The scope of the bankruptcy compensation fund, which provides payments to workers who have not received wages due to business bankruptcies, will expand from three months to six months. Additionally, the loan limit for employers seeking to settle wage arrears will increase to a maximum of 1 billion won when collateral is provided.
The Ministry of Employment and Labor announced on the 19th that the revised Wage Claim Guarantee Act and its enforcement rules will take effect on the 20th.
The bankruptcy compensation fund is a system where the government pays a certain amount of unpaid wages and severance pay on behalf of employers who are unable to pay due to bankruptcy or rehabilitation proceedings. Previously, the fund covered the last three months of wages, suspension allowances, maternity leave pay, and the last three years of severance pay.
The revised law expands the coverage for wages and suspension allowances to the last six months, while maintaining the three-year limit for severance pay. As a result, the total cap on bankruptcy compensation that a single worker can receive will increase from 21 million won to 31.5 million won. However, the actual payment amount will be subject to age and monthly limits.
For example, if a 35-year-old worker with a monthly wage of 3.5 million won experiences a total of 17.5 million won in unpaid wages over the last five months, under the previous system, they would only receive up to 9.3 million won, applying the age-based monthly limit of 3.1 million won for the last three months. Under the revised system, they would be eligible for 15.5 million won, applying the monthly limit over the five months.
The loan limit for employers seeking to settle unpaid wages will also be increased. The limit for general loans per employer will rise from 150 million won to 200 million won, and the support limit per worker will increase from 15 million won to 20 million won.
A special loan program has also been introduced for employers who have experienced large-scale wage arrears exceeding 200 million won in the last three months. If the employer provides real estate as collateral worth at least 120% of the loan amount requested, they can borrow up to 1 billion won. However, they must meet the requirement that three years have passed since the last special loan confirmation notice was received.
The loan funds will be deposited directly into the personal accounts of the affected workers, bypassing the employers. The interest rates are set at 2.2% for secured loans and 3.7% for credit and joint guarantee loans.
Eligible businesses must be covered by industrial accident insurance and have been operating for at least six months. Businesses that are closed or have registered delinquency information are excluded from the loan program. Workers must have been continuously employed at the business for at least six months. Former employees are eligible if they worked for at least six months and left within one year prior to the loan confirmation application date.
Minister of Employment and Labor Kim Young-hoon stated, "While we will respond sternly to employers who fail to pay wages, we have expanded the bankruptcy compensation fund and the loan program for settling wage arrears to protect affected workers. We will strengthen government support to help restore the disrupted lives of unpaid workers as quickly as possible."
* This article has been translated by AI.
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