Less Working Hours in Korea: How to Seize Opportunity

The most recent amendment to the Labor Standard Act (“LSA”) was promulgated on March 20, 2018. The primary purpose of the amendment was to streamline the policy regarding working hours. The amendment includes (i) clarification on the 52 maximum weekly working hours (40 regular + 12 overtime), (ii) stipulation of the premium rates for restday work, and (iii) reduction of the number of the industries allowed to exceed the statutory 12 maximum weekly overtime hours.

As this amendment is likely to cause overall increase in labor expenses for businesses along with reduction in wages for employees, many businesses have already adopted or now consider adopting a new working hour system in order to improve labor productivity and fend off the increase in labor expenses. This article will discuss major provisions of the amendment, and also introduce the alternative working hour systems available under the LSA for those interested in considering for further exploration.

52 Maximum Weekly Working Hours

According to a literal reading of the LSA, the maximum weekly working hours allowed under the LSA are a total of 52 hours (i.e., 40 maximum regular working hours per week plus 12 maximum overtime working hours per week). Despite the literal reading of the law, however, the government used to interpret that by the “week” it only means a work week (comprising of 5 working days, for example). As such, additional 16 regular working hours (8 hours per each restday in this case) have been allowed, resulting in a total of 68 maximum weekly working hours (52 hours per work week + 16 hours on two restdays).

In response, the amendment now has a new definition of a week which comprises of 7 days including any statutory restday. Consequently, there would be no room for the government’s traditional interpretation, and therefore it will be prohibited from exceeding the 52 maximum weekly working hours even if employees wish or agree to work more than 52 hours per week, unless an alternative working hour system or case is in place.

The new definition of a week will take effect on July 1, 2018 for businesses with 300 or more employees; January 1, 2020 for businesses with 50 to 299 employees; July 1, 2021 for businesses with 5 to 49 employees. Those with 5 to 30 employees will be allowed to extend 8 additional overtime hours during the period from July 1, 2021 to December 31, 2022. Businesses with employees less than 5 are exempt from the working hour regulations under the LSA.

Premium Rates for Restday Work

The amendment also stipulates the premium rates for restday works as follows (effective from March 20, 2018): (1) 50% of ordinary wage if provided for 8 hours or less on a statutory restday; and (2) 100% of ordinary wage if provided over 8 hours on a statutory restday. These new premium rates are consistent with the government’s interpretation of the relevant provisions of the LSA prior to the amendment. However, labor unions and activist groups have been arguing for a 100% premium rate (i.e., 50% restday + 50% overtime) for any restday work (not considering any night-time work). The lower courts have decided in line with this argument despite the government’s interpretation otherwise, and the Supreme Court will render its final decision on this issue in coming weeks.

The scope of the term “ordinary wage,” however, is not clarified in the amendment. In December 2013, the Supreme Court expanded the scope of ordinary wage to include any bonus and other compensation made regularly, uniformly to all employees, and on a fixed basis regardless of when they are paid (e.g., basic wage paid monthly while bonus paid quarterly). Prior to the Supreme Court’s decision, the ordinary wage was interpreted by the government as including, in addition to basic wage, only the bonus and other compensation paid in the same period of payment of basic wage (e.g., both basic wage and bonus paid every month). This expanded scope by the Supreme Court is being currently used as the standard for calculating ordinary wage, while numerous lawsuits were filed to claim for unpaid restday wages due to the Supreme Court’s interpretation that expanded the base (ordinary wage) for calculating wages for restday work (the time limit for claim relating to unpaid wage is 3 years in Korea).

Reduction of Exempted Industries

Starting from July 1, 2018, the number of industries exempted from the requirement of 12 maximum weekly working hours will be reduced from the current 26 to 5 industries. The 5 remaining industries are ground and pipeline transportation (excluding line or route buses), water transportation, air transportation, other transportation-related services, and public health providers. Among those removed from the exemption are wholesales, retails, finance and insurance-related services, production and distribution of audio and visual products, advertising, broadcasting, and telecommunications.

Alternative Working Hour Systems and Cases

Either unknown or mostly less utilized alternative working hour systems under the LSA are (i) flexible working hour system and (ii) selective working hour system. Further, there are two special cases of calculating working hours allowed under the LSA to avoid reaching over the maximum regular working hours; namely, (i) outside work case and (ii) discretionary work case.

Flexible Working Hour System

There are two types of flexible working hour system applicable to the entire workforce: one is based on a unit period of two weeks or less, and the other is three months or less. For the first type, working hours (up to 48 hours per week) exceeding the statutory maximum 40 hours per week and 8 hours per day are permissible as long as (i) weekly working hours averaged from actual hours worked during the unit period (two weeks or less) do not exceed 40 hours and (ii) internal rules of employment provides such flexible working hour system. For the latter type, working hours up to 52 hours per week and 12 hours per day are permissible as long as (i) weekly working hours averaged from actual hours worked during the unit period (three months or less) do not exceed 40 hours and (ii) a specific written agreement is in place between an employer and the representative of employees.

Selective Working Hour System

Under the selective working hour system, certain workers allowed to decide on their own starting and finishing work time in accordance with internal rules of employment may work the hours exceeding the statutory maximum 40 hours per week and 8 hours per day as long as (i) weekly working hours averaged from actual hours worked during a calculation period (one month or less) do not exceed 40 hours and (ii) a specific written agreement is in place between an employer and the representative of employees.

Outside Work Case

For those employees who work outside their workplace during the entire or a part of working hours, they are deemed to work for any contractual working hours provided that it is difficult to calculate the actual hours worked outside the workplace. However, in case it is necessary for employees to work for more than contractual working hours to perform their work, they are deemed to work for (i) the hours agreed by the representative of employees when there is such a written agreement or (ii) the hours ordinarily required to carry out the work.

Discretionary Work Case

For those employees given discretion to work autonomously in light of the characteristics of their work, they are deemed to work for such hours agreed in writing by the representative of employees. Such work that may qualify for this special case includes the following: research and development of new products and technologies; design and analysis of information processing system; production of broadcasting programs and movies; and, design and plan of clothing, industrial products, and advertisement.

Takeaways

Since the new government took power in May 2017, pro-labor policies have been implemented rather aggressively. The first was the biggest yearly increase in the minimum wage by 16.4%. And then the reduction of working hours as discussed herein quickly followed. Critics are concerned about negative impacts these dramatic changes could bring to the Korean economy. On the other hand, it will be an opportunity for many businesses to increase the productivity and efficiency among their workforce by adopting an alternative working hour system and/or case that best fit their circumstances and interests in the new labor environment.