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Jipyong News|KOREA LEGAL INSIGHT

MOEL Announces Guideline on Prevention of Misuse and Abuse of Comprehensive Wage System

2026.05.18

Background
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On April 8, 2026, the Ministry of Employment and Labor (the “MOEL”) announced the “Guideline on Prevention of Misuse and Abuse of Comprehensive Wage System for Elimination of Unpaid Labor” (the “Guideline”).  The Guideline, developed through a tripartite agreement among labor, management, and the government, implements the national policy agenda, which in principle seeks to prohibit the comprehensive wage system.</div>
 
 
1. Key Contents of the Guideline 
 
<div>A. Fundamental Principles for Employers

<div style="background:#eeeeee;border:0.5px solid #cccccc; padding:18px 25px 22px 25px;">① Itemized entries in payroll records of base salary and allowances 
Employers must separately itemize and record base salary, allowances, bonuses, and performance-based compensation in payroll records and wage statements, in accordance with Article 48 of the Labor Standards Act and Articles 27 and 27-2 of its Enforcement Decree. 
 
② Prohibition of fixed pay and bundled allowance arrangements 
Fixed pay arrangements that fail to distinguish base salary from allowances, as well as bundled allowance arrangements that pay overtime, night, and holiday work compensation as a single lump-sum amount, are prohibited in principle. 
 
If the agreed compensation falls short of statutory allowances calculated based on actual working hours, the employer must pay the difference. 
 
③ Strict requirements for fixed allowance arrangements 
Fixed overtime, night, or holiday allowances (so-called “fixed OT” arrangements) are permitted only if strict conditions are met, including (i) a clear agreement between the parties, and (ii) full compliance with the Labor Standards Act. 
 
Even where such arrangements are permitted, if the statutory allowances calculated based on actual working hours exceed the agreed amount, the employer must pay the difference.  If the agreed amount is higher, the agreed amount must be paid. </div>
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B. Standards for Handling Complaints and Labor Inspections

<div style="background:#eeeeee;border:0.5px solid #cccccc; padding:18px 25px 22px 25px;">① Cases must be handled based on the principle of “compensation based on actual working hours.” 
 
② Even where an agreement exists between the parties, any shortfall in statutory allowances shall be treated as unpaid wages. 
 
③ Fixed pay arrangements are contrary to current law. 
 
As a corrective measure, employers will be required to recalculate base salary by specifying prescribed working hours and separately calculating statutory allowances in payroll records and wage statements. 
 
④ Bundled allowance arrangements also violate current law where allowances are paid without itemization. 
 
Employers must clearly distinguish and calculate each allowance by category in accordance with the Guideline. 
 
⑤ In all investigations, the adequacy of payroll records and wage statements will be reviewed. </div>
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C. Practical Guidance for Employers

<div style="background:#eeeeee;border:0.5px solid #cccccc; padding:18px 25px 22px 25px;">① Review existing wage systems and consider statutory alternatives 
Employers are encouraged to replace comprehensive wage arrangements with statutory alternatives, such as the deemed working hours system for off-site work (Article 58(1)–(2) of the Labor Standards Act) or the discretionary working hours system (Article 58(3)). 
 
Employers should also ensure that unused annual leave payments and severance pay are not improperly included in wages (Supreme Court Decision 96Da24699, March 24, 1998). 
 
② Establish and improve systems for recording and managing working hours 
Employers must record and manage all working hours—including overtime, night, and holiday work—for all employees except those exempt from working hours regulations (e.g., surveillance and intermittent workers under Article 63 of the Labor Standards Act). 
 
For overtime work, employers should use procedures such as obtaining each employee’s consent or requiring prior application. 
 
Payroll records must be prepared based on objectively recorded working hours, and wage statements must clearly reflect the calculation of each allowance. </div>
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2. Implications and Recommended Corporate Actions

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The Guideline establishes case-handling standards that are immediately applicable in practice, focusing on: (i) wage payments based on actual working hours, and (ii) institutionalizing systems for recording and managing actual working hours. 
 
The MOEL is expected to intensively review whether companies have record-keeping and management systems that allow verification of the lawful payment of statutory allowances, with particular focus on the adequacy of payroll records and wage statements. 
 
Because unpaid wages are subject to criminal penalties (Article 109 of the Labor Standards Act) and violations of the obligations to prepare payroll records and wage statements may result in administrative fines (Article 116(2)2), companies operating under comprehensive wage arrangements should proactively review whether payroll records and wage statements are properly prepared and maintained, and allowances are being paid in accordance with statutory standards—before employee complaints or labor inspections arise. </div>
 
<a href="https://www.jipyong.com/kr/board/news_view.php?seq=15127" target="_blank">[Link to Korean Newsletter]</a>

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