Update on legislative and MOEL regulatory trends regarding comprehensive wage schemes

At a glance

• South Korea is moving to prohibit comprehensive wage schemes in principle as part of its policy agenda to reduce working hours and curb unpaid overtime.
• Nine pending bills amending the Labour Standards Act (LSA) would restrict or ban comprehensive wage arrangements, with key differences on fixed overtime, record‑keeping and sanctions.
• A tripartite-backed bill would ban comprehensive wage schemes for overtime premiums but permit fixed overtime agreements if excess overtime is paid separately.
• Separately, the Ministry of Employment and Labour (MOEL) has issued binding Guidelines to Prevent Misuse of Comprehensive Wage Schemes to Eradicate Unpaid Labour, effective April 9, 2026 (Guidelines), effective 9 April 2026, tightening enforcement and inspection of wage practices.
• Employers face increased compliance and investigation risks even before legislative amendments are finalised.

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This article has been reproduced with the permission of the authors Weon Jung Kim, Paul Cho, Beom-Kon Cho, Ki Young Kim, Ji-Hyo Ryu, DongWook LEE, Jung-Lae Lee and Hoin Lee at Kim & Chang.

As the government advances shorter working hours as a key policy agenda and, as part of that agenda, seeks to principally prohibit comprehensive wage schemes, the National Assembly has commenced a review of proposed amendments to the LSA that would prohibit comprehensive wage arrangements in principle. In addition, the MOEL issued Guidelines. This update summarises key legislative and regulatory developments relating to comprehensive wage schemes.

National Assembly review of bills to ban comprehensive wage schemes

A total of nine LSA amendment bills aimed at restricting or prohibiting comprehensive wage agreements have been introduced and are currently pending before the National Assembly, with deliberations having become more active this month. While the bills share a common direction of prohibiting agreements that comprehensively prepay statutory overtime premiums, they differ on several key points, including the following:

• Whether fixed overtime (OT) arrangements would be permitted.
• Whether employers would be required to keep a record of the employees’ working hours and / or report such information to the MOEL.
• Whether a breach of any record keeping or reporting obligations would be subject to administrative fines or other sanctions

Among the pending proposals, the bill commonly described as reflecting a tripartite agreement, proposed by Rep. Kim Joo Young of the Democratic Party, would prohibit comprehensive wage agreements for overtime premiums in principle, while allowing fixed OT agreements mutually agreed to by the parties, provided that the employer pays any additional amounts due for any overtime exceeding the predetermined working hours.

The bill also includes measures intended to enhance transparency and employee access to information. In particular, it would require employers to record, in the wage ledger, daily figures for overtime, nighttime, and holiday work hours, and would grant employees the right to inspect, request copies of, or request correction of wage ledgers, wage statements, and supporting documentation. However, the bill neither introduces an obligation to report working time information to the MOEL nor establishes sanctions for violations.

Because the bill remains under committee review, the final scope and wording may change during the legislative process. However, given that it is a tripartite agreed proposal, its progress warrants close monitoring.

MOEL Guidelines to Prevent Misuse of Comprehensive Wage Schemes

Consistent with its policy direction to reduce working hours by prohibiting comprehensive wage schemes in principle, the MOEL has, since 26 February 2026 for approximately two months, conducted planned inspections targeting workplaces suspected of misusing comprehensive wage practices. The MOEL then announced and began enforcing the Guidelines, effective 9 April 2026.

Under the Guidelines, employers are expected to separately itemise base pay and each allowance item in wage ledgers and wage statements and to calculate and pay statutory premiums for overtime, nighttime, and holiday work based on actual working hours.

The Guidelines further indicate that employers should not structure compensation in a manner that obscures statutory premium items, including, for example, arrangements where base pay and allowances are not distinguished, or overtime, nighttime, and holiday premiums are not distinguished and are instead paid as a single bundled overtime allowance.

Where the parties have entered into a fixed OT agreement that includes a predetermined amount of overtime premium in monthly pay, the MOEL clarifies that the employer must compare the agreed fixed OT amount with the statutory premiums calculated based on actual working hours. If the agreed amount falls short of the statutory amount, the employer must pay the difference. The MOEL indicates that a failure to pay such differences may be treated as wage arrears and handled strictly in accordance with enforcement practice.

The MOEL has also indicated that it will operate an anonymous reporting channel for suspected misuse of comprehensive wage and fixed OT arrangements. Workplaces that are reported may be treated as potentially high-risk workplaces and may be selected for ad-hoc inspections or included in the planned inspection targets in the second half of the year.

Outlook and practical considerations

Even under current law and case precedent, comprehensive wage agreements are recognised as valid only in limited circumstances. Accordingly, even before any statutory amendment is enacted, the enforcement of the MOEL’s April 2026 Guidelines is expected to increase the risk of disputes and investigations relating to unpaid overtime premiums.

In particular, because the MOEL has taken the position in these Guidelines that even 'fixed allowance' structures that bundle statutory premium categories (overtime / nighttime / holiday) are problematic, companies using such arrangements should treat this as an immediate compliance risk and review their payroll practices accordingly.

At the same time, it remains somewhat unclear how the MOEL will treat hybrid structures where a fixed allowance is used as an administrative mechanism but the employer still (1) records actual overtime / nighttime / holiday hours and (2) calculates each premium category and pays differences when overtime amounts exceed the fixed allowance. This point should be monitored for future MOEL clarification or enforcement.

To prepare for possible statutory changes and to mitigate immediate inspection and dispute risks, employers should:

• maintain accurate working-time records and supporting payroll calculation records; and
• ensure premium payments are made in compliance with statutory rules and based on actual work performed.

Where it is genuinely difficult to measure working time, and the company believes comprehensive wage practices are unavoidable, the company should maintain clear documentation showing the reasons and factual basis for this operational necessity.