Starting next year, in multi-tier subcontracting projects within the construction and shipbuilding industries, wages for workers must be separated from other project costs. Prime contractors will be required to verify that subcontractors have paid these wages as intended.
The Ministry of Employment and Labor announced that it will begin legislative notice on the revised enforcement decree and rules of the Labor Standards Act on the 20th. The wage separation system mandates that contractors distinguish wage costs from the total contract amount and confirm that subcontractors have actually paid these wages. Using wage costs for other purposes is prohibited.
This initiative is a key component of the 'Measures to Eradicate Wage Arrears' announced as part of a government-wide strategy last September. It aims to fundamentally eliminate the causes of wage arrears, which often occur when wage costs are misallocated in the multi-tier subcontracting process.
Previously, the wage separation system applied only to public sector construction projects under the Construction Workers Act. The government is now transferring this to the Labor Standards Act, expanding its application to private construction projects and the shipbuilding industry.
According to the revised proposal, subcontracting projects in the construction and shipbuilding sectors that exceed 30 days in contract duration will be subject to the wage separation system, regardless of whether they are public or private.
The scope of application for the construction industry will align with the 'Direct Payment System for Clients' set to be implemented on January 1. This system allows clients to pay subcontractors and construction workers directly through an electronic payment system, bypassing the general accounts of primary and secondary contractors.
In the shipbuilding industry, the wage separation system will apply to subcontracting projects for building or repairing ships, specifically those with an initial contract amount of 12 billion won or more. However, given that this is the first introduction of the system in the shipbuilding sector and the timeline for opening the public electronic payment system to the private sector, the application will be gradually expanded over three years. The first phase will apply to projects with an initial contract amount of 50 billion won or more, followed by reductions to 24 billion won and then 12 billion won.
Contractors may request wage statements and social insurance payment records from subcontractors to verify wage payments. If wages are paid using the project's own electronic payment system, this will also be recognized as compliance with the wage separation obligation.
The Labor Ministry will collect feedback from the field during a 40-day legislative notice period ending on the 29th of next month. The Fair Trade Commission is also working to add wage separation-related clauses to standard subcontracting contracts in relevant industries, including shipbuilding. After the system is implemented, ongoing assessments will be conducted to identify multi-tier subcontracting sectors and project types that may require expanded application.
Minister of Labor Kim Young-hoon stated, "The wage separation system is a key measure to prevent wage arrears for workers in multi-tier subcontracting structures. By ensuring that contractors verify wage payments to subcontractors, we aim to reduce actual wage arrears on-site."
* This article has been translated by AI.
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