Minister of Employment and Labor Kim Young-hoon announces a pan-government plan to eradicate wage theft at Government Complex Seoul in Jongno-gu, Seoul, in September last year. [Yonhap]
Minister of Employment and Labor Kim Young-hoon announces a pan-government plan to eradicate wage theft at Government Complex Seoul in Jongno-gu, Seoul, in September last year. [Yonhap]

The government paid out more than 680 billion won ($482 million) last year on behalf of employers who failed to pay their workers, yet recovered less than 30 percent of that amount from those employers — a sign of deepening strain on the fund that finances the program. Reserves in the wage claim guarantee fund have shrunk to roughly one-third of their level five years ago, prompting calls to improve the recovery rate and restore the fund's fiscal health.

According to a fiscal audit review report on the Ministry of Employment and Labor released Thursday by Na Kyung-won, a People Power Party lawmaker on the National Assembly's Climate, Energy, Environment and Labor Committee, advances paid last year totaled 684.5 billion won — up 104.9 billion won, or 18.1 percent, from 579.7 billion won in 2020.

The increase tracks a record high in annual unpaid wages, which reached 2.07 trillion won last year — the largest figure ever recorded.

The advance system works by having the state pay workers a set amount in place of employers who have failed to deliver wages or severance pay, then seeking reimbursement from those employers. Advances fall into two types: insolvency advances, paid when an employer has undergone formal insolvency proceedings such as bankruptcy or rehabilitation, or is effectively insolvent; and simplified advances, paid whenever unpaid wages are confirmed regardless of the employer's insolvency status.

The problem is that while payouts have grown, the recovery rate has continued to fall.

Last year's overall recovery rate dropped to 29.7 percent, breaking below the 30 percent threshold for the first time. The rate has declined for six consecutive years, slipping from 32.8 percent in 2020 to 32.2 percent in 2021, 31.9 percent in 2022, 30.9 percent in 2023, 30.0 percent in 2024 and 29.7 percent last year.

Particularly concerning is the low recovery rate on simplified advances, which account for roughly 90 percent of all advances paid. Simplified advances totaled 615.2 billion won last year — 89.9 percent of all advances — yet the recovery rate was limited to 18.1 percent, less than half the 41.3 percent recorded for insolvency advances.

Advances are also counted toward the government's tally of resolved wage theft cases. Even when an employer does not directly pay overdue wages, a state advance is recorded as resolving the unpaid-wage claim. Workers benefit by receiving their wages quickly, but when the government fails to recover the funds from employers, the financial burden falls entirely on the wage claim guarantee fund.

The persistently low recovery rate has set off warning signs for the fund's finances.

Reserves in the wage claim guarantee fund fell from 834 billion won in 2020 to 276.6 billion won last year — a decline of 557.4 billion won, or 66.8 percent, over five years. Last year the fund took in 736.8 billion won but spent 807.5 billion won, posting a deficit of 70.7 billion won. The fund has run a deficit every year since 2020.

The fiscal pressure is likely to grow. Amendments to the Wage Claim Guarantee Act and its implementing rules took effect Thursday, expanding insolvency advance coverage from the final three months of wages to six months and raising the maximum payout per worker from 21 million won to 31.5 million won.

At the same time, the government expanded financial support for employers who voluntarily settle unpaid wages. The general loan ceiling per employer was raised from 150 million won to 200 million won, and a new special loan of up to 1 billion won was introduced for employers with large-scale wage arrears.

The Ministry of Employment and Labor expects the recovery rate to improve now that, as of May this year, unpaid advances can be collected through compulsory enforcement in the same manner as delinquent national taxes. However, with the expansion of advance coverage set to push fund expenditures higher, securing the fund's long-term sustainability — by strengthening protections for workers owed wages while also raising the recovery rate — has emerged as a pressing challenge.


fact0514@heraldcorp.com