Wage Arrears No Longer End in a Settlement
For years, unpaid wages were treated as a timing problem rather than a legal one. An employee filed a complaint, the employer paid what was owed, the employee stated they did not wish to see the employer prosecuted, and the case closed. That assumption has now been dismantled in two separate steps.
First, the amended Labor Standards Act targeting habitual wage arrears has been in force since October 23, 2025. It introduced public disclosure of offending employers, credit sanctions, and restrictions on government support programs, and it extended delay interest of 20% per year beyond departing employees to currently employed workers as well. The heaviest change is this: if arrears occur again while an employer is on the public disclosure list, criminal prosecution can proceed regardless of whether the affected employee wants it. With that exception to the "no prosecution against the victim's wishes" rule, a window opens in which settlement is no longer an exit.
Second, the statutory penalty for wage arrears rises on October 8, 2026 — from up to 3 years imprisonment or a fine of up to KRW 30 million, to up to 5 years imprisonment or a fine of up to KRW 50 million. These are two distinct measures taking effect at different times, so your response plan should treat them separately. Disclosure, credit sanctions, and expanded delay interest are risks already live today; the heavier sentencing range is the one still ahead.
Five Ways SMEs Fall Into Arrears Without Intending To
In practice, most arrears cases arise not because an employer refused to pay, but because the calculation was wrong.
Building the Defense Into Your Systems and Records
Arrears risk is a recordkeeping problem before it is a cash problem. Five items belong permanently in your systems.
1. Link working-time records to payroll calculation
If attendance data does not feed payroll automatically, you cannot reconstruct the basis for overtime, night, and holiday premiums after the fact. In a dispute, missing records work against the employer.
2. Audit the mandatory contents of the wage ledger
It must contain name, date of birth, and employee number; the basis for wage and family allowance calculation; days and hours worked; overtime, night, and holiday hours; base pay and each allowance; and every deduction with its amount. Keeping bank transfer records alone is not a wage ledger.
3. Issue and retain pay statements
Issue them so the calculation method is visible, and keep a record of issuance itself.
4. Document interim severance settlements
Without written grounds, settlement dates, and covered periods, you will face disputes over the starting point for future severance calculations.
5. Automate delay interest
Configuring your payroll system to compute delay interest at 20% per year makes the cost of a delay visible immediately, which speeds up decisions.
What to Do When an Incident Occurs
Once a complaint is filed, a labor inspector will request attendance and documentation. Whether you can produce three documents on the spot — the wage ledger, employment contracts, and working-time records — largely determines how the early stage unfolds.
If cash is short, set your settlement priorities explicitly. Wages and severance take precedence over other obligations, and where full payment is impossible, documenting the reason, the payment plan, and any partial payments, then notifying employees, is itself meaningful when habitual conduct is assessed.
Public disclosure targets employers with repeated confirmed arrears within a defined period. That means clearing a first instance quickly, so you never satisfy the "repeated" element, is the only genuinely avoidable stage. Once you are on the disclosure list, a further instance can no longer be closed by settlement.
A 90-Day Checklist
Documents (Days 1–30)
Systems (Days 31–60)
Processes (Days 61–90)
Talk to KITIM
The habitual-arrears sanctions in force since October 23, 2025 and the heavier penalties arriving on October 8, 2026 turn small payroll calculation errors into criminal exposure for management. The gap is widest at SMEs without dedicated HR staff, where mistakes come from not knowing rather than not paying.
The Korea Institute of Technology Innovation Management (KITIM) supports compliance diagnostics across wage ledgers, employment contracts, and attendance records; verification of average wage and severance calculation logic; restructuring of inclusive wage agreements; and payroll process redesign. If you need to confirm whether your current payroll system meets the amended standards, please contact KITIM.