According to South Korea’s Daily Labor News, Ministry of Employment and Labor (MOEL) and Ministry of Social Affairs of Korea have confirmed that the relevant authorities have begun investigating the wage arrears of workers subcontracted by Samsung Heavy Industries.
The amount of unpaid wages is now known to be 4 billion won (about US$3.04 million), but industry insiders claim that the amount in arrears is already as high as 7 billion won (about US$5.32 million).
The Ministry of Employment and Labor of South Korea met with representatives of Samsung Heavy Industries’ internal subcontracting companies last Tuesday afternoon (March 5) to understand the actual situation and scale of wage arrears, among other things.
The head of the Korean Ministry of Employment and Labor explained, “Although we have not yet received reports of wage arrears directly, we believe that there is indeed a status quo of wage arrears and are working on investigating the actual situation. However, it is difficult to determine the scale of arrears yet, and in addition to the existing portion of the down payment, we are also considering arrears during other installments.”
“Discretionary” payments cause of arrears
Representatives of subcontracting companies in the region estimated the amount of arrears to be about 7 billion won (about US$5.32 million), the report said.
A representative of Samsung Heavy Industries’ in-house subcontracting companies said, “Currently, about 52 out of 83 in-house subcontracting companies are in arrears, and the amount of arrears varies from place to place, but some of them have already exceeded KRW 500 million (approx. US$ 380,000). As far as we know, the cumulative amount of arrears is between 6 billion won (about US$ 4.57 million) and 7 billion won (about US$ 5.33 million). The wage arrears are not only occurring this year, but are the result of a long-term accumulation.”
It is hypothesized that the failure to transfer down payments made by the original contracting firms to the subcontracting firms to the subcontracted workers is the cause of the wage arrears. Therefore, the first step in solving the problem of wage arrears is to address the opacity of down payment funds. The down payment is a sum of money payable by the original contracting enterprise to the main subcontracting enterprise at the time of signing the contract with that enterprise, the amount of which is at the discretion of the original contracting enterprise but is not a fixed value.
In addition, since the time required for work and the amount of labor required is set by the original contracting enterprise. If there are 10 people working in 3 hours, but the original contracting enterprise only recognizes 5 people working in 1 hour, this also means that 5 people will be owed 2 hours of wages.
Payment changes, 20% performance-based
It has also been analyzed that the shipbuilding enterprises, which were the original contractors, introduced the concept of performance in the installment payments, giving them a dual nature and further reducing the amount of installment payments. Of that, 20% is paid as a performance payment and the other 80% is set at the lowest level that can actually be performed.
Samsung Heavy Industries has a similar practice. A, a representative of a subcontracting company within Samsung Heavy Industries, said, “We broke the practice of paying a portion of the current payment [for subcontracted workers’ wages] in advance, but stopped paying it altogether from November last year, and have been using installment payments since sometime this year.” And he added: “We pay 30% on payday, then 30% five days later, and the rest after that.”
It was explained that the “partial cash payment” claimed by A. amounted to a performance split from the installment payments. In other words, the performance payments, which were originally intended to subsidize the labor costs of the subcontracted workers, were changed to be paid only if actual performance was obtained, but then changed to installment payments as the arrears of wages increased.
Samsung Heavy Industries labor costs have decreased since 2016
A representative of Samsung Heavy Industries’ in-house subcontracting company, A, complained that Samsung Heavy Industries has reduced its direct labor costs to 58% since 2016, while Samsung Heavy Industries’ unit direct labor costs were previously 77.6% and have been constantly lower in recent years.
Unit cost refers to the number of factors of production required to produce a product. When a subcontracting enterprise employs subcontracted workers, the contractual agreement is 77.6%, but the actual payment by the original contracting enterprise is 58%, which is lower than the contractual percentage, so the subcontracted workers’ wages are always in arrears.
In response to the investigation, Samsung Heavy Industries said, “We heard that the MOEL is conducting an inspection on wage arrears, but we are not aware of any wage arrears at subcontracting companies because we have already made all payments.”
