One in six cases of unpaid wages in South Korea during the first half of this year occurred at businesses that had suspended operations or shut down, according to data released on the 22nd. Because severance pay typically accounts for more than 40% of total arrears, analysts say the country should move faster to require companies to set aside retirement funds externally through retirement pension plans.
Of the 924.7 billion won ($667 million) in total unpaid wages recorded in the first half, 153.1 billion won, or 16.6%, came from businesses that had closed or suspended operations, according to figures submitted by the Ministry of Employment and Labor to Rep. Park Hae-chul of the Democratic Party of Korea, a member of the National Assembly's Climate, Energy, Environment and Labor Committee. Compared with the first half of 2023, the amount rose about 2.6-fold and its share of the total climbed about 2.2-fold.
Unpaid wages are most severe at small businesses struggling to withstand financial pressure. Firms with fewer than 30 employees accounted for 74.2% of all arrears.
Two approaches are available to address unpaid wages at small businesses. The first is a government substitute payment program, under which the state pays workers what they are owed and later recovers the money from employers. The program for insolvent businesses recently expanded its coverage from three months of wages to six, and raised the payment ceiling to 31.5 million won from 21 million won. While the program offers workers effective relief, recovering the payments from employers who have closed their businesses remains difficult.
Experts say mandating retirement pension plans would be a more fundamental solution. Setting aside severance funds outside the company through such plans prevents severance pay from going unpaid. Severance accounts for about 40% of total unpaid wages. Yet only about 23% of businesses with fewer than 30 employees have adopted retirement pension plans.
Detailed measures for making the plans mandatory are expected this year. In February, labor groups, business groups and the government reached a broad agreement on phasing in a mandate. President Lee Jae-myung was briefed on a labor-management-government task force plan to strengthen retirement pension functions at the 47th senior secretaries' meeting, which he presided over behind closed doors at the Blue House the previous afternoon. A labor ministry official said final work is underway to announce the mandate plan.
