When the minimum wage rate adjustment is announced, what many companies do is change the figures in the payroll system for those who earn less than the new rate, and consider it done.
The fact is that wages are the calculation base for many other items. Adjusting the base therefore affects the entire system, and the items that are forgotten to be adjusted are often those that are later claimed retroactively.
Items that Adjust with the Wage Base
- Overtime pay and holiday work pay, which are calculated from the hourly wage at the new rate
- Pay for paid leave days, such as statutory sick leave and annual vacation leave
- Social security contributions, which are calculated from wages under the prescribed ceiling
- Calculation base upon termination, both payment in lieu of advance notice and severance pay based on years of service
- Pay for unused vacation days upon termination of employment
The two most frequently forgotten items are the first two, because some payroll systems store the hourly rate as a separate fixed constant and do not automatically recalculate it from the salary base.
Checklist When There Is a Wage Rate Adjustment Announcement
- Check the rate for each area where the company has establishments — do not use a single figure for the whole company.
- Check the effective date and verify that any payroll period straddling that date has been correctly split and calculated.
- Check the hourly rate in the payroll system to confirm it has actually been recalculated, not left as a fixed preset value.
- Check daily-paid, piece-rate, and probationary employees to ensure that, when converted back, they are not lower than the new rate.
- Separate welfare benefits from wages — do not include meal or transportation allowances to reach the minimum rate.
- Post the notice of the new rate at the workplace so that employees are informed.
- Review the salary structure to see whether the gaps between levels are still reasonable.
- Keep evidence of the adjustment, including internal documents and the pay slips for the adjusted payroll period.
The rates and effective dates must be verified against the Wage Committee announcement currently in force. This article does not state specific figures because the rates change with each announcement and vary by area.
The risks that follow if you do not adjust
Paying below the minimum wage rate is not something that ends with an explanation. Employees can file a complaint with a labor inspector, and when an order to pay is issued, the employer must pay the difference retroactively — it is not a matter of starting to pay correctly from the date the violation was discovered.
What causes the amount to balloon is the knock-on effects, because when the wage base is adjusted retroactively, overtime pay and other items calculated from that base are also recalculated accordingly, and it may further affect social security contributions that were remitted lower than they should have been.
For businesses with tight labor costs
Reducing working hours, restructuring shifts, or reviewing benefits are viable options, but it must be considered whether they affect the existing terms of employment that employees currently enjoy, because changes that are unfavorable to employees without their consent are subject to legal restrictions.
What should not be done is terminating employees and rehiring them under new conditions in order to reset the terms of employment, because this approach can be challenged both on the grounds of continuous length of service and on the fairness of the termination.
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If you are called in for inspection by a labour inspector, or have been ordered to make back payments, consult a lawyer for free: call 092-254-2045
This article provides general information, not legal advice for specific cases. Minimum wage rates change by announcement; you should check the version in force in your area.