Unpaid wages in Korea — substitute payment, the 10 million won cap and the six-month deadline
The company has stopped paying you. The owner keeps saying "as soon as money comes in," and word is going round that the corporate account is empty. At this point most people give up, reasoning that "even if I sue, I can't collect from a company with no money." Yet there is a scheme under which the state pays on the employer's behalf when the employer cannot. It is called substitute payment. Formerly known as chedangeum, it is paid first by the Korea Workers' Compensation and Welfare Service, which then recovers from the employer.
There are two kinds — insolvency and simplified
Which one applies changes both the procedure and the amount.
- Insolvency substitute payment — available where the employer is subject to a decision to commence rehabilitation proceedings, a declaration of bankruptcy, or a recognition of de facto insolvency. In other words, the business has effectively closed.
- Simplified substitute payment — available even where the company has not become insolvent. You can claim once a court judgment has become final, or once the Ministry of Employment and Labor issues a Confirmation of Unpaid Wages and Employer.
The one used far more often in practice is simplified substitute payment. It works even while the company is openly trading and simply not paying, and it can be claimed on the confirmation document alone, without going all the way to judgment.
How much you can receive
For simplified substitute payment the ceiling is 7 million won per category and 10 million won in total. So even if 7 million won is recognised for wages and 7 million won for retirement benefits, the combined payment is capped at 10 million won.
Insolvency substitute payment is structured differently, with a monthly ceiling set by age bracket at the time of leaving.
- Under 30 — 2.2 million won
- 30 to under 40 — 3.1 million won
- 40 to under 50 — 3.5 million won
- 50 to under 60 — 3.3 million won
- 60 and over — 2.3 million won
Note that the forties bracket is highest and that the 60-and-over ceiling sits below the under-30 one. The structure tracks the lifetime earnings curve, which means older workers may recover a smaller proportion of what they are actually owed.
What falls within scope
Not everything is covered — only defined periods.
- Wages for the final three months
- Retirement benefits for the final three years
- Shutdown allowance for the final three months
- Maternity leave benefits for the final three months
The point most often missed is that you can claim simplified substitute payment while still employed. Many assume resignation is a precondition, but a worker still in post can claim on the basis of unpaid wages for the three months preceding the date the arrears arose. There is a route to recovering back pay without leaving the job.
Miss the deadline and it is gone — six months, one year, two years
The most common failure in this scheme is letting the claim period lapse. The deadlines differ by route.
- Insolvency substitute payment — within two years of the bankruptcy declaration or recognition of de facto insolvency
- Simplified substitute payment (judgment) — within one year of the date the judgment was given
- Simplified substitute payment (confirmation) — within six months of the date the Confirmation of Unpaid Wages and Employer was first issued
Holding a confirmation and letting six months slide is especially frequent. The confirmation is issued following a labour complaint, then the worker waits because "the boss says he'll pay soon" — and once the deadline passes, the route to state payment closes. If you hold a confirmation, file the claim even while negotiations continue.
How long the decision takes
The Service must decide and pay within seven days for insolvency substitute payment and fourteen days for simplified substitute payment, counted from the day it receives the claim. Absent special circumstances, those limits apply. Note, though, that these run from receipt of the claim; the earlier stages — the labour complaint, the investigation and the issuing of the confirmation — take their own time. Total elapsed time can be considerably longer depending on the case.
A further requirement is that the employer must have operated the business for at least six months. Workplaces that opened and shut within a short window may fall outside the scheme, so this is worth checking too.
What happens to amounts above the ceiling
Arrears exceeding the ceiling do not simply vanish. Substitute payment advances part of your wage claim; the remainder of the claim survives intact. The balance can be pursued against the employer separately.
Realistically, cases reach substitute payment precisely because the employer cannot pay, so prospects for the balance vary widely. The practical stance is to secure the recoverable portion first. The Service also exercises a right of indemnity against the employer for what it paid out, so the employer's debt is not extinguished either.
If handling it alone is too much
The chain of complaint, confirmation and claim can be daunting to run unaided. The Korea Legal Aid Corporation provides free legal assistance in unpaid wage cases to workers who meet the criteria, which helps most where the matter has to proceed to litigation.
Separately, confirmed arrears can trigger measures such as publication of the employer's name and credit sanctions. These put no money directly in your pocket, but they sometimes shift the employer's position in negotiations. Note also that obtaining substitute payment by fraudulent means brings repayment, additional collection and criminal liability, so report the actual work performed and the actual amounts.
The sequence you will actually follow
The usual route runs as follows. ①File an unpaid wage complaint with the Ministry of Employment and Labor → ②Investigation by a labour inspector → ③Issue of the Confirmation of Unpaid Wages and Employer once arrears are established → ④Claim simplified substitute payment from the Service → ⑤Decision within fourteen days. Complaints can be filed online through the Ministry of Employment and Labor portal.
Worth gathering in advance: your employment contract, payslips, bank deposit records and attendance records. You can apply without a written contract, but the more evidence of actual work and wage levels you hold, the faster the investigation runs. Bank deposit records in particular are what separate amounts paid from amounts owed, so organise them early.
The detailed requirements and ceiling figures can be checked in the Wage Claim Guarantee Act and its Enforcement Decree at the Korean Law Information Center. The monetary limits are subject to amendment, so confirm the current figures at the time you claim.
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