When ‘inclusive wage’ is written in an employment contract, does it mean that overtime pay cannot be received additionally? The explanation that overtime pay is included in the monthly salary may be correct within a certain scope. However, that phrase does not have the effect of ending all additional compensation regardless of the hours actually worked. Its meaning becomes apparent only when examining which allowances were agreed to be paid in what amounts, whether that agreement is valid, and whether the payment amount is insufficient compared to the statutory allowances actually incurred.
This difference is also clearly shown in the administrative guidelines for 2026. The ‘Guidelines for Preventing the Abuse of Inclusive Wages to Eradicate Free Labor,’ implemented by the Ministry of Employment and Labor starting April 9, specified that even if a fixed overtime allowance agreement is concluded, the difference must be paid if it falls short of the statutory allowances calculated based on actual working hours. This means that reflecting allowances in advance in an employment contract and eliminating the obligation to settle wages are different matters.
The starting point for understanding the inclusive wage system lies in looking at what is contained within the total monthly salary rather than the gross amount itself. Even for two people receiving the same amount, their actual treatment varies depending on how wages as consideration for prescribed work and consideration for extended work are structured. This is why this distinction is necessary not only for workers comparing annual salaries, but also for companies explaining hiring conditions and managing labor costs.
What Does an Inclusive Wage System Mean to Bundle and Pay?
The inclusive wage system is a form of wage payment agreement that has been addressed in precedents. This can include cases where a monthly salary or daily wage is set by combining multiple allowances without calculating the basic wage separately, or where a fixed amount is bundled and paid separately from the basic wage as consideration for multiple allowances. The core lies in the extent to which wages to be calculated individually according to actual working hours were predetermined as a set amount.
At this time, the term ‘inclusive’ used in daily life and the inclusive wage agreement judged by the courts do not necessarily match. The name attached by a company to a job posting or employment contract is merely one piece of evidence for judgment. The actual wage structure can only be explained by examining whether the basic salary and allowances are separated, what the payment purpose of each allowance is, and how the employment rules and wage regulations are set. Being under an annual salary system does not automatically make it an inclusive wage system.
Annual salary is a method of expressing wages as an annual amount, and monthly salary refers to the payment unit. Neither expression itself determines whether extended, night, or holiday work allowances are included. Individuals under an annual salary contract can also have overtime allowances settled separately, and those receiving a fixed amount every month can be paid with basic salary and specific overtime allowances distinguished. Confusing the unit in which an amount is expressed and the payment items obscures the reality of the contract.
How Do Fixed Overtime Allowances and Inclusive Wage Agreements Differ?
What is also frequently discussed in practice is ‘Fixed OT.’ OT stands for overtime work, and refers to an agreement to pay allowances for specific overtime work as a fixed amount. If the structure distinguishes basic salary and extended work allowances and clarifies what hours and calculation formulas those allowances presuppose, the content differs from a method that bundles all statutory allowances without distinction. What matters is the scope of compensation handled by that amount, rather than the payment of a fixed amount itself.
Therefore, it cannot be considered that even night work or holiday work has been fully compensated simply because a fixed extended work allowance is paid. If the agreement and payment details targeted only extended work, allowances for other types of work are a matter to be reviewed separately. Conversely, once it is confirmed that the money already paid is consideration for the corresponding work, simply adding the entire same wage again is also inappropriate. Comparing the actual incurred amount and the already paid amount in the same item and period is the starting point of settlement.
The 2026 guidelines of the Ministry of Employment and Labor requested the improvement of the flat-rate system, which does not distinguish between basic salary and allowances, and the flat-rate allowance system, which bundles extended, night, and holiday allowances without distinction. For Fixed OT, it also specified comparison with statutory allowances based on actual working hours. This is an administrative standard meaning that the word ‘fixed’ should not be read to mean that additional payments are impossible. Merely changing the name of the wage system does not resolve discrepancies between working hour records and payment details.
Why Signing a Contract Does Not End the Matter
The inclusive wage debate involves a two-stage judgment. First, it examines whether such an agreement was actually established between the parties, and second, it judges whether the established agreement is legally valid. The fact that a signed document exists and the conclusion that all conditions contained in that document are valid are not the same thing. Conversely, the absence of a name does not mean that all agreements regarding wages disappear.
