🚨 Wage Peak System

Today Korean Social News for Beginners | 2025.11.05

0️⃣ Retirement Age 65 Era and Labor Disputes, Reasonable Reform Direction

📌 Wage Peak System Reform Becomes Key Issue as Retirement Age 65 Approaches

💬 As the government and ruling party seriously discuss extending the legal retirement age to 65, reforming the wage peak system has become a key issue in labor disputes. Experts warn that if companies do not design the wage peak system fairly for workers, legal disputes similar to those during the 2016 retirement age extension to 60 could happen again. In 2022, the Supreme Court ruled that "wage peak systems that reduce wages based solely on age without reasonable grounds are invalid," but conflicts continue due to lack of specific guidelines. The government emphasizes a careful approach with three principles: preventing generational conflict, reducing wage gaps, and preventing system confusion. Experts point out that if system improvements are delayed, it could lead to social conflict like the minimum wage controversy.

💡 Summary

• The wage peak system reduces wages after a certain age while maintaining employment.
• As retirement age extends to 65, reasonable reform of the wage peak system has become urgent.
• Wage cuts based only on age can be considered discrimination, requiring careful system design.

1️⃣ Definition

The wage peak system is a system that gradually reduces workers' wages after reaching a certain age, while guaranteeing employment until retirement. For companies, it reduces labor costs while keeping skilled workers. For workers, wages decrease but they can work stably until retirement.

However, simply cutting wages just because someone is older can cause age discrimination problems. Therefore, wage adjustments must be based on reasonable grounds such as changes in job duties or productivity to be legally valid.

💡 Why is this important?

• It allows continued use of skilled workers in an aging society.
• It finds a balance between companies' labor cost burdens and workers' job security.
• If not designed reasonably, it can cause age discrimination controversies and legal disputes.
• It is a key task for successfully implementing retirement age extension policies.

2️⃣ Current Status and Problems of the Wage Peak System

📕 2016 Retirement Age 60 Extension and Spread of Wage Peak System

• The wage peak system spread rapidly with legal retirement age extension. Key developments:

  • The Elderly Employment Promotion Act was revised in 2013, raising the legal retirement age to 60.
  • It was implemented in stages starting in 2016, beginning with workplaces with 300+ employees.
  • Many companies introduced wage peak systems to reduce labor costs.
  • However, confusion arose because the law did not specify clear standards for wage peak systems.

• Various conflicts arose during system introduction. Main problems:

  • Each company had different timing and amounts of wage cuts, raising fairness issues.
  • Some companies greatly cut wages while keeping job duties the same.
  • Workers filed lawsuits claiming one-sided wage cuts were age discrimination.
  • The system was often introduced unilaterally without sufficient labor-management consultation.

📕 Supreme Court Ruling and Demands for System Reform

• The 2022 Supreme Court ruling was a turning point. Key content:

  • The Supreme Court ruled that "reducing wages based solely on age without reasonable grounds is invalid."
  • Wage adjustments must have objective grounds such as changes in job duties or productivity.
  • This ruling led many companies to reconsider their wage peak systems.
  • However, specific guidelines are still lacking, making practical application difficult.

• New phase with retirement age 65 discussions. Main issues:

  • The government and ruling party are actively pursuing extending retirement age to 65.
  • Companies worry about increased labor costs and demand expanded wage peak systems.
  • Experts emphasize clear system improvements beforehand to avoid repeating 2016's failures.
  • Workers argue for job redesign and productivity improvements rather than one-sided wage cuts.

💡 Key Issues of Wage Peak System

1. Reasonableness standards: Need objective grounds beyond age, such as job duties and productivity
2. Labor-management consultation: Not one-sided introduction but sufficient dialogue and agreement process
3. Resource utilization: Using reduced labor costs for job creation
4. Generational conflict: Finding balance between older worker protection and youth jobs
5. Legal clarity: Preventing legal disputes from unclear standards

3️⃣ Reasonable Wage Peak System Design Direction

✅ Government's Three Principles

• Preventing generational conflict is the top priority. Main directions:

  • Extending employment for older workers should not reduce jobs for young people.
  • Saved labor costs should be used for new hiring or youth job creation.
  • Design should create synergy through intergenerational work sharing and cooperation.
  • Retirement extension should benefit all generations, not just older workers.

