Obligation to Pay Interest on Overdue Retirement Benefits
Interest on overdue retirement benefits
- When an employer fails to pay employee retirement benefits in whole or part must pay interest on the amount owed for the period overdue until the date of payment according to the following rules (Act on the Guarantee of Workers’ Retirement Benefits, Article 9, Paragraph 1; Article 17, Paragraph 3; Article 20, Paragraph 3; Enforcement Decree of the Act on the Guarantee of Workers’ Retirement Benefits, Article 11, Items 1 and 2; Labor Standards Act, Article 37, Paragraph 1; Enforcement Decree of the Labor Standards Act, Article 17):
Interest on overdue retirement benefits under a lump-sum benefits program
An annual interest rate of 20% charged for everyday overdue, if the payment is not made within 14 days counting from the day after the retirement (this deadline may be extended, if a later date is agreed upon between interested parties).
Interest on overdue retirement benefits under a retirement pension plan
▪ An annual interest rate of 10% charged for everyday for which employer contributions are overdue, counting from the day after the contribution due date until 14 days after the triggering event necessitating the payment of retirement benefits.
▪ An annual interest of 20% charged after the above period, until the date of payment.
Q. Is interest assessed even when the payment of retirement benefits is postponed per agreement between interested parties?
A. If an agreement is reached between the employer and the employee for the payment of retirement benefits at a date after the legal deadline, due to a special circumstance, the delay in payment no longer constitutes a violation of the Labor Standards Act. However, it does not exonerate the employer from the obligation to pay interest on overdue benefits, pursuant to Article 37 of the Labor Standards Act, unless one of the exceptions for this obligation set out under Article 18 of the Enforcement Decree of the Labor Standards Act applies (Ministry of Employment and Labor, Examples of Administrative Interpretations, Dept. of Labor Standards-3981, 7/28/2005).
Periods Exempt from Interest Assessment
- When the employer fails to pay retirement benefits on time for one of the following reasons, no interest is assessed on overdue benefits until the reason for the delay is completely resolved (Labor Standards Act, Article 37, Paragraph 2; Enforcement Decree of the Labor Standards Act, Article 18).
▪ Natural disasters;
▪ Placed under rehabilitation proceedings by the decision of a court of law;
▪ Declared bankrupt by a court of law;
▪ Determined unable to pay unpaid wages, etc. by the Minister of Employment and Labor, through due procedures and based on set criteria;
▪ When the employer receives a ruling, order, mediation referral or a decision from a court of law for the payment of unpaid wages, described below:
√ Final judgment
√ Final payment order
√ Other outcome equivalent to a final judgment such as settlement, recognition and acceptance of the claim
√ Concluded mediation
√ A decision equivalent to concluded mediation
√ Finalized decision for a recommendation of performance
▪ When it is difficult to secure financial resources necessary for paying wages due to restrictions imposed under the Debtor Rehabilitation and Bankruptcy Act, National Finance Act or the Local Autonomy Act;
▪ When it is deemed appropriate to dispute the claim in a court of law or at the Labor Relations Commission, concerning either the whole or part of the wage or retirement benefits overdue; or
▪ Other reasons equivalent to the above-listed reasons.
Penalties against Employers
Employers who fail to pay interest on the late payment of retirement benefits
- An employer who fails to pay interest on the late payment of retirement benefits may face a prison term of up to three years or a fine of up to KRW 30 million (Act on the Guarantee of Workers’ Retirement Benefits, Article 44, Item 2).