Why Now — 86% of All Businesses Are Affected
The Korean government has formalized its plan to phase in Labor Standards Act (LSA) coverage for workplaces with fewer than five employees, and the basic assumptions behind small-business HR management are changing at the root. Businesses with fewer than five regular employees account for roughly 86% of all establishments and employ about 30% of the workforce. Until now, these workplaces have been exempt from core LSA provisions — annual paid leave, overtime/night/holiday premium pay, and remedies for unfair dismissal.
The difficulty is that most small workplaces built their pay structures and HR practices around that exemption. Flat monthly salaries with no breakdown of hours, no attendance records, and employment contracts that are verbal agreements in all but name — all three convert into liabilities at once. That is why the structure must be fixed before the rules apply, not on the day they do.
The Phase-In Order — Low-Cost Provisions First
The roadmap expands coverage sequentially, starting with provisions that impose the least cost.
The Occupational Safety and Health Act is widening in parallel by size and industry, extending protection to dependent contractors, platform workers, and freelancers. Safety-and-health disclosure requirements and expanded state responsibility for industrial accident insurance are under discussion as well — labor and safety regulation should be treated as a single package.
Counting Regular Employees — Are You Really "Under Five"?
Everything starts with the headcount test. Under current rules, the count is total person-days over the assessment period divided by operating days — not "how many people showed up today." Common mistakes include:
Splitting entities or spreading names purely to stay under the threshold tends to be disregarded on substance — and when it is, back wages and administrative fines land together.
Simulating the Cost of Premium Pay
Take an employee with a monthly ordinary wage of KRW 2.5 million and 209 contractual hours per month. The ordinary hourly wage is about KRW 11,962. Each overtime hour is billed at 1.5×, or KRW 17,943. At 20 overtime hours per month, that adds roughly KRW 360,000 per month and KRW 4.3 million per year. Five such employees push the annual increase past KRW 21 million.
On top of that come unused annual leave allowances (about KRW 96,000 per day × 15 days ≈ KRW 1.44 million) and higher severance accruals. Premium pay is not a standalone line item — it cascades through ordinary wage into multiple obligations. Paired with the duty to record working hours, administrative workload rises too.
Five Tasks to Start Now
Using Government Support Programs
Cushioning the cost impact should run in parallel. Options include the Job Leap Incentive for hiring youth and mid-career workers, social insurance premium subsidies (Duruumi) for low-wage employees, safety consulting and facility improvement grants (Clean Workplace program) for small sites, and HR/labor diagnostic vouchers. Most require advance application and selection, so plan against the budget calendar rather than the regulatory effective date.
How KITIM Supports You
KITIM supports small workplaces in three stages. First, a headcount diagnosis and a phase-by-phase risk map that pins down exactly which provisions apply to your business and when. Second, a work rules and employment contract package, paired with a labor-cost simulation that folds premium pay into your financial plan. Third, occupational safety system design with a roadmap toward ISO 45001, turning compliance into a certifiable asset.
The preparation window opens the moment a regulation is announced, not the day it takes effect. If you want clarity on your own timeline and cost exposure, request a free consultation with a KITIM specialist.