Labor Ministry pursues back insurance premiums, fines in crackdown on 'fake 3.3' sham contracts

The Ministry of Employment and Labor is moving to impose back insurance premiums, fines and mandatory enrollment in the four major social insurance programs on workplaces caught using so-called "fake 3.3" sham employment arrangements. The ministry said it will wrap up sanctions against workplaces flagged in a focused inspection campaign last March while pressing ahead with additional enforcement in the second half of the year.

The ministry announced Tuesday that it would proceed with the follow-up measures — including ex officio enrollment of uninsured workers, collection of unpaid premiums and imposition of administrative fines — against workplaces identified in the March crackdown on fake 3.3 arrangements.

The term "fake 3.3" refers to an illegal employment practice in which workers who are effectively under an employer's direction and supervision are instead contracted as independent business operators. Under such arrangements, employers withhold a 3.3 percent business income tax rather than wage income tax, allowing them to sidestep legal obligations including enrollment in the four major social insurance programs.

The ministry conducted a focused inspection campaign from Dec. 1 last year through March 5, identifying 1,070 workers at 72 workplaces who were paying business income tax instead of wage income tax and had not been enrolled in the four major social insurance programs. Their details were referred to the Korea Workers' Compensation and Welfare Service to begin the enrollment process for employment and industrial accident insurance.

The welfare service retroactively enrolled all uninsured workers in employment and industrial accident insurance and levied 520 million won ($337,000) in unpaid premiums on the workplaces. Regional employment and labor offices also plan to impose administrative fines of up to 3 million won on workplaces that failed to file insured-status reports or filed false ones, with the fine for each false report set at 50,000 won per worker.

The ministry said it will continue targeted inspections in the second half of the year, using withholding tax filing data from the National Tax Service, anonymous tips and job-advertisement monitoring to identify workplaces suspected of fake 3.3 arrangements. Against those found in violation, it will pursue ongoing premium collection and fines, work to identify workers missing from insurance rolls, and run public awareness campaigns to improve understanding of the system.

"Fake 3.3 sham employment goes beyond tax evasion — it strips workers of their right to be protected from risks such as unemployment and industrial accidents," Labor Minister Kim Young-hoon said. "We will work closely with relevant agencies to enforce the rules strictly, and will also hold meetings with business groups and pursue education and outreach efforts."