• Reducing wage gaps and ensuring fairness is important. Main tasks:

  • Fair compensation for the same job duties regardless of age.
  • When wage cuts are necessary, they must be linked to job duty adjustments.
  • Prevent decreased work motivation from excessive wage gaps.
  • Build reasonable wage systems based on productivity and contribution.

• Advance preparation to prevent system confusion is essential. Main measures:

  • Provide clear guidelines so companies can respond predictably.
  • Give sufficient grace period and implement gradually to ease market shock.
  • Reach social consensus through sufficient labor-management consultation.
  • Minimize possibility of legal disputes through proactive system improvements.

✅ Expert Recommendations and International Cases

• Experts suggest specific improvement measures. Main recommendations:

  • Attorney Song Hyun-seok emphasized the importance of advance system improvement, like the minimum wage law enforcement ordinance revision.
  • Minimize worker disadvantages when cutting wages and prepare alternative compensation measures.
  • Effectively utilize older workers' experience and know-how through job redesign.
  • Explore various employment types beyond wages, such as flexible work and time-selection systems.

• We need to refer to successful international cases. Main examples:

  • Japan secured flexibility by combining retirement extension with older worker re-employment systems.
  • Germany minimizes age discrimination issues with job-based wage systems.
  • Netherlands actively uses time-selection and flexible work systems to increase older worker employment.
  • Singapore eases companies' burden of employing older workers through government subsidies.

4️⃣ Related Terms

🔎 Elderly Employment Promotion Act

• The Elderly Employment Promotion Act regulates employment promotion and discrimination prevention for older people.
  • The official name is "Act on Prohibition of Age Discrimination in Employment and Elderly Employment Promotion." It prohibits employers from discriminating based on age when recruiting and hiring workers, and was enacted to guarantee stable employment opportunities for older people.
  • Main contents: First, it mandates setting retirement age at 60 or older. Second, employers must make efforts to provide continued employment opportunities to workers who reach retirement age. Third, age restrictions or discrimination in worker recruitment and hiring without reasonable grounds are prohibited. Fourth, the government must implement various support policies for promoting older worker employment.
  • The 2013 law revision raised retirement age to 60, implemented in stages from 2016. The government is currently considering further extension to 65. The wage peak system is closely related to this law's retirement extension provision and is used as a means to ease companies' labor cost burden from retirement extension.

🔎 Supreme Court 2022 Wage Peak System Ruling

• The Supreme Court ruling clearly presented reasonableness standards for the wage peak system.
  • In 2022, the Supreme Court ruled that "wage peak systems that reduce wages based solely on age without reasonable grounds constitute age discrimination prohibited by the Elderly Employment Promotion Act and are invalid." This was the first Supreme Court ruling judging the legitimacy of wage peak systems and has great significance.
  • Key contents: First, simply cutting wages just because someone is older is discrimination. Second, wage adjustments must have reasonable and objective grounds such as changes in job duties or productivity. Third, sufficient consultation and agreement between labor and management must precede wage peak system introduction. Fourth, it must be designed to minimize worker disadvantages.
  • After this ruling, many companies reconsidered and reformed their wage peak systems. However, specific guidelines are still lacking, making it unclear which cases are reasonable and which are discriminatory, causing difficulties in practical application. Experts emphasize that clearer legal standards and guidelines must be prepared along with retirement age 65 discussions.

🔎 Retirement Age Extension Policy

• Retirement age extension policy is a key employment policy responding to an aging society.
  • Retirement age extension policy means raising the legally mandated retirement age so workers can work longer. Korea extended retirement age to 60 in 2016, and the government is currently pursuing further extension to 65.
  • Need for extension: First, with increased average lifespan, people must live 20+ years after age 60 retirement. Second, the working-age population is rapidly declining with baby boomer retirement. Third, there's a serious income gap problem between retirement age and national pension eligibility age (65). Fourth, demand is increasing from healthy older people wanting to continue working.
  • However, retirement extension also faces challenges. Companies worry about increased labor costs, and young people worry about reduced new hiring. The government presents three principles and approaches carefully: preventing generational conflict, reducing wage gaps, preventing system confusion. Various supplementary measures like wage peak systems, job redesign, and flexible work systems are being discussed, and it will be implemented gradually after sufficient social consensus.

