CONTENTS
- 1. Responding to a Report of Unpaid Wages | What Is Wage Arrears
- - Causes of Unpaid Wages
- 2. Responding to a Report of Unpaid Wages | The Wage Arrears Reporting Procedure
- - Disadvantages to a Business Owner When Unpaid Wages Are Detected
- 3. Responding to Unpaid Wage Reports | Key Response Measures
- - Prompt and Accurate Verification and Organization of the Nonpayment
- - Pursuing a Prompt Settlement with the Employee
- - Active Cooperation with the Ministry of Employment and Labor Investigation and Submission of a Corrective Plan
- - Establishing a Comprehensive Response Strategy with the Assistance of a Legal Expert
- 4. Responding to Unpaid Wage Reports | Practical Points of Defense
1. Responding to a Report of Unpaid Wages | What Is Wage Arrears
Responding to a report of unpaid wages is a serious matter that a company must approach carefully.
Unpaid wages refers to a state in which a worker has not received, by the agreed date, the wages, bonuses, various allowances, severance pay, and the like that the worker is entitled to receive lawfully under the labor contract, the rules of employment, the collective agreement, or labor-related laws such as the Labor Standards Act.
The wages referred to here include not only the base salary but also overtime allowances, night work allowances, holiday work allowances, annual leave allowances, severance pay, bonuses, and various other allowances.
If you are reported for unpaid wages, you may be subject to imprisonment of up to three years or a fine of up to 30 million won, and business owners with high-value or habitual wage arrears may have their personal details and the amount in arrears disclosed for three years.
In addition, you may also face a wage claim lawsuit from a worker.
Causes of Unpaid Wages
The causes of unpaid wages vary. Common cases include the following types.
Deteriorating management and risk of insolvency : When accumulated deficits and continued operating losses make it difficult to pay employee labor costs
Intentional delay in payment : When an employer maliciously delays the payment of wages, or pays wages in cash without an employment contract and leaves no record
Closure or suspension of the business : Cancellation of business registration, suspension of operations, or failure to settle wages after a voluntary closure
Absence of a labor management system : When allowances are not properly calculated because the recording and management of overtime, nighttime, and holiday work hours are inadequate
Failure to settle severance pay : Cases in which an employer intentionally delays or fails to settle severance pay even after an employee has resigned
In particular, payment below the minimum wage, nonpayment of severance pay, and nonpayment of overtime, nighttime, and holiday work allowances are items that the Ministry of Employment and Labor focuses on enforcing through regular supervision or planned inspections.
2. Responding to a Report of Unpaid Wages | The Wage Arrears Reporting Procedure
A worker may report the fact of unpaid wages through the Ministry of Employment and Labor's online civil affairs portal, by visiting the competent local labor office, or by telephone.
When filing a report, the worker must submit materials that can prove the employment relationship and the fact of the arrears, such as the labor contract, pay statements, bankbook deposit records, attendance records, KakaoTalk conversation content, and recordings.
Once a report is received, the labor office summons the business owner to conduct an investigation, calculates the amount in arrears, and issues a corrective order to make payment.
If the wages are still not paid despite the corrective order, the office may refer the case to the prosecution or, depending on the amount in arrears, may use the order-for-payment system for unpaid wages and the like.
Disadvantages to a Business Owner When Unpaid Wages Are Detected
If the fact of unpaid wages is detected, a business owner is subject to both criminal punishment and administrative sanctions for a violation of the Labor Standards Act.
In particular, the following disadvantages follow.
▶Criminal punishment : Imprisonment of up to three years or a fine of up to 30 million won
▶Disclosure of the workplace name : Workplaces with arrears of 30 million won or more, or with arrears on two or more occasions, have the business owner's name disclosed on the Ministry of Employment and Labor website
▶Restriction on public bidding : Restriction on participation in public bidding by the state and local governments
▶Application of the arrears 🔗substitute payment system : The government pays the unpaid wages that the business owner has failed to pay to the worker on the owner's behalf, and later seeks reimbursement from the business owner
In addition, in cases of intentional or repeated arrears, there are not a few instances in which an actual custodial sentence has been imposed, so caution is required.
See More
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3. Responding to Unpaid Wage Reports | Key Response Measures
When responding to an unpaid wage report, an employer should promptly organize the details of the unpaid amounts, review whether payment is possible, and proceed with corrective or settlement procedures.
If the nonpayment continues for a long period, the practical consequences such as criminal accusation, public disclosure of the employer's name, and restrictions on bidding may grow significant, so the following measures should be reviewed.
Prompt and Accurate Verification and Organization of the Nonpayment
When a report of unpaid wages is filed or the possibility of one is raised, the key first step is to clearly verify the fact and scale of the nonpayment by individual employee and by item.
