Most company employees' payslips contain more than a single salary line, including position allowance, cost-of-living allowance, shift allowance, travel allowance, commission, and per diem allowance. The more important question than many companies think is which payments count as "wages" under the law.
The answer has real financial consequences, because wages are the base used to calculate:
- Overtime pay and holiday work pay
- Severance pay upon termination and wages in lieu of advance notice
- Social Security contributions under the ceiling prescribed by law
- Wages for holidays and leave for which employees are entitled to receive wages
Companies that calculate based on a single salary line, even though some additional payments are wages, will have been underpaying these entitlements all along, and often only find out when an employee files a complaint with a labor inspector or the Labor Court after being terminated.
The determining principle: look at the nature of the payment, not the label
Labour protection law defines wages as money that the employer and the employee agree to pay as remuneration for work performed during normal working hours. In practice, the Labour Court considers the following together:
- Paid as remuneration for work, or paid to reimburse expenses, as a welfare benefit, or as an incentive payment subject to conditions
- Paid regularly, in every pay period, and in a fixed amount, or calculated systematically according to output
- Tied to normal working hours, not to overtime or special work
The label on the payslip does not help. Money that is labelled a "welfare benefit" but is paid every month in the same amount to everyone without conditions may still be counted as wages.
Common Examples of Extra Payments
| Payment | Tendency | What Changes the Outcome |
|---|---|---|
| Position allowance | Usually wages | Paid regularly to the person holding the position |
| Cost of living allowance | Usually wages | Paid in the same amount every month to everyone |
| Shift allowance | Usually wages | Paid regularly for working shifts during normal hours |
| Commission | Usually wages if it is the main income paid regularly | Occasional special rewards may not be |
| Travel allowance / fuel allowance | Depends on the payment method | Reimbursement of actual expenses usually is not; a flat amount paid equally every month may be |
| Telephone allowance | Depends on the payment method | Reimbursement against receipts usually is not; a flat payment may be |
| Meal allowance | Depends on the payment method | Meals provided as a welfare benefit usually are not; cash paid in the same amount every month may be |
| Per diem for travel outside the area | Usually not | Paid only for days actually travelled, to compensate for expenses |
| Attendance allowance | Usually not | It is an incentive payment subject to conditions |
| Bonus | Usually not | Depends on operating results or discretion |
| Overtime pay | Not wages | The law treats it separately, because it is paid for work outside normal hours |
This table shows general tendencies, not fixed answers. A real case must be considered together with the payment conditions, work rules, employment contract, and what the company actually does.
Why this should be decided when designing the salary structure
Many companies add extra payments piecemeal as situations arise, such as a cost-of-living increase instead of a salary raise, or a flat travel allowance because it is easier to account for, without considering that such a payment will also become the base for overtime and severance pay.
Designing it from the start lets a company:
- Know the real cost of each employee, including overtime and the burden upon termination
- Separate reimbursement of actual expenses from remuneration through a reimbursement system with supporting evidence, if the intention is to reimburse actual expenses
- Write the conditions of incentive payments clearly, stating when they are earned and when they are not
- Avoid having to fix it later, because changing payments that employees already receive in a way that reduces their entitlements requires the employee's consent
If the company has been calculating incorrectly all along
Underpaid overtime pay or severance pay is treated as arrears. Employees can claim retroactively within the limitation period, and the employer may be required to pay interest or additional payments under the law. Reviewing and correcting the calculation method yourself before a dispute arises is therefore cheaper than waiting for the matter to occur.
Read more
- Unpaid wages and unpaid overtime
- Severance pay when terminated: how is it calculated
- 1-year employment contract: must severance be paid once the contract ends?
📌 See more: Employment contracts, salary structures and employee handbooks · Labor cases
If the company is setting up a salary structure, or wants to know how much the additional payments it currently makes change the wage base, consult our team of lawyers. We review this together with the accounting team that handles payroll.
This article is general information, not legal advice for any specific case.
