On December 19, 2024, the Supreme Court of Korea rendered two en banc decisions (2020Da247190 and 2023Da302838) that significantly reshape the legal framework for determining “ordinary wage” under the Labor Standards Act (“LSA”). In these decisions (collectively, the “Decisions”), the Supreme Court unanimously departed from its previous decision on ordinary wage in its en banc precedents set in 2013 (2012Da29399 and 2012Da94643) and held that certain conditional bonuses—such as those contingent on continued employment or a minimum number of working days—should be included in ordinary wage, regardless of the conditions attached.
1. Background: Ordinary Wage
Under Article 6 of the Enforcement Decree of the LSA, ordinary wage is defined as the hourly, daily, weekly, or monthly wage, or contract amount to be paid to an employee on a regular and uniform basis for specifically agreed-upon work or entire work. Under Articles 56 and 60 of the LSA, ordinary wage serves as the statutory basis for calculating overtime pay, night pay, holiday pay, and unused annual paid leave.
The Supreme Court’s 2013 en banc decisions had established a three-prong test for determining ordinary wage: (i) regularity, (ii) uniformity, and (iii) “fixed” requirement. In particular, the 2013 court precedent held that bonuses paid only to employees who are employed at a particular time or who satisfy a threshold number of working days lacked the “fixed” element and thus are excluded from ordinary wage.
2. The Decisions
The Decisions mark a major departure from the 2013 precedents. The Supreme Court held in the Decisions that if an employee fully performs prescribed labor, compensation that is paid to the employee on a regular and uniform basis should be included in ordinary wage, regardless of whether such compensation is subject to certain conditions as described in the 2013 precedents. In other words, the Decisions eliminated the “fixed” element from the previous three-prong test for ordinary wage and reestablished the definition of ordinary wage.
3. Government Response
Following the Decisions, on February 5, 2025, the Ministry of Employment and Labor issued the Labor Management Guidelines on Ordinary Wage, updating the previous guidelines issued in 2014. The updated guidelines incorporate the reestablished definition of ordinary wage. Specifically, the Ministry stated that while the Decisions do not invalidate the use of employment or working conditions in compensation structures, certain conditions (e.g., continued employment or a minimum number of working days) can no longer be used to exclude those payments from being counted as ordinary wage.
4. What This Means for Employers
Employers should be aware of the following key implications arising from the Decisions:
1) Conditional Bonuses Themselves Remain Lawful
The Decisions do not render conditions such as continued employment or minimum working days unlawful per se. Accordingly, employers may still continue to impose such conditions on bonus structures. Thus, employers may withhold such payments from employees who are not employed at a particular time or fail to meet a minimum threshold number of working days, without violating the LSA.
2) Wage Earned On or Prior to December 19, 2024
Employers not currently subject to litigation regarding ordinary wage related issues may continue to assess payments for work performed prior to the Decisions under the previous legal principles, which required a “fixed” element as a requirement of ordinary wage. In such cases, it remains lawful to exclude those payments from being included in ordinary wage.
3) Wage Earned After December 19, 2024
The new legal principles apply prospectively from December 20, 2024. Employers must now include certain conditional bonuses when calculating ordinary wage from December 20, 2024. Since ordinary wage serves as the statutory basis for calculating overtime, night and holiday pay, as well as unused paid annual leave, the financial impact of the new definition of ordinary wage will be most pronounced in cases involving extended overtime, night or holiday work, and the accrual of unused paid annual leave.
4) Recommendations
Employers should carefully review their wage structures to determine whether each wage item qualifies as ordinary wage under the newly established legal principle. Based on this assessment, employers should revise internal policies, employment rules, and payroll system as necessary. Given that the scope of ordinary wage is expected to vary significantly across companies under the new interpretation of the Decisions, employers currently engaged in, or anticipating, collective wage bargaining should treat this expanded scope of ordinary wage as a key consideration in their negotiations with employees. For companies likely to experience a significant increase in labor costs as a result of the broadened definition of ordinary wage, we recommend restructuring HR practices, particularly with respect to the efficient management of overtime, night, and holiday work hours, as well as the active promotion of paid annual leave usage.
