Cross-Border Catch-Up: South Korea’s New Wage Enforcement Rules

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Goli Rahimi: Welcome to the Cross-Border Catch-Up, the podcast for global employers who want to stay in the know about cutting-edge employment issues worldwide. My name is Goli Rahimi, and I’m here with my colleague Patty Shapiro. We are cross-border attorneys at Ogletree Deakins. And today, we are diving into upcoming sweeping changes to South Korea’s Labor Standards Act, reforms that are set to fundamentally change how wages are enforced.

Patty Shapiro: That’s right, Goli. And what’s interesting is that the changes we’ll be discussing today were actually passed by Korea’s National Assembly in September of last year, but businesses have been given until October 23rd of 2025, the date the reforms take effect, to get into compliance.

Goli Rahimi: Now, these amendments were largely enacted in response to growing public concern over some businesses that had been failing to pay employees on time. Notably, South Korea’s newly elected president campaigned and won on a platform that was focused on respecting labor and protecting workers’ rights. Some of these commitments are already beginning to take shape in the first year of his term, including steps towards abolishing so-called “comprehensive wage systems,” where employees essentially receive a fixed salary without separate overtime premium pay.

Patty Shapiro: In the U.S., we’re used to the idea of exempt versus non-exempt employees. That classification that determines whether someone gets overtime pay when they work over a certain threshold, like 40 hours in a week or, in some states, more than eight hours in a day. In Korea, they had a system called the comprehensive wage system that essentially treated employees covered by it as exempt from overtime altogether. What’s especially interesting is how common this practice has been. The employment contract would typically include a clause saying the employee gets a fixed monthly salary, and that amount is meant to cover all or part of any overtime, late-night premiums, or holiday work. But with the rise of Korea’s pro-worker movement, President Lee made a campaign promise to crack down on this. He pledged to ban these wage systems and instead require that companies track working hours accurately and pay proper wages on time or face serious consequences.

Goli Rahimi: So, let’s dive right in and talk about these serious consequences. The first big upcoming change is default interest. So, as the law currently stands, if an employee leaves a company, whether they resign voluntarily or are terminated, if their final pay isn’t made within 14 days, then a pretty steep default interest of 20% per year will kick in on the unpaid amount. But here’s the thing, their current law actually doesn’t say anything about late payments that are made to current employees who are still on the job. And that’s what the new amendment to the LSA, or the Labor Standards Act, is going to fix. Going forward, that very same 20% default interest will apply to any delayed wages owed to current employees as well.

Patty Shapiro: And it’s important to mention here that under Korean law, wages are defined pretty broadly. It’s not just base salary; it includes pretty much any compensation owed to the employee. That means overtime premiums, pay for holiday work, statutory severance for employees being terminated, and even unused vacation as of the termination date. So, this expanded default interest could apply to a lot more than just regular salary.

Goli Rahimi: And Patty, I assume it doesn’t just stop there, right?

Patty Shapiro: Of course not. And soon, when an employee files a claim for unpaid wages, they’ll be able to go after more than just the back pay plus interest. Under the new rules, employees can also ask the court to award treble damages. That’s up to three times the amount owed if the employer willfully failed to pay. So, the potential financial hit for employers just got a lot more serious.

Goli Rahimi: This actually sounds like it’s quite punitive in nature, isn’t it?

Patty Shapiro: It definitely can be, but it’s not automatic. Courts will look at a bunch of factors before deciding whether treble damages are appropriate. They look at things like how often the employer has fallen behind on wages, how much in default interest is already owed, and even the employer’s financial situation. But if multiple employees are affected, the potential damages can really add up.

Goli Rahimi: And if the financial penalties weren’t enough, there’s also a serious reputational risk coming. The amendments set up something called the Wage Arrears Information Review Committee. Now, this committee’s job, amongst others, is to publicly identify companies that are repeat offenders or what the law is calling “habitual wage defaulters.” Now, once you’re on that list, the consequences just start piling up. A company can be barred from receiving government subsidies or incentives, and they can even be blocked from bidding on public projects.
What makes this especially powerful is that it’s not just one agency acting alone. The Ministry of Employment and Labor is going to be authorized to pull information from across the government. This means pulling information from the tax office, the social insurance agency, you name it, and using this information to track down and flag these habitually repeat offenders. And it goes even further. Unions, political organizations, and even consumer protection groups will also have the power to step in and help enforce wage payments. And we’re not done yet. The ministry can also report these habitual wage defaulters to credit agencies, and we all know that this can absolutely hurt a company’s ability to operate.

Patty Shapiro: The enforcement measures are coming from all sides.

Goli Rahimi: They really are. And earlier, we talked about the kinds of damages that employees can go after if they take their claims to court. I think you mentioned treble damages, but Patty, tell us what happens if the employee does not file a lawsuit. Maybe they’ve reached a settlement or other type of agreement with their employer not to bring any sort of claims. So, what happens in that situation?

Patty Shapiro: Well, even if the employee decides not to take legal action, the employer still isn’t off the hook. Under the current law, if an employee doesn’t want to press charges, then the buck kind of stops there, but that’s changing. With the New Amendments, if a company has already been publicly flagged as a wage defaulter and falls behind again, they can face criminal prosecution even without the employee filing a claim. And the stakes are high; in extreme cases, such as when an employer has multiple criminal convictions for wage non-payment, the immigration authorities can actually stop them from leaving the country. So, this goes way beyond just financial penalties. It can become a serious personal risk for company leadership.

Goli Rahimi: Now, I think it goes without saying that now is the time to act. I know October seems like a very long time away, but as with any big upcoming changes, it will be here before we know it. Steps that companies may consider taking now is auditing their wage and overtime systems, documenting everything from pay audits to pay records and corrections, and fixing any errors that they’ve uncovered as soon as possible.

Patty Shapiro: Absolutely, and that’s all we have for you today. Thank you so much for joining us for today’s Cross-Border Catch-Up. Follow us to stay in the know about cutting-edge employment issues worldwide.

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