Published : 2013-12-19 19:36
Updated : 2013-12-19 19:36
The Supreme Court has sent shockwaves through the business community by expanding the scope of “ordinary wage.”
The top court has ruled that bonuses constitute ordinary wages if they have been paid “on a regular, uniform and fixed basis” ― regardless of the length of the payment intervals.
This reverses the government’s rule that has been in place for the past 25 years. The rule regards bonuses as part of ordinary pay only when they are paid on a monthly basis. It excludes bonuses paid quarterly or biannually.
The court has opened the way for workers to claim additional wages from companies retroactively by ruling that existing agreements between labor and management to exclude bonuses from ordinary wages are invalid as they violate the Labor Standards Act.
But the court has restricted workers’ rights to some degree by saying that they cannot demand retroactive wage increases when such demands cause serious financial problems to their companies. This restriction is likely to trigger lawsuits as it allows companies to reject workers’ demands for financial reasons.
The court ruling rattled the business community. Companies, small and large, expressed deep concerns about the negative impact that the verdict would have on their balance sheets and the economy in general.
The additional financial burden on companies is estimated at around 8 trillion won a year, if the current wage system is maintained. Companies warn that any additional wage increase will inevitably translate into a corresponding reduction in corporate investment, which will in turn negatively affect job creation and the economic recovery.
This warning needs to be heeded by labor. Workers need to try to understand the financial situation of their companies before putting forward demands for retroactive wage increases or bringing their cases to the court. They should avoid causing their companies too much trouble.
Now, the government needs to push for revision of the current law and update its rule book to minimize confusion resulting from the court decisions. It deserves blame for its failure to help companies prepare for the shock.
The top priority for the government is to provide full support for companies to bear the extra financial burden as many, especially small and medium-sized ones, are likely to face difficulties.
At the same time, it also needs to help companies reform their wage structures. In most companies, wage structures are complicated as they have introduced numerous allowances in their bid to suppress the increase of basic pay. They need to introduce performance-based bonuses and shift toward a more simplified wage system.