Government Steps In to Settle Unpaid Wages Before Chuseok...Intensive Management Through End of October

To ease the financial burden for workers who have not received their wages during the Chuseok holiday, the government is shortening the payment period for substitute payments to within seven days and lowering the annual interest rate on livelihood loans to 1.0%. The government will also temporarily reduce the loan interest rates that support business owners in resolving overdue wage payments.

The Ministry of Employment and Labor and the Korea Workers’ Compensation and Welfare Service announced on the 24th that they would operate a “concentrated wage arrears settlement period” through October 31. As of the end of July this year, substitute payments totaling KRW 470 billion have been provided to 75,000 workers who suffered wage arrears. Last year, 115,000 workers received approximately KRW 685 billion in support.

The substitute payment system allows the government to pay workers a certain amount of overdue wages or severance pay when an employer fails to do so, then recover these payments from the employer. In order to promptly stabilize the livelihoods of workers suffering from wage arrears before Chuseok, the government will shorten the processing period from application to payment so that it can be completed within seven days.

The annual interest rate on livelihood loans for workers experiencing wage arrears will be reduced to 1.0% during the concentrated settlement period. A separate 1.0% credit guarantee fee must be paid. Workers employed at businesses with overdue wages can apply for the livelihood loan if, as of the application date, they have experienced wage arrears equal to at least one month’s pay in the previous year. Workers who retired within six months of the application date are also eligible. The loan limit is determined based on the amount overdue out of the final three months' wages, shutdown allowances, maternity/parental leave pay, and severance payments for the last three years.

Loan interest rates for business owners who have failed to pay wages due to temporary business difficulties will also be temporarily reduced. For businesses enrolled in workers' compensation insurance for more than six months, the minimum interest rate for secured loans will be 1.2% per annum, and for unsecured and jointly guaranteed loans, the rate will be 2.7% per annum.

The eligible amount for loans covers overdue wages for workers who have worked at a business for more than six months or who retired within one year after working for more than six months. Business owners must obtain a “Certificate of reason for loan payment” from their local employment and labor office before applying for the loan at the Korea Workers’ Compensation and Welfare Service.

As of the end of July, KRW 93.5 billion of the KRW 160.5 billion in budget set aside for wage arrears settlement loans this year has been executed, supporting settlement of unpaid wages for 16,019 workers. However, since substitute payments and livelihood loans are designed to compensate workers after wage arrears have already occurred, some have pointed out that monitoring of employers and preventative supervision must be strengthened to prevent habitual and intentional wage arrears.

Workers can apply online for livelihood loans for wage arrears through the Korea Labor Welfare Net, or visit a nearby branch of the Korea Workers’ Compensation and Welfare Service. The temporarily lowered loan rates will be in effect until the end of next month.

This content was produced with the assistance of AI translation services.