🚨 Fake 3.3 Contracts

Today Korean Social News for Beginners | 2025.09.19

0️⃣ Illegal Employment Practices That Steal Workers' Rights Through Disguised Subcontracting

📌 Labor Ministry to Launch Full Investigation of 'Fake 3.3 Contracts' Using Tax Service Data

💬 Starting next month, the Ministry of Employment and Labor will receive tax information from the National Tax Service to identify workplaces with concentrated 'fake 3.3 contracts' and begin labor inspections in the second half of this year. This is a measure to stop employers from disguising workers as independent contractors to avoid legal duties. With the revised Labor Standards Act, labor inspectors can now request data from the National Tax Service, allowing them to proactively identify workplaces that don't provide employment and industrial accident insurance. Civil society groups emphasize the need for comprehensive investigations since 'fake 3.3 contracts' are concentrated in specific industries like logistics, broadcasting, IT, shipbuilding, and education.

💡 Summary

• Fake 3.3 contracts are illegal contracts where employers disguise workers as independent contractors to avoid legal duties.
• The Ministry of Employment and Labor will use National Tax Service data to detect fake contract workplaces and strengthen labor inspections.
• Fake contracts are rapidly increasing in specific industries like logistics, broadcasting, and IT, causing serious violations of workers' rights.

1️⃣ Definition

Fake 3.3 contracts are illegal contract types where employers make subcontracting or service contracts instead of employment contracts to disguise workers as independent contractors, even though the relationship is actually employment. The term '3.3' comes from the withholding tax rate (3% income tax + 0.3% local income tax) applied to independent contractors.

This is a trick employers use to avoid paying for the 4 major insurances, severance pay, and weekly holiday allowances. Workers actually work at set times and places under the employer's instructions, but are legally classified as independent contractors. As a result, workers don't receive the social protection they deserve, which is a serious problem.

💡 Why is this important?

• It takes away workers' basic labor rights and social security rights.
• It creates blind spots in the social safety net and threatens workers' life stability.
• It harms fair competition and destroys healthy employment market order.
• It negatively affects national tax revenue and social insurance finances.

2️⃣ Current State and Problems of Fake 3.3 Contracts

📕 Rapidly Increasing Fake Contracts

• The number of business income earners is growing rapidly. Key statistics include:

  • According to tax statistics, business income earners subject to withholding tax increased 29% over the past 5 years.
  • 'Other self-employed' workers increased 54% during the same period, suggesting the spread of fake contracts.
  • This is especially concentrated in logistics, broadcasting, IT, shipbuilding, and education fields.
  • With the expansion of the platform economy, it's also spreading to new areas like delivery and designated driving.

• Workers are suffering serious violations of their rights. Major damages include:

  • They cannot receive employment insurance benefits like unemployment benefits and maternity leave pay.
  • When injured at work, they cannot receive industrial accident compensation, leading to high medical and living costs.
  • They don't receive basic worker rights like severance pay, weekly holiday allowances, and annual leave.
  • Collective labor rights like union membership and collective bargaining are also restricted.
  • They often suffer from low wages without minimum wage protection.

📕 Employers' Illegal Acts and Tricks

• Employers use various tricks. Main methods include:

  • Writing service contracts or subcontracting agreements instead of employment contracts.
  • Paying 'service fees' or 'commissions' instead of salaries.
  • Forcing workers to register as individual businesses and demanding business registration certificates.
  • Making it mandatory to issue tax invoices or bills to emphasize independent contractor status.
  • Pressuring workers by suggesting contract termination if they refuse to join the 4 major insurances.

• In reality, they show characteristics of employment relationships. Key features include:

  • Set work hours with penalties for being late or leaving early.
  • Receiving specific instructions about work location and methods.
  • Often receiving performance evaluations and disciplinary actions.
  • Being prohibited from doing business with other companies or competing work.
  • Receiving work tools and materials from the company.

