Today, Oct 23, 2025: Habitual Wage Arrears Eradication Act Takes Effect — What Employers and Workers Must Know

Warning image for Habitual Wage Arrears Act — business meeting and legal documents

Summary

From October 23, 2025, the enacted "Habitual Wage Arrears Eradication Act" introduces punitive damages for willful, repeated wage arrears, allows current employees to claim delay interest, and strengthens criminal and administrative sanctions. This article explains the key provisions and practical steps for employers and workers.

Contents

1. Lead
2. Background & Necessity
3. Key Provisions in Detail
4. Checklist for Employers
5. How Workers Can Secure Their Rights
6. Practical Checklist
7. FAQ
8. Closing

Lead

Effective October 23, 2025, the amended Labor Standards Act—commonly referred to as the "Habitual Wage Arrears Eradication Act"—comes into force. The amendment empowers courts to impose aggravated damages for intentional and repetitive wage arrears, extends delay interest claims to currently employed workers, and tightens criminal and administrative penalties. Employers and employees must take immediate practical steps to comply and protect rights.

Background & Necessity

A string of large-scale wage arrears incidents in construction, retail, and gig sectors highlighted gaps in existing enforcement. Critics argued that prior sanctions lacked deterrence. The amendment aims to restore deterrence through punitive measures and strengthen protection for vulnerable workers—especially subcontractors and gig workers who often struggle to gather proof.

Key Provisions in Detail

1. Punitive damages: Courts may order damages exceeding ordinary compensation where willful, malicious, or habitual wage arrears are proven. The extent of aggravation will depend on the facts, such as intent, repetition, and scale of harm, and will be further clarified by enforcement regulations and case law.
2. Delay interest for current employees: Delay interest, previously available primarily to former employees, is now claimable by current employees as well. The rate and calculation method (e.g., from the date of default or claim) will be defined in subordinate rules issued by authorities.
3. Criminal sanctions and provisional measures: Serious and repeated arrears may trigger criminal prosecution. Investigative authorities may seek provisional measures—such as travel restrictions or asset freezes—to prevent flight and secure remedies.
4. Name disclosure and administrative sanctions: Repeated violators may be publicly listed and face restrictions on public procurement, fines, or temporary suspension of business. The enforcement rules will set precise thresholds and procedures.

Checklist for Employers

• Immediately: Inventory and back up all wage documentation—employment contracts, payroll ledgers, bank transfer records, clock-in/out logs.
• Short-term (1–2 weeks): Identify unpaid items (overtime, holiday pay, severance, bonuses) and either pay them promptly or document a clear, written settlement with employees.
• Process improvements: Introduce electronic pay statements, automated salary transfers, and a fixed pay date policy to reduce future risk.
• Legal preparedness: Engage labor and legal counsel to review exposure and prepare dispute-resolution strategies, including settlement templates.

How Workers Can Secure Their Rights

Workers should promptly gather all possible evidence—pay slips, bank statements, work schedules, messages that show work instructions—and retain colleague statements if available. Report violations to the local employment office (Labor Inspector) or consult the Korea Workers' Compensation & Welfare Service for priority claim options. Legal aid organizations and unions can assist with litigation or administrative claims.

Practical Checklist (Urgent → Short → Medium)

Urgent (now)

• Scan and back up all payroll records and transfer histories.
• Do not change scheduled pay dates unless legally advised; prepare a staff notice and legal review for any communications.
• Open immediate lines to legal/labor counsel for triage.

Short-term (1–2 weeks)

• Pay or document written settlement for outstanding wages; sign and preserve agreements with employees.
• Arrange emergency payroll automation or temporary liquidity solutions if needed.

Medium-term (1–3 months)

• Implement permanent measures: automated payroll, electronic payslips, compliance checks, and a standing labor-response team.
• Set up regular labor relations meetings to proactively address grievances.

Policy Issues & Outlook

Introducing punitive damages raises concerns about disproportionate burdens on small businesses facing temporary cash-flow problems. The government should pair enforcement with support measures—such as temporary financing, mediation services, and compliance assistance—to avoid unintended bankruptcies. As case law develops, courts will clarify the scope and scale of aggravated damages, which will in turn reshape employer practices and labor market norms.

FAQ

Q1. When do punitive damages apply?

A1. Punitive damages apply where intentional, malicious, or habitual wage arrears are proven. Courts will consider factors such as intent, repetition, and the scale of harm; detailed application rules will be guided by enforcement regulations and case law.

Q2. How is delay interest for current employees calculated?

A2. The specific interest rate and calculation method (e.g., from the date of default or from the date of claim) will be set out in subordinate rules by the Ministry of Employment and Labor. Employers should consult official guidance for exact formulas.

Q3. What if I lack documentary proof of unpaid wages?

A3. Indirect evidence—such as colleague testimony, text messages, schedules, and bank statements—can help substantiate claims. Workers can also seek assistance from unions and legal aid organizations to assemble evidence.

Q4. Can authorities impose travel restrictions on foreign workers?

A4. Provisional measures like travel restrictions may be considered during criminal investigations where flight risk is demonstrated. Such measures require legal process and strict safeguards to protect rights.

Q5. Will small businesses receive support to comply?

A5. The government plans to provide support measures—financial assistance, advisory services, and simplified compliance channels—especially targeted at small businesses, with details to be spelled out in enforcement regulations.

Q6. If the employer and worker settle, can punitive damages still be imposed?

A6. If settlement fully remedies the harm and eliminates the unlawful conduct, courts may be less likely to impose punitive damages. However, settlements should be transparent and ideally reviewed by legal counsel to ensure they are enforceable and protective of workers' rights.

Closing

The Habitual Wage Arrears Eradication Act marks a significant strengthening of worker protections. Employers must urgently review payroll systems and documentation; employees should secure evidence and use official complaint channels. Authorities should publish clear enforcement rules and support options to ensure balanced, effective implementation.

Related Articles / Videos