Move aims to stamp out fraud involving fake labor contracts and inflated wage arrears claims; Ministry of Employment and Labor to expand second-half probes and tighten sanctions against bad-faith employers

Authorities execute an arrest warrant against an employer who withheld wages and fled. [Ministry of Employment and Labor]
Authorities execute an arrest warrant against an employer who withheld wages and fled. [Ministry of Employment and Labor]

The government will double the maximum reward for reporting fraudulent claims under the wage advance payment system — raising the cap from 100 million won ($64,700) to 200 million won — in a bid to protect the program from abuse.

The move comes as fraud cases have mounted, with some claimants submitting fake labor contracts or inflating unpaid wage amounts to collect advance payments they are not entitled to. Officials say raising the reward is intended to encourage more tip-offs and shore up the integrity of the system.

The Ministry of Employment and Labor said Monday it would pre-announce a partial amendment to the enforcement decree of the Wage Claims Guarantee Act incorporating the change.

The wage advance payment system allows the government to pay workers their outstanding wages on behalf of employers who are unable to do so, then recover the amount from those employers.

Fraudulent claims — through falsified labor contracts or exaggerated wage arrears — have been detected with increasing frequency. In response, the ministry decided to raise the reward ceiling to encourage more reporting.

Under the current rules, informants receive up to 30 percent of the fraudulently claimed amount as a reward, subject to a cap of 100 million won. The amendment's central change is to raise that cap to 200 million won.

"This is a measure to encourage reporting of fraudulent claims by raising the reward ceiling, and to promote the sound operation of the wage advance payment system," the ministry said.

The fiscal health of the system is also flashing warning signs. According to the ministry, cumulative advance payments from 1998 through last year totaled 8.33 trillion won, yet unrecovered balances — amounts not clawed back from employers — stood at 5.86 trillion won.

The recovery rate fell from 32.2 percent in 2021 to 29.7 percent last year. With fraud cases also on the rise, the Wage Claims Guarantee Fund — which finances the advance payments — shrank from 722.2 billion won in 2021 to 325.1 billion won last year, a decline of more than half.

The ministry plans to conduct targeted fraud investigations into the wage advance payment system in the second half of the year, pursuing criminal charges against those caught. Any fraudulently obtained payments will be recovered in full, and additional surcharges of up to five times the amount may be imposed.

In addition, the ministry plans to impose credit sanctions on employers with large or long-standing wage arrears who fail to make repayments.


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