💡 Main Problems with Fake 3.3 Contracts

1. Loss of Labor Rights: Cannot guarantee basic rights like minimum wage, working hours, and break times
2. Social Insurance Blind Spots: Excluded from social safety net due to non-application of 4 major insurances
3. Unfair Competition: Creates unfavorable environment for employers who pay proper costs
4. Tax Revenue Loss: National financial loss due to tax evasion like corporate tax and VAT
5. Labor Market Distortion: Expansion of irregular employment and increased job insecurity

3️⃣ Government Response Plans and Improvement Effects

✅ Revised Labor Standards Act and Strengthened Supervision

• Using National Tax Service data is now possible. Major changes include:

  • Under the revised Labor Standards Act, labor inspectors can now request tax information from the National Tax Service.
  • They can identify workplaces suspected of fake contracts in advance through business income reporting status.
  • They can cross-verify employment and industrial accident insurance non-participation with tax reporting content.
  • This shifts from report-dependent supervision to active and proactive supervision.

• Concentrated supervision and punishment will be strengthened. Key plans include:

  • Starting in the second half of this year, special labor inspections will be conducted on industries with concentrated fake contracts.
  • When violations are detected, punishment includes up to 3 years imprisonment or fines up to 30 million won for Labor Standards Act violations.
  • Measures will be taken to retroactively pay 4 major insurance premiums and severance pay.
  • For habitual violating workplaces, sanctions include public disclosure and restrictions on government project participation.

✅ Worker Rights Protection and Relief Measures

• Standards for recognizing worker status will become clearer. Major improvements include:

  • Judgment based on actual work relationships rather than contract format.
  • Comprehensive consideration of command and supervision, temporal and spatial constraints, and work substitutability.
  • Continuous supplementation of judgment standards through court precedents and Ministry of Labor administrative interpretations.
  • Reducing the burden of proof on workers and strengthening employers' responsibility to prove.

• Relief measures for affected workers will be expanded. Main content includes:

  • If worker status is recognized, past unpaid wages and severance pay can be received retroactively.
  • Workers can pay 4 major insurance premiums and join retroactively to receive benefits.
  • Through unfair dismissal relief applications, workers can get reinstatement or monetary compensation.
  • Free legal consultation is available at Ministry of Labor counseling centers and worker support agencies.
  • In collective disputes, support can be received from labor unions or civil society organizations.

4️⃣ Related Terms Explained

🔎 Worker Status

• Worker status is the standard for judging whether someone legally qualifies as a worker.
  • Worker status is a legal concept that determines whether a specific person qualifies as a worker under the Labor Standards Act. It's judged based on actual work relationships rather than simply the name or format of contracts.
  • Main criteria for judging worker status include: First, whether the employer determines work content and whether employment rules and service regulations apply. Second, checking if the employer designates work hours and workplace and if the person is bound by these. Third, examining if work is performed under the employer's command and supervision. Fourth, reviewing if the employer evaluates and manages work attitude and performance.
  • Additional considerations include continuity and exclusivity of work provision relationship, nature and calculation method of compensation, ownership of work tools, and who bears costs. Courts comprehensively consider these factors to judge worker status according to social norms.

🔎 Withholding Tax System

• Withholding tax is a system where taxes are deducted in advance when paying income.
  • Withholding tax is a system where the person paying income (withholding tax obligor) collects the income tax of the person receiving income in advance and pays it to the state. This allows more efficient and certain tax collection than individuals directly reporting and paying taxes.
  • For employment income, income tax is withheld according to simplified tax tables, and accurate tax amounts are calculated through year-end tax adjustment. However, for business income from personal services, 3.3% is withheld (3% income tax + 0.3% local income tax).
  • The problem with fake 3.3 contracts is applying 3.3% withholding tax by treating employment income as business income. In this case, workers have the inconvenience of adjusting taxes through year-end settlement or comprehensive income tax reporting, and cannot receive benefits like employment income deduction.

🔎 4 Major Insurances

• The 4 major insurances are social security systems for workers' life stability.
  • The 4 major insurances refer collectively to National Pension, Health Insurance, Employment Insurance, and Industrial Accident Insurance, which form a social safety net for workers to prepare for risks like old age, illness, unemployment, and industrial accidents.
  • National Pension is a system for guaranteeing old-age income, with employers and workers each paying 4.5% in premiums. Health Insurance is a medical security system for illness and injury, with employers and workers each paying 3.495%. Employment Insurance supports unemployment benefits and job skill development, with employers paying 0.25-0.85% and workers paying 0.8%. Industrial Accident Insurance compensates for work-related accidents, with employers paying the full amount.
  • Under fake 3.3 contracts, workers cannot join these 4 major insurances, leaving them defenseless against various risks. Independent contractors can join National Pension and Health Insurance but not Employment Insurance and Industrial Accident Insurance, so they cannot receive unemployment benefits or industrial accident compensation.