The points to note when organizing the details of the unpaid amounts are as follows.
▶Classification of unpaid wage items : Distinguishing base pay, overtime allowance, nighttime allowance, holiday allowance, bonuses, severance pay, and the like
▶Preparation of a statement of unpaid amounts by employee : Organizing the unpaid details by employee and by scheduled payment date
▶Recording the payment date, payment method, and reason for the delay : For use in preparing for a future investigation and as material for settlement negotiations
▶Securing employment contracts, payroll ledgers, work-hour records, attendance records, and bank transaction records : Key evidentiary materials for confirming whether wage claims arose and whether they were paid
These are the materials required during an investigation by a labor inspector of the Ministry of Employment and Labor, and if they are not clearly organized, there is a strong possibility of an unfavorable disposition.
Pursuing a Prompt Settlement with the Employee
When the fact of unpaid wages has been confirmed, in order to avoid a prolonged dispute and to reduce the possibility of criminal punishment, it is important to propose a settlement plan to the employee that includes partial payment of the unpaid wages, payment in installments, or compensation for delay interest.
In particular, it is advisable to prepare a legally effective settlement agreement that includes the following matters.
▶Statement of the total amount of unpaid wages, the payment date, and the payment method
▶Whether delay damages are included
▶A special clause waiving civil and criminal objections and withdrawing the petition or complaint after the payment date
▶A confirmation clause stating that there will be no dispute over future wages, severance pay, and allowances
This is a necessary procedure for the mitigation of sentencing factors in a future criminal case, the prevention of civil litigation, and exemption from the public disclosure of names under labor supervision.
Active Cooperation with the Ministry of Employment and Labor Investigation and Submission of a Corrective Plan
When a petition or report is filed and an investigation is requested by a labor inspector, the employer should appear voluntarily without delay, acknowledge the facts, and sincerely explain the plan to resolve the nonpayment and the management difficulties involved.
The main materials to submit during the investigation are as follows.
▶A plan for paying the unpaid wages and a plan for securing funds
▶Records of partial payment of the unpaid amounts and the scheduled payment dates
▶Measures to prevent recurrence (strict adherence to wage payment dates, a labor-cost management plan, designation of a responsible person, and the like)
▶Materials on whether the same violation occurred over the past three years and on improvement efforts
These are essential requirements for reducing the level of punishment and for receiving leniency in administrative sanctions such as administrative fines and public disclosure of names.
Establishing a Comprehensive Response Strategy with the Assistance of a Legal Expert
When the unpaid amount is excessive or the employer's financial situation is so serious that immediate payment is impossible, or when repeated nonpayment has accumulated so that severe punishment such as public disclosure of names, restrictions on participation in bidding, or criminal accusation is anticipated, the employer should establish a systematic response strategy with the assistance of a labor law attorney.
The main measures taken by a labor law attorney are as follows.
▶Organizing materials for the mitigation of sentencing and submitting a petition
▶Preparing a fund-management plan and materials proving the management crisis
▶Reviewing the partial payment of unpaid amounts and the payment plan
▶Representing the employer in negotiations to withdraw the petition or complaint
▶Designing a strategy for responding to the Ministry of Employment and Labor investigation
These are practical and professional means of responding to an unpaid wage report.
4. Responding to Unpaid Wage Reports | Practical Points of Defense
The practical points of defense for responding to an unpaid wage report are as follows.
A company that has been subject to an unpaid wage report may refer to the following and proceed with its response, and if legal assistance is needed, please seek a corporate attorney.
Category | Point of Defense |
Verification of the Nonpayment | Organizing the unpaid details, items, amounts, and payment dates by employee |
Securing Evidentiary Materials | Employment contracts, payroll ledgers, work-hour records, personnel assignment records, attendance records, payment records |
Inducing a Settlement with the Employee | Preparing a schedule of unpaid amounts and then presenting a payment plan, preparing a settlement agreement (including a special clause to withdraw the criminal complaint) |
Responding to the Ministry of Employment and Labor Investigation | Organizing the facts of the nonpayment before appearing, preparing materials explaining the financial situation and a plan for paying the unpaid wages |
Use of the Payment Order System for Unpaid Wages | Applying to the court for a payment order to promptly conclude the case |
Preparing Sentencing Materials for Criminal Punishment | Materials on management deterioration, materials on closure and restructuring, a company normalization plan, a petition, and the like |
Defense Against Public Disclosure of Names and Restrictions on Public Bidding | Giving priority to partial payment of the unpaid amounts, submitting a future payment plan, and submitting a plan to improve the labor management system |
Establishing Measures to Prevent Recurrence | Improving the labor-cost payment system, training the person in charge of wage payment, labor consulting, revising personnel regulations |
