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74 Country starter pack Business practicalities in Korea More employers have begun to introduce performancebased pay and profit-sharing schemes in recent years. Individual contracts for annual salaries linked to performance are increasingly common. Share options are also growing in popularity. Workers in Korea are compensated with direct cash payments, as well as a variety of subsidised services, allowances and bonuses. Benefits typically include housing, health and life insurance, cars and transport, recreation, children’s education, meals and holidays. As part of labour reform, both local and multinational firms are making progress in consolidating the many itemised benefits into single cash payments added to base pay. Social insurance programs covering pension funds, medical costs, workplace accident compensation, and employment insurance must be contributed to by employers. Employers must also set aside severance pay for employees, which is equal to one month’s salary for every year worked. Employees who have worked for at least one year are entitled to severance pay. Social insurance charges (of total amount of wages and salaries, April 2012) Social Insurance Employer’s charges Employee’s charges Unemployment 0.55% 0.55% National 4.5% 4.5% pension Health 3.09% 3.09% Workers’ accident compensation 0.005% N/A The two most important welfare schemes are employment insurance and national pensions. As set out in the National Pension Act, employers and employees each contribute 4.5 per cent of the employee’s monthly salary to the national pension fund. Employment insurance provides 50 per cent of previous wages for up to eight months for unemployed workers up to the age of 64, provided they had been employed for six months or more. Irregular workers, such as part-timers and day labourers, are covered as long as they have been employed for at least six months in the year before unemployment. On holidays/annual leave, the Korean Standards Labour Act states: • An employer should grant 15 days paid leave to a worker who has registered more than 80 per cent of attendance during one year. After the first year of service, an employer should grant one day paid leave for each two years of consecutive service in addition to the leave for the first year. • An employer should grant one day paid leave per month to a worker whose consecutive service period is shorter than one year, if the worker has offered work without absence throughout a month. Australia-Korea social security agreement Australians who are working or have worked in Korea are able to receive a lump-sum refund of their social security contributions or have access to a Korean oldage pension. The agreement, which took effect in 2008, mirrors Australia’s refunding of superannuation guarantee contributions for non-residents who have worked temporarily in Australia. The refunds benefit those who have worked in Korea for just a few years, such as many English language teachers, and who would not be eligible for a Korean old-age pension. Lump-sum refunds will be retrospective for those who worked in Korea before the agreement took effect. The agreement also helps former Australian residents of pension-age living in Korea, who can claim a pension without having to return to Australia. In addition, people who are sent to work temporarily in Australia or Korea don’t have to contribute to two social security systems. Termination of employment It is possible to dismiss an employee for a legitimate reason and with 30 days advance written notice or payment of a month’s wage. However, a Labour Dispute Mediation Committee exists for the purpose of conciliation, mediation and arbitration of labour grievances. The Labour Committee is empowered to examine whether an employee has been dismissed for just cause and may also order that an unjustly dismissed employee be reinstated. Foreign investors should consult with a qualified legal counsel for more detailed explanations of dismissal procedures and legalities. If a worker continuously employed for one year or more is terminated for any reason, severance pay of at least one month, or pay equivalent to an average of 30 days, must be paid for every year of employment. For this purpose, the average pay is computed on the basis of compensation for the three months immediately preceding the termination. For mass dismissals (often referred to in Australia as redundancies) due to justifiable managerial reasons (such as suspension of production, closure of partial operation, or corporate restructuring forced by financial distress), employers must deliver 50 days advance notice to a labour union or any individual representing more than 50 per cent of the total number of employees affected. They must also file notice of the intended layoff with the Ministry of Employment and Labour at least 30 days ahead of the intended plan. The advance notification requirement applies to the dismissal of 10 or more employees in a business place with fewer than 100 employees, or 10 per cent of the total employment in a business place with between 100 and 1,000 employees.
Country starter pack Business practicalities in Korea 75 CASE STUDY Indulge Co Ross Gregory, Chairman Knowing the rules and doing things by the book, no matter how challenging, is vital for businesses setting up in Korea. Differing business practicalities in Asian markets can be a challenge to navigate but it shouldn’t deter you. “Korea is a rules-driven place – it is a highly regulated country particularly with taxes, import regulations and employment law, thus it is crucial to understand the regulations and do things by the book,” says Australian Ross Gregory, Chairman of wine, beer and spirit importing company Indulge Co, and entrepreneurial investor in several businesses in Korea. Having worked in Korea for more than 10 years, including a decade at Australia’s Macquarie Bank, Gregory highlights the importance of getting local advice when setting up and running a business there. “Having a Korean business partner is not necessary to succeed in the market, but having a Korean accountant or lawyer who understands the regulations and having local Korean managers who you trust and who thoroughly understand the market, is vital. Understanding employment practices is also important. “Korean labour laws have lots of quirks that need to be understood and may seem a bit confusing for Australians who are generally used to less unionism and more balanced attitudes in employment regulations,” explains Gregory. “There are a lot of hidden costs Australian businesses may not budget for. An example of this is the legal requirement around providing employees severance pay – once an employee has worked for a company for 12 months, they are entitled to one month of severance pay for each year of service.” Other laws particular to Korea include those related to entitlement to permanent employment. Contractual employees working for the same company for more than two years are then legally required to become permanent employees – even if performance is unsatisfactory. “It is incredibly difficult to dismiss a permanent employee in Korea unless under certain conditions such as criminal activity or company bankruptcy,” highlights Gregory. To address this challenge, Gregory recommends: “Oversee your employees during the contract period to determine their loyalty and if they are hardworking, as unfortunately, the only way to manage any problematic employees is ending their contract prior to the anniversary. Favourably, a three month probation period always applies.” Hidden costs may include taxes that even your Korean staff may not be aware of. “It took us a while to realise that a recycling tax applied to importing bottles. No one working for us had even heard of this regulation.” Being across all information and constantly monitoring regulation updates is critical as not meeting requirements can accrue hefty fines. Ensuring you complete all necessary government forms is also vital for businesses operating in Korea. “When building a new gym, one form in relation to the minor adjustment of a dividing wall was not lodged correctly with the local government office – this caused our construction to be delayed for four weeks,” says Gregory. Australian businesses importing a product into Korea should also pay attention to all regulations, including “things that you wouldn’t assume would be an issue”. Gregory gives tonic water as an example – a drink whose quinine ingredient originates from the Cinchona tree. “Due to the product being associated with tree bark – wood – the Korean Food and Drug Association (KFDA) will not permit it to be imported. Therefore, only poor substitutes of tonic water are currently available in Korea.” Although Korean regulations are detailed, operating under “rule of law” does have advantages. “As long as you are aware of the regulations, you know where you stand,” says Gregory. “Korea is a market full of potential and once you’re up and running, operations tend to operate fairly seamlessly and similar to Australia.” www.indulgekorea.com
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REPUBLIC OF Korea COUNTRY STARTER P
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SURFACE AREA 99,400 square kmS GDP
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Country starter pack Getting starte
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