🔎 Minimum Wage Act Enforcement Ordinance Revision

• The minimum wage act enforcement ordinance revision case shows the importance of advance system improvement.
  • Attorney Song Hyun-seok's mentioned minimum wage act enforcement ordinance revision case relates to controversy over whether to include weekly holiday hours in 2016. During minimum wage increase, confusion arose over whether to include weekly holiday hours in minimum wage calculation.
  • The core problem was that while weekly holidays are paid under the Labor Standards Act, it wasn't clear whether this time should be included when calculating minimum wage. Some employers calculated excluding weekly holiday hours, effectively paying less than minimum wage, while workers claimed this was unfair.
  • The government then revised the minimum wage act enforcement ordinance in 2016 to clearly include weekly holiday hours in minimum wage calculation. This settled the controversy and allowed stable operation of the minimum wage system. Attorney Song cited this case, emphasizing that the wage peak system likewise needs clear standards and guidelines prepared in advance to prevent future legal disputes and social conflicts. He pointed out that with the major change of extending retirement to 65 approaching, taking sufficient time to improve the system is important.

5️⃣ Frequently Asked Questions (FAQ)

Q: How much does my wage decrease under the wage peak system?

A: It varies by company and occupation, but typically decreases by about 10-30%.

• The amount of wage reduction in the wage peak system varies according to company personnel regulations and labor-management agreements. Generally, wages decrease by a certain percentage annually starting 5 years before retirement, with final wages at retirement typically at 70-90% of peak wages. For example, if an employee earning 60 million won annually decreases by 5% each year for 5 years under the wage peak system, they would receive about 45 million won at retirement.
• However, after the Supreme Court ruling, excessively cutting wages based only on age can be judged illegal, so companies are adjusting wage reduction amounts or changing job duties together. Some companies also compensate by expanding retirement benefits or welfare instead of wages. From workers' perspective, while wage decrease is burdensome, they must carefully weigh pros and cons of being able to work stably until retirement.

Q: What can I do if I think the wage peak system is unfair?

A: You can file for relief with the Labor Relations Commission or file a lawsuit in court, and collective response through labor unions is also possible.

• If you judge the wage peak system unfair, there are several remedies. First, you can apply to the Labor Relations Commission for relief from unfair changes in working conditions. The Commission can judge the wage peak system's reasonableness and issue corrective orders. Second, you can file a lawsuit in court to confirm the wage peak system's invalidity. According to Supreme Court precedent, wage cuts without reasonable grounds can be recognized as invalid. Third, if there's a labor union, you can demand improvements through collective bargaining. Collective response increases negotiating power.
• When preparing lawsuits or relief applications, it's important to prove whether sufficient labor-management consultation occurred during wage peak system introduction, whether only wages were cut without job duty changes, and whether the reduction amount is excessive. Keep related documents like employment contracts, work rules, and collective agreements well, and get help from lawyers or labor attorneys. Also, you can receive basic legal consultation by calling the Ministry of Employment and Labor counseling center (1350).

Q: How will the wage peak system change if retirement age extends to 65?

A: Clearer legal standards and guidelines are expected to be prepared, and labor-management consultation will become more important.

• If retirement age extends to 65, the wage peak system's application period will lengthen and targets will increase. The government and experts expect to prepare clearer legal standards to avoid repeating the confusion of the 2016 retirement age 60 extension. For example, reasonable grounds allowing wage cuts, appropriate reduction amounts, and labor-management consultation procedures may be specifically regulated.
• Also, various methods beyond simply reducing wages will be discussed, such as job redesign, time-selection systems, and flexible work systems. For example, alternatives like converting older workers to junior training or advisory roles and reducing work hours while maintaining hourly wages may be proposed. The timing of retirement extension is not yet confirmed, but it's important for both companies and workers to prepare in advance and seek reasonable solutions through sufficient labor-management dialogue.

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