Introduction

Under the Korean Labor Standards Act (“the Act”; all Article references are to the Act unless otherwise specified), the “average wage” of an employee means the amount calculated by dividing the total amount of wages paid during the three calendar months immediately before the day grounds for calculating his or her average wages occurred by the total number of calendar days in those three calendar months; this applies mutatis mutandis to an employment of less than three months (Article 2(1)(6)), and when the amount calculated pursuant to the above is lower than that of the ordinary wages of the employee, the amount of the ordinary wages shall be deemed his or her average wages (Article 2(2)).

Wages and allowances paid on a temporary basis and wages paid by any means other than money are not included when calculating average wages (Article 2(2) of the Enforcement Decree), and bonuses that are recognized as a consideration for provision of labor are included by dividing the total amount thereof paid for 12 months by the number of months on which the employee concerned has worked during such period.¹

Such calculated average wages serve a standard for calculating the amount of retirement allowances (Article 34, Article 8 of the Act on the Guarantee of Employees’ Retirement Benefits), shutdown allowances (Article 46), accident compensation such as compensation for suspension of work, compensation for disability, compensation for survivors, funeral expenses, lump sum compensation (Articles 79 through 84), temporary lay-off benefits, disability benefits, survivors’ benefits, injury-disease compensation annuities and funeral expenses in the insurance benefits of industrial accident insurances (Articles 52, 57, 62, 66 and 71 of the Industrial Accident Compensation Insurance Act).

However, in practice, there are cases in which it is difficult to calculate the amount of an average wage according to the above method for various reasons and in such case, the method of calculation may raise an issue.

Read more about average wages issue 

1. Guidelines for handling bonuses in calculating average wages (dated October 14, 2015; Ministry of Employment and Labor Established Rule No. 96)

Above was an article originally contributed by Attorney Yo-Sub Shim to the Monthly Labor Law. You can check the same content (only available in Korean language) in this link.