Substitute Payment System
Government Payment of Unpaid Wages
Substitute Payment System
(대지급금 제도)
The substitute payment system is a wage claim guarantee scheme under which the government pays employees certain unpaid wages and severance pay on behalf of their employer. The government then seeks recovery from the employer for the amount paid. (Wage Claim Guarantee Act)
There are two main types of substitute payments: insolvency substitute payments, which apply in cases of bankruptcy, rehabilitation proceedings, or de facto insolvency, and simplified substitute payments, which may be available even where the employer is not insolvent.
1. Insolvency Substitute Payments
(도산대지급금)
1.1. Basic Requirements
① Legal insolvency – a court has issued a bankruptcy order or an order commencing rehabilitation proceedings; or
② De facto insolvency – the Ministry of Employment and Labor (MOEL) has officially recognized the employer as insolvent.
1.2. Employer Requirements
The employer must be subject to the Industrial Accident Compensation Insurance Act and must have operated the business for at least six months.
1.3. Employee Requirements
The claimant must qualify as an employee under the Labor Standards Act and must have left the employer within the period beginning one year before and ending three years after the relevant reference date, such as the date on which an application for recognition of de facto insolvency was filed.
1.4. Scope of Payment
Separate payment caps apply depending on the employee’s age at the time of termination, and the total amount payable to each employee is also subject to a statutory maximum.
2. Simplified Substitute Payments
(간이대지급금)
2.1. Basic Requirements
The employee must either:
① obtain an enforceable court judgment or other enforceable title confirming the unpaid wages; or
② obtain an official confirmation of unpaid wages (체불 임금등·사업주 확인서) from the MOEL.
2.2. Employer Requirements
The employer must be subject to the Industrial Accident Compensation Insurance Act and must have operated the business for at least six months.
2.3. Employee Requirements
A. Former employees
The employee must:
B. Current employees
The employee must:
2.4. Scope of Payment
A. Former employees
– total maximum: KRW 10 million
B. Current employees
Application Deadlines
An application for an insolvency substitute payment must generally be filed within two years from the date of the bankruptcy order, commencement of rehabilitation proceedings, or recognition of de facto insolvency.
For a simplified substitute payment, where the claim is based on court proceedings, the application must generally be filed within one year from the date of the judgment or other relevant court decision. Where the claim is based on an MOEL petition, the application must generally be filed within six months from the date the confirmation of unpaid wages is issued.
Where there has been no court-ordered insolvency or court judgment, the substitute payment process generally begins by filing a wage claim with MOEL and obtaining a confirmation of unpaid wages from MOEL.
For an insolvency substitute payment based on de facto insolvency, the employer must also be formally recognized as insolvent by MOEL.
If you need assistance with a substitute payment claim or recovering unpaid wages in Korea, please contact us.
Government Payment of Unpaid Wages
The substitute payment system is a wage claim guarantee scheme under which the government pays employees certain unpaid wages and severance pay on behalf of their employer. The government then seeks recovery from the employer for the amount paid. (Wage Claim Guarantee Act)
There are two main types of substitute payments: insolvency substitute payments, which apply in cases of bankruptcy, rehabilitation proceedings, or de facto insolvency, and simplified substitute payments, which may be available even where the employer is not insolvent.
| Basic Requirements | ① Legal insolvency – a court has issued a bankruptcy order or an order commencing rehabilitation proceedings; or ② De facto insolvency – the Ministry of Employment and Labor (MOEL) has officially recognized the employer as insolvent. |
| Employer Requirements | The employer must be subject to the Industrial Accident Compensation Insurance Act and must have operated the business for at least six months. |
| Employee Requirements | The claimant must qualify as an employee under the Labor Standards Act and must have left the employer within the period beginning one year before and ending three years after the relevant reference date, such as the date on which an application for recognition of de facto insolvency was filed. |
| Scope of Payment |
Separate payment caps apply depending on the employee’s age at the time of termination, and the total amount payable to each employee is also subject to a statutory maximum. |
| Basic Requirements | The employee must either: ① obtain an enforceable court judgment or other enforceable title confirming the unpaid wages; or ② obtain an official confirmation of unpaid wages (체불 임금등·사업주 확인서) from the MOEL. |
| Employer Requirements | The employer must be subject to the Industrial Accident Compensation Insurance Act and must have operated the business for at least six months. |
| Employee Requirements | 1. Former employees The employee must:
2. Current employees The employee must:
|
| Scope of Payment | 1. Former employees – total maximum: KRW 10 million
|
An application for an insolvency substitute payment must generally be filed within two years from the date of the bankruptcy order, commencement of rehabilitation proceedings, or recognition of de facto insolvency.
For a simplified substitute payment, where the claim is based on court proceedings, the application must generally be filed within one year from the date of the judgment or other relevant court decision. Where the claim is based on an MOEL petition, the application must generally be filed within six months from the date the confirmation of unpaid wages is issued.
Where there has been no court-ordered insolvency or court judgment, the substitute payment process generally begins by filing a wage claim with MOEL and obtaining a confirmation of unpaid wages from MOEL.
For an insolvency substitute payment based on de facto insolvency, the employer must also be formally recognized as insolvent by MOEL.
If you need assistance with a substitute payment claim or recovering unpaid wages in Korea, please contact us.
