship already exists, the employee can receive industrial accident insurance benefits. Decision 2011Du6745 above also held that the insurer cannot refuse to pay benefits on the ground that it mistakenly failed to collect premiums. The problem comes next.

When the Korea Workers' Compensation and Welfare Service pays benefits for an accident that occurred during a period in which the employer failed to file the report establishing the insurance relationship, or failed to pay industrial accident insurance premiums, it may collect all or part of the amount of those benefits from the employer (Article 26(1) of the Premium Collection Act).

The collection standards are set by the Enforcement Decree. Where the employer failed to file the report, 50 percent of the benefits determined to be paid is collected, covering medical care, temporary disability, disability, nursing and survivors' benefits and injury-and-disease compensation annuities for accidents occurring from the day after the filing deadline until the day the report is filed. The amount, however, cannot exceed five times the premiums that should have been paid during that period, and is limited to benefits whose grounds for claim arose by the last day of the month containing the one-year anniversary of the start of medical care (Article 34(1) of the Enforcement Decree). Where the employer failed to pay premiums, 10 percent is collected, subject to the same five-times cap (Article 34(2)).

The key point is that the collection period runs 'until the day the report is filed.' If the business is already in a state of non-enrollment, filing now removes accidents occurring after that date from this collection.

The Employee Can Request Confirmation at Any Time Later

An employee who wanted cash may change their mind later, typically when seeking unemployment benefits after leaving. A person who is or was insured under employment insurance may at any time ask the Minister of Employment and Labor to confirm the acquisition or loss of insured status (Article 17(1) of the Employment Insurance Act), and if the employer does not report insured status, the employee may report it directly (Article 15(3) of the same Act). An insured employee in principle acquires insured status on the day of hiring (Article 13(1) of the same Act).

Once enrollment is confirmed in this way, the employer must pay the overdue premiums, and for employment and industrial accident insurance premiums, a late-payment charge of 1/1,500 of the overdue amount accrues for each day after the payment deadline, with an additional charge added once 30 days have passed since the deadline (Article 25 of the Premium Collection Act). The limitation period for collecting premiums is three years (Article 41(1) of the same Act). The extra cash paid in the meantime does not reduce this burden.

Filing Deadlines and Administrative Fines

An employer that automatically becomes insured must file a report establishing the insurance relationship with the Korea Workers' Compensation and Welfare Service within 14 days from the day the relationship arises (Article 11(1) of the Premium Collection Act). Failing to file or filing a false report is subject to an administrative fine of up to 3 million won (Article 50(1), Item 1 of the same Act).

Separately, employment insurance requires reporting the acquisition and loss of insured status for each individual employee (Article 15(1) of the Employment Insurance Act), and failing to report or reporting falsely can also lead to an administrative fine of up to 3 million won (Article 118(1), Item 1 of the same Act). The national pension and health insurance laws also impose their own reporting duties on workplaces and insured status, so it is safest to handle all four insurances at once when an employee is hired.

If the Request Is 'Treat Me as a Freelancer'

Some employees ask to be 'treated as a freelancer,' reported as having business income with only 3.3 percent withheld. Whether someone is an employee, however, is determined not by the name of the contract or how taxes are handled, but by whether they actually worked in a subordinate relationship under the employer's direction and supervision. If they are found to be an employee, they were subject to social insurance from the start, and the retroactive premiums, late-payment charges and recovery of accident benefits discussed above all arise. The criteria for employee status are covered in detail in Are Delivery Riders Always Freelancers in Korea?.

In short, social insurance cannot be excluded even if the employee wants it or signs a statement. If an industrial accident occurs during non-enrollment, the employee receives benefits and the employer may bear up to half of them (capped at five times the unpaid premiums), and if the employee later requests confirmation, the overdue premiums and late-payment charges must be paid as well. Politely decline the employee's request and keep a record of what happened, and if the business is already in a state of non-enrollment, it is best to file now to reduce the risk.

Cheongchul Law Firm directly advises on labor matters, including retroactive social insurance assessments, recovery of industrial accident benefits, employee status and HR system improvements. If you need assistance, please contact us through consultation booking.

This post is written for the purpose of providing legal information and does not constitute legal advice on any specific matter. Since conclusions may differ depending on the facts of each case, please be sure to consult a professional.