Labor ministry to step up inspections on 'free labor' under all-inclusive wage contracts as anonymous tips triple

The government is launching a targeted crackdown on so-called "free labor" — the practice of withholding overtime, night and holiday pay by citing all-inclusive wage contracts. The inspection drive will focus on the manufacturing and information and communications technology sectors, where anonymous tips about the misuse of such contracts have nearly tripled compared with last year.

The Ministry of Employment and Labor said Tuesday it would conduct a two-month special inspection campaign targeting the abuse of all-inclusive and fixed-overtime wage arrangements.

The campaign will center on the manufacturing, ICT, and professional, scientific and technical services sectors, which generated the highest volume of anonymous tips to the ministry's reporting center between January and August this year.

The center received 260 anonymous tips during that period, a 165.3 percent increase from 98 cases in the same period last year. The anonymous reporting center has been in operation since February 2023 to improve access to remedies for workers harmed by the misuse of all-inclusive wage contracts.

The ministry believes outreach efforts — including a mobile promotional bus and campaigns through workplace anonymous messaging apps — drove the surge in tips since it issued guidelines in April to eliminate the abuse of all-inclusive wage arrangements. Tips received are verified and used to guide worksite inspections.

Inspectors will focus primarily on whether employers have withheld legally required overtime, night and holiday pay by invoking all-inclusive or fixed-overtime contracts. They will also examine whether total working hours — including overtime, night and holiday hours — have been properly recorded in payroll ledgers and pay stubs.

Under ministry guidelines, employers may not calculate or pay wages using a flat-rate system that does not distinguish between base pay and individual allowances, or a fixed-allowance system that bundles overtime, night and holiday pay into a single undifferentiated amount. Even where such arrangements exist by agreement, employers must pay the difference if the agreed amount falls short of the statutory allowances calculated on actual hours worked.

In an earlier inspection round conducted over roughly two months from February, the ministry examined 101 worksites that employ large numbers of young workers and found that 34 — about one in three — had failed to pay overtime, night and holiday allowances due to the misuse of all-inclusive wage contracts.

If violations are confirmed in the current campaign, the ministry said it will issue corrective orders or refer cases for criminal prosecution. The ministry will also offer consulting on improving all-inclusive wage practices and provide support through a human resources management platform for small businesses that helps track attendance and calculate wages. Platform usage fees for small businesses will be subsidized by up to 1.8 million won ($1,340) per worksite per year.

"Legal protections for workers must not be undermined by all-inclusive wage contracts," Labor Minister Kim Young-hoon said. "We will continue our support and inspections to ensure that a labor market order in which workers are fairly compensated for their work takes hold on the ground."