April 10, 2026
SEOUL – South Korea is stepping up efforts to curb unpaid overtime practices, drawing mixed reactions from labor groups and businesses, as authorities move to overhaul a decades-old wage system that has long blurred the line between base pay and overtime.
The Labor Ministry began applying new guidelines on Thursday to restrict abuse of the “inclusive wage” system, first introduced in 1976, under which companies bundle overtime pay into base salaries or fixed allowances regardless of actual hours worked. The government also rolled out measures to verify compliance in the workplace.
While the ruling Democratic Party of Korea is preparing related legislation, labor groups welcomed the move as a step that can be taken immediately under existing law.
Business lobbies, however, criticized it as a departure from prior agreements that could bring abrupt changes to the operating environment.
The guidelines prohibit contracts that fail to clearly distinguish between base pay and additional wages, as well as among different types of allowances. Employers must also compensate workers based on actual hours worked at a premium rate of at least 1.5 times ordinary wages if fixed allowances fall short.
To strengthen enforcement, labor inspectors will examine whether companies are accurately recording working hours. Authorities will also accept anonymous complaints, which could trigger ad hoc inspections by regional labor offices.
The ministry has called for limiting the use of the inclusive wage system, particularly in cases where working hours can be measured. For jobs where tracking time remains difficult, employers are urged to adopt a government-designated system to monitor working hours more transparently.
The wage structure has long been criticized as a key factor behind Korea’s long working hours, as it weakens incentives for companies to limit overtime, especially at smaller firms.
The country’s average annual working hours stood at 1,859 in 2024, among the highest in the Organization for Economic Cooperation and Development.
The latest move aligns with President Lee Jae Myung’s pledge to reduce working hours to the OECD average of 1,708 by 2030. In February, Lee instructed officials to prioritize measures that can be implemented without waiting for legislative changes.
On Wednesday, he reiterated his stance on social media, writing, “Wages for labor must be paid fairly.”
The inclusive wage system originated in an era when mechanisms to precisely track working hours were limited, leading companies to adopt fixed-sum wage structures.
Efforts to reform the system have repeatedly faced resistance from both labor and business circles, including during the Moon Jae-in administration, when tripartite talks in 2017 failed to produce an agreement.
Labor unions broadly welcomed the new guidelines.
“It is a step in the right direction that the government is showing its will to guarantee rights already stipulated by law,” an official from the Korean Confederation of Trade Unions said. The official added that for the policy to take root, more robust systems for recording and managing working hours must be put in place.
Business groups, however, argue that the guidelines effectively amount to a de facto ban on lump-sum wage contracts, breaking a prior understanding reached among labor, business and government during discussions last December.
The Korea Enterprises Federation said the parties had agreed not to prohibit bundling overtime into base pay or setting fixed allowances disconnected from actual working hours.
“The move goes against the social consensus reached through difficult negotiations and mutual trust,” the federation said. “It will cause confusion in the field and could trigger legal disputes.”
Companies also warned that stricter rules could weigh on industries that rely on rapid responses to unpredictable situations, as well as routine tasks that are difficult to clearly classify as working time.