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Change to minimum wage passes Assembly

May 29,2018
The bill that changes the way the minimum wage is calculated passed the National Assembly on Monday.

The bill allows some regular bonuses and welfare payments to be calculated as part of an employee’s base salary. These benefits can cover health, transportation, meals and lodging.

This new way of calculating an employee’s wages means that companies will not have to raise some employee’s wages if what they receive under the new system meets or exceeds the wage increases stipulated by the Moon government’s increases to the minimum wage.

The bill is aimed at easing the burden of rising labor costs on companies due to the spike in the minimum wage, which went up by more than 16 percent this year and is scheduled for another increase next year. The bill comes at a crucial time as trilateral talks between the government, labor and businesses representatives have until June 28 to decide next year’s minimum wage.

The bill met with furious opposition from labor unions, which claimed that the changes will reduce the effect of raising the minimum wage. The Moon Jae-in government has promised to raise the minimum wage to 10,000 won ($9.31) per hour by 2020. This year, the minimum wage went up from 6,470 won to 7,530 won.

The bill takes into account portions of regularly paid bonuses that exceed 25 percent of employee’s monthly base wages and regularly paid health and welfare payments that amount to 7 percent of the base wage. It includes them as part of the base wage.

The base wage is the fixed amount of money that the employee gets monthly, excluding bonuses and other benefit payments.

For example, a minimum-wage employee may currently gets 2.27 million won every month on his paycheck. However, he only gets 1.57 million won as his monthly base wage for working 209 hours a month for the 7,530-won minimum wage. The rest is made up of his 500,000 won in regular bonuses and 200,000 won in health and welfare benefits.

If the minimum wage goes up 10 percent next year, the company has to pay the employee an additional 157,000 won per month.

But if the bonuses and health and welfare payments are included as part of the base salary, his base salary will increase by 200,000 won to 1.77 million won, and his employer is off the hook for the minimum wage increase.

Twenty-five percent of his 1.57 million won monthly wage is 390,000 won. So when that portion is subtracted from his 500,000 won bonus, the remaining 110,000 won will be counted as part of the base monthly wage. For health and welfare, 90,000 won would be added to his base wage.

The worker’s base wage will be raised to 1.77 million won, which is higher than the 1.72 million won monthly wage that the 10 percent increase in the minimum wage requires.

Therefore, the company is not violating the minimum wage and does not have to give this employee a raise. The labor community strongly protested the reform bill on Monday, holding demonstrations in front of the National Assembly in Yeouido, western Seoul.

Opposition parties, including the labor-friendly Justice Party and the Party for Democracy and Peace, fought against the bill.

Those opposing the bill argued that the decision will have a negative impact on minimum wage workers.

According to a Korea Labor Institute study, 1.61 million employees had monthly base salaries that were less than last year’s minimum wage of 6,470 won per hour. If part of their regular bonuses and welfare and health payments are included, 22 percent of those 1.61 million workers will see their base salaries exceeding the minimum wage. Therefore, they likely won’t see any benefits from the rising minimum wage.

The protests against the change to the base wage are expected to have a major impact on deciding next year’s minimum wage increase. The deadline to decide it is scheduled for June 28.

There’s a strong possibility that due to the change, labor representatives could boycott the negotiations. The Federation of Korean Trade Unions warned that all of its members will not take part in negotiations, while the Korean Confederation of Trade Unions is likely to join in on the boycott. If they do choose to take part in the negotiations, they might demand a sharper increase in the minimum wage next year.

However, the government has recently expressed concerns about the impact of the higher minimum wage on businesses and the job market. Finance Minister Kim Dong-yeon has recently said that the higher minimum wage should be applied flexibly.

“It would be best to adjust the goal flexibly after analyzing the difficulties that businesses face,” Kim said.

Hong Young-pyo, the floor leader of the ruling Democratic Party, also expressed similar concerns. On Sunday he said that the government will need to find measures that will allow small and medium-sized businesses and owners of small businesses like coffee shops to pay their employees as the minimum wage grows.

President Moon Jae-in on Monday told his cabinet to proceed with this year’s economic policies. These include providing financial support to businesses affected by the higher minimum wage, introducing the supplementary budget, which is expected to create job opportunities for young people, and patching up negotiations between labor, management and the government.

“It is important to win a public consensus on the positive direction of narrowing the gap between jobs and income,” Moon said. “We need to evaluate if government policies on creating jobs and income-led growth is going in the right direction.”

BY LEE HO-JEONG, JANG WON-SEOK [lee.hojeong@joongang.co.kr]