Minimum Wage
Minimum Wage
What is the minimum wage?
- A wage floor set and announced through annual review
- Amendments have repeatedly changed what counts toward the minimum wage
- Monthly salaries go wrong at the hourly conversion
What the minimum wage really changes is not just the floor in wage negotiations but the legal force of the agreement itself. Even if the worker consented or signed the employment contract, any portion that falls short is void and the minimum wage automatically takes its place. So when a dispute arises, the defense that it was 'an amount both sides understood and agreed on' does not hold, and a single number, the wage paid converted to an hourly rate, is all that remains. What HR and labor relations managers should track is this converted figure, not the contract wording.
Calculation comes down to which pay counts. Only wages paid regularly at least once a month are included, so quarterly bonuses or holiday gifts paid every two or three months are excluded, however large. Regular bonuses and meal and transportation allowances (benefits) have been phased in and are now counted in full. By contrast, overtime, night and holiday work pay, and unused annual leave pay are still excluded because they are not compensation for scheduled working hours. Probationary employees on contracts of one year or more can be paid up to 10% less for the first three months, but the reduction is prohibited outright for simple manual labor jobs.
The minimum wage resembles ordinary wages in name and is easy to confuse with it, but it is a separate yardstick with a different purpose. Ordinary wages are the unit rate used to calculate overtime and holiday pay, while the minimum wage is the standard for checking whether pay falls below the legal floor, so the items each includes do not match. Employers also have a duty to post the minimum wage, the pay that counts toward it, and the exclusions at the workplace, or otherwise notify employees. In subcontracting arrangements, the prime contractor is jointly liable if a subcontractor fails to meet the standard for a reason attributable to the prime contractor’s own responsibility.
The mistake that most often causes trouble in practice is using the wrong number of hours as the divisor. A workplace with a 40-hour week must divide by 209 hours a month, which includes paid weekly rest hours. Counting only hours actually worked and dividing by 174 inflates the hourly rate, so a shortfall goes unseen. The comprehensive wage system is also risky. If monthly pay includes a fixed overtime allowance, that amount must be removed before comparing, yet many companies judge by the total and conclude there is 'plenty of room'. When this goes wrong, a single complaint from a former employee can force back pay of up to three years of differences, and the same calculation applies to every employee under the same pay structure.
Kyungtae KimHR expert · Organizational culture and HR strategy consultant
Hwi KimCEO of HRDIST & talent development systems consultantUnder the Minimum Wage Act, the minimum wage is set and announced each year after review and resolution by the Minimum Wage Commission. Any part of an employment contract that falls below the minimum wage is void and is treated as agreeing to pay the minimum wage amount.
Company A operates three logistics centers in the Seoul metropolitan area and has 180 employees: 130 hourly site workers and 24 monthly-salaried associates. A senior associate who left three months ago filed a complaint with the regional Ministry of Employment and Labor office, saying, 'I was paid KRW 2.4 million (≈ US$1,800) a month, but my hourly rate falls below the minimum wage.' HR now had to recalculate pay for every monthly-salaried employee from scratch. (Hypothetical example)
- After receiving the summons, the HR director asked the payroll associate what had happened. The associate replied, 'We figured a total of KRW 2.4 million (≈ US$1,800) was higher than the monthly minimum wage equivalent of KRW 2.06 (≈ US$1) million, so there was no problem.'
- Going through the payroll ledger with a labor attorney, they found that the KRW 2.4 million (≈ US$1,800) was the sum of KRW 1.98 million (≈ US$1,480) in base pay, a fixed KRW 300,000 (≈ US$225) overtime allowance, and a KRW 120,000 (≈ US$90) quarterly bonus. The overtime allowance and quarterly bonus do not count toward the minimum wage, so only the KRW 1.98 million (≈ US$1,480) was comparable.
- Dividing KRW 1.98 million (≈ US$1,480) by 209 hours a month, which includes paid weekly rest hours, gave an hourly rate of KRW 9,473, (≈ US$7) which was KRW 387 (≈ US$1) below the announced KRW 9,860 (≈ US$7). That meant each employee was underpaid by about KRW 80,000 (≈ US$60) every month.
- Checking all 24 monthly-salaried employees the same way showed six falling short under the same structure, while the 130 hourly employees were fine. The shortfall had lasted 11 months, starting right after the pay structure was revised.
- The HR director proposed folding the fixed KRW 300,000 (≈ US$225) overtime allowance into base pay and splitting the KRW 120,000 (≈ US$90) quarterly bonus into monthly payments of KRW 40,000 (≈ US$30). The design kept the total unchanged and only increased the pay that counts toward the minimum wage.
- The company paid six employees KRW 5.28 million (≈ US$3,950) in back pay covering 11 months, and the complaint was closed after being withdrawn. It also added a spreadsheet that automatically checks the 209-hour conversion before payroll closes, and used it to adjust three employees projected to fall short when the next year’s increase was announced.