Ordinary wage and average wage - Part 1
30 Apr 2019
The Labor Standard Act (hereinafter referred to “LSA”) of Korea sets out the standards for terms and conditions of employment in conformity with the Constitution. The LSA aims to secure and improve the fundamental living standards of workers and achieve a well-balanced development of the national economy. The LSA states that the "wages" shall mean wages, salary and any other form of money or valuables which the employer pays to its workers as remuneration for their work.
The LSA establishes two different concepts of wage: ordinary wage and average wage. Each concept has its own calculation method and different scope of applications. We will look at each of these concepts in more detail below.
2. Main contents
1) Ordinary wage
The "ordinary wage" refers to hourly wage, daily wage, weekly wage, monthly wage, or contractual wage paid to a worker on a regular and uniform basis.
The ordinary wage serves as the basis for calculation of overtime, holiday and nighttime work pay, unused leave allowance, payment in lieu of notice of dismissal and maternity leave allowance, as well as for calculation of the minimum wage.
2) Average wage
The "average wage" is the amount calculated by dividing the total amount of wages paid to a worker over the span of three calendar months immediately preceding the day on which cause for calculating his/her average wage occurred by the total number of calendar days during the three months. This shall apply mutatis mutandis to the employment of less than three months;
The average wage is used for calculation of retirement pay, temporary shutdown allowance, and industrial accident compensation.
If the average wage calculated is lower than the ordinary wage of a worker concerned, the ordinary wage shall be deemed the average wage for the worker.
3. Concluding remarks
The employee is obligated to compensate the workers in accordance with relevant laws and regulations. The many forms of wages paid to a worker can vary depending on the ordinary wage and/or the average wage. If the calculation of the ordinary wage and/or average wage is incorrect, the employer is at risk of over or underpayment of wages. Therefore, the employer is advised to use caution when calculating the ordinary wage and the average wage of a worker.