🔎 Disguised Subcontracting

• Disguised subcontracting refers to cases that take the form of subcontracting contracts but are actually employment contracts.
  • Disguised subcontracting refers to cases where subcontracting or consignment contracts are formally made, but the relationship actually corresponds to an employment contract. This is a typical trick employers use to avoid Labor Standards Act obligations by intentionally changing contract formats.
  • In genuine subcontracting relationships, contractors perform work independently and take responsibility for work completion. They also operate businesses at their own expense and bear profits and losses themselves. However, in disguised subcontracting, while formally subcontracting, workers actually provide labor under the employer's command and supervision.
  • When judging disguised subcontracting, courts emphasize actual relationships rather than contract names. They comprehensively consider work instruction authority, temporal and spatial constraints, independence, and who bears risks to determine whether an employment relationship exists. If judged as disguised subcontracting, it's considered to have been an employment contract from the beginning, and all worker rights can be guaranteed.

5️⃣ Frequently Asked Questions (FAQ)

Q: I'm working under a 3.3 contract. How can I get recognition as a worker?

A: It's important to prove the actual work relationship rather than the contract document, and you should get help from professional agencies.

• To get worker status recognized, you need to collect materials that can prove the actual employment relationship. First, if you have set work hours and face disadvantages for being late, this is evidence showing temporal constraints. Second, keep records of specific work instructions received through work instruction documents, emails, messenger conversations, etc. Third, disciplinary action documents, performance evaluations, and examples of company rule applications are also important evidence. Fourth, if the company provides work tools or office space, prepare materials to prove this.
• Since it's difficult to solve this alone, it's good to get help from professional agencies. You can receive free consultation at the Ministry of Labor consultation center (dial 1350 without area code), and you can also get help from the Korea Workers' Compensation & Welfare Service or private labor attorneys. If it's a collective problem, you can also request help from labor unions or civil society organizations. Most importantly, don't give up and keep working to claim your rights.

Q: If a fake 3.3 contract is recognized as an employment contract, what benefits can I receive?

A: You can retroactively receive all rights as a worker, from past unpaid wages to 4 major insurance benefits.

• If worker status is recognized, it's considered to have been an employment contract from the beginning, so you can receive various benefits. First, if wages were below minimum wage, you can claim the difference, and you can receive unpaid wages like weekly holiday allowances, overtime pay, and night work allowances. Second, you can calculate and receive severance pay, and if you worked for more than a year, you can receive 30 days' worth of average wages. Third, you can join the 4 major insurances retroactively by paying premiums and receive various benefits.
• Specific social insurance benefits include joining employment insurance to receive unemployment benefits, maternity leave pay, and childcare leave pay. You can join industrial accident insurance to receive medical benefits, temporary disability benefits, and disability benefits for work-related injuries. However, since you need to pay past premiums, your actual income may decrease, but long-term social security benefits are much greater gains. You can also be guaranteed various vacation rights like annual leave and congratulatory/condolence leave.

Q: My employer is forcing me to register as an individual business. Can I refuse?

A: If it's actually an employment relationship, you can refuse individual business registration, and giving disadvantages for this reason is illegal.

• Even if an employer forces individual business registration, if it actually corresponds to an employment relationship, you have the legitimate right to refuse this. Individual business registration is necessary when actually operating an independent business, not something workers are obligated to do. It violates the Labor Standards Act for employers to refuse hiring or threaten contract termination based on individual business registration as a condition.
• Even if you already registered as an individual business, if an actual employment relationship is recognized, you can claim rights as a worker. Individual business registration itself is not decisive evidence that denies worker status. If you registered due to employer pressure, this situation is also considered in judging worker status. If you face disadvantages for refusing individual business registration or filing a business closure report, immediately report to the Ministry of Labor to receive relief.

Table of Contents

• Go to Guide