What is a NET wage contract in South Korea?

In Korea, a NET wage contract refers to a wage system in which the amount of money a worker will actually receive is predetermined at the time of the employment contract, and other taxes and four major insurance premiums are paid by the employer.
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NET wage contract in South Korea refers to a wage system in which the amount of money a worker will actually receive is predetermined at the time of the employment contract, and other taxes and four major insurance premiums are paid by the employer.

Gross Pay VS Net Pay

The word “net wage contract” is estimated to be named after Gross Pay and Net Pay in English. Gross Pay is a concept such as tax, which is sometimes called pre-tax salary in Korean, and the amount before deducting the four major insurances, that is, annual salary of OOOO 10,000 won in the labor contract. Net Pay refers to real income excluding taxes and four major insurances.

Net wage contracts are a common practice in the medical industry in South Korea. In other words, the hospital pays the tax on behalf of the hospital and receives the rest. For example, if a net contract of 3 million won per month was signed, the worker would receive 3 million won without deducting taxes or insurance premiums.

(Originally, in the case of Korea’s four major insurances, 50% of national/health/employment insurance excluding industrial accident insurance is borne by employers and workers.)

If you have a regular gross pay contract, you will receive the pre-tax amount, and after subtracting taxes, your actual salary will be less than the contracted amount, but if you have a net pay contract, you will receive the full amount of the contracted amount, which essentially means that your salary will be adjusted based on your actual salary, and you will be guaranteed to receive your actual salary + taxes.

Netted wage contracts, commonly used in medical industry

On the other hand, net pay doesn’t seem to be limited to doctors. It is also used by pharmacies to hire pharmacists, and nurses/nursing assistants also use this wage system.

(According to a survey by the Busan Labor Rights Interest Center in 2022, 64.5% of nursing assistants have a net wage contract, and 80.3% of nursing assistants working in workplaces with five or fewer employees who are not subject to the Labor Standards Act have a net wage contract).

Conclusion

So, what’s the problem with the net wage system? Isn’t everyone happy because the business will pay all the taxes, and the workers are happy to sign a contract based on real income and receive more money?

The problem is not always the system, but the problem is the case of exploiting it. In the next post, I will point out the problems and abuse cases in more detail so that there are no related problems on the part of the business operator and not to be damaged on the part of the workers.


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