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Starting next year, wages owed to workers in multi-tier subcontracting projects in the construction and shipbuilding industries will be paid separately from contract fees and other costs.
Prime contractors and other ordering parties will be required to set aside the wage portion of monthly contract payments and verify that subcontractors have actually paid those funds to workers as wages. In shipbuilding, the system will first apply to projects with an initial contract value of 50 billion won ($35.3 million) or more, then expand to cover projects worth 12 billion won or more within three years.
The Ministry of Employment and Labor announced Wednesday that it will publish proposed amendments to the Enforcement Decree and Enforcement Rules of the Labor Standards Act on Thursday for a legislative notice period. The measure spells out the scope of application and payment procedures for the "wage-segregated payment" regime, which takes effect Jan. 1 next year.
Under the regime, ordering parties must each month separate the wage costs to be paid to workers from other expenses within the contract amount and remit that portion to subcontractors. Ordering parties must also confirm that subcontractors have properly paid the designated funds to workers as wages. Subcontractors are prohibited from using the wage funds for other purposes such as materials or operating costs.
The system is designed to cut off wage arrears at the source — a problem that arises when money earmarked for workers is diverted to other uses during multi-tier subcontracting. It is one of the key tasks under the government's "wage arrears eradication plan" announced last September. Previously, the wage-segregated payment system applied only to public-sector construction projects, but its transfer into the Labor Standards Act has expanded its reach to private construction and shipbuilding.
The system covers construction and shipbuilding projects — where multi-tier subcontracting is common — with a contract period exceeding 30 days. It applies equally to public and private projects.
For construction, the scope will be aligned with the "direct payment by project owner" system also set to take effect in January next year. That system requires project owners to use an electronic payment platform to distribute contract payments directly to lower-tier subcontractors and construction workers, bypassing the accounts of prime subcontractors. Specific thresholds for construction project values will be set by ordinance of the Ministry of Land, Infrastructure and Transport.
In shipbuilding, the final target will be contracting projects for vessel construction or repair where the initial contract value per vessel is 12 billion won or more. However, given that the wage-segregated payment system is being introduced to the shipbuilding sector for the first time — and taking into account the schedule for opening the public electronic payment platform to private use — the rollout will be phased.
In the first year, the system will apply to projects with an initial contract value of 50 billion won or more, then expand to 24 billion won and 12 billion won thresholds over three years. The approach establishes the system starting with large vessel construction projects before extending it to small and mid-sized contracting work.
Mechanisms will also be put in place to allow ordering parties to verify wage payments. Ordering parties will be able to request wage statements and social insurance contribution records from subcontractors. If a workplace uses its own electronic payment system to pay wages, it will be deemed to have fulfilled its wage-segregated payment obligation.
The ministry plans to gather field input during the 40-day legislative notice period running from Thursday through Sept. 29. It is also pursuing the addition of wage-segregated payment clauses to standard subcontracting agreements being revised by the Korea Fair Trade Commission for shipbuilding and related industries. After the system takes effect, the ministry will conduct surveys to identify other multi-tier contracting sectors and project types where the regime may need to be extended.
"The wage-segregated payment system is a flagship implementation task for preventing wage arrears suffered by workers of lower-tier subcontractors, particularly due to multi-tier contracting structures," Minister Kim Young-hoon said. "We will do our utmost to ensure that wage arrears actually decrease on the ground, including by requiring ordering parties to verify whether subcontractors have paid wages."
fact0514@heraldcorp.com