In the Supreme Court ruling 2020Da224739 sentenced on November 11, 2021, the Court explained that the establishment of an inclusive wage agreement must be judged comprehensively by considering working hours, work forms, the nature of duties, wage calculation units, collective agreements, and employment rules. In particular, cases where basic salary and extended, night, and holiday work allowances were clearly divided and paid were not simply concluded to be inclusive wage systems. The intent is that it is difficult to presume an agreement to waive all allowances simply based on the circumstance that additional work was anticipated in advance.
In that case, the fact that a fixed overtime allowance was received and whether there was an agreement not to claim additional allowances in exchange for receiving it were separate issues. The Supreme Court accepted the lower court's judgment that it was difficult to conclude that an inclusive wage agreement regarding weekday extended and night work allowances was established between monthly-salaried workers and the company. This ruling is significant in contract practice because the existence of regularly paid allowances alone cannot expand the scope of a comprehensive agreement.
In judging validity, whether the work is of a nature where working hours are difficult to calculate was treated importantly. In the Supreme Court ruling 2015Da8803 sentenced on June 25, 2020, the Court explained that even in cases where calculating working hours is difficult, an inclusive wage agreement can be valid only if there is no disadvantage to the worker and it is fair in light of various circumstances. It also presented the judgment that unless it is a case where calculating working hours is difficult, the principle of paying wages according to hours applies, and portions of allowances included in the agreement that fall short of statutory standards may be invalidated.
The actual subject of this ruling was the wage agreement of an intercity bus transport company that calculated wages in proportion to driving distance. The Supreme Court accepted the lower court's validity judgment, which considered the relevant work form and the difficulty of calculating actual working hours. The conclusion to be drawn here is not that inclusive wages are always permitted in certain industries. It points out that even agreements with the same name will be judged differently if actual duties and conditions for calculating hours differ.
The validity judgments of past precedents and the 2026 administrative guidelines need to be read by separating their respective characteristics. Precedents reviewed agreements in specific cases, while guidelines presented standards to be used in supervision and field guidance. Interpreting the release of the guidelines as meaning that all existing contracts have collectively become invalid, or applying cases recognized as valid in the past to all current fixed-salary contracts, both exceed the scope of judgment.
Overtime Pay Varies Depending on the Type of Work as Well as Hours
To compare allowances, what constitutes overtime work must first be clear. The following addition standards assume general labor relations in workplaces with 55 or more regular employees to which Article 56 of the Labor Standards Act applies. Workplace scale, exclusions from working hour applications, and short-time or flexible work systems are areas where application regulations must be reviewed separately. Accurately settling accounts is impossible if the same calculation formula is mechanically applied to all workers.
The basic framework of Article 50 of the Labor Standards Act is 8 hours per day and 40 hours per week, excluding break times. For general statutory extended work, 50% or more of the ordinary wage is added in accordance with Article 56. Here, ‘50% addition’ does not mean paying only half of the ordinary hourly wage as compensation for one hour of extended work. Because 100% of the work compensation for that hour plus the 50% addition are combined, the wage for the extended work itself is calculated at 1.5 times or more of the ordinary hourly wage.
Night work is not simply the same as work after leaving the office. The night time period designated by law is from 10 p.m. to 6 a.m. of the following day, and work during that time incurs an addition of 50% or more of the ordinary wage. Therefore, night work within prescribed working hours must be distinguished from extended and night work exceeding prescribed working hours. When extended work overlaps with the statutory night time period, respective addition reasons are reflected, so calculating only the extended work addition may be insufficient.
Holiday work has separate standards. Within 8 hours, 50% of the ordinary wage is added, and for portions exceeding 8 hours, 100% or more is added. Looking solely at the compensation for actual holiday work, this amounts to 1.5 times and 2 times or more, respectively, which is an amount distinct from the wage for paid holidays themselves. If night work also overlapped here, the night addition must also be reviewed together. Whether a holiday is established under the employment contract is not finalized solely by calendar indications such as weekends.
The Difference from Actual Statutory Allowances Matters More Than 'Hours Included'
When Fixed OT is set, the direct comparison targets that determine whether additional payments are made are the actual statutory allowances incurred and the amounts already paid as those allowances. If the former is greater than the latter, a deficiency remains. The number of hours written in the contract is a clue explaining how the fixed amount was calculated, but the settlement result is not finalized by that alone. This is because the ordinary hourly wage, addition rates, and types of included allowances must align together.
Expressing this in a calculation structure, ‘the difference obtained by subtracting the allowance already paid for the same item from the actual statutory allowance of the corresponding period’ is the additional payment review amount. It is not a method of subtracting the total monthly salary from statutory allowances, nor is it a method of arbitrarily changing money paid for basic salary or other purposes into overtime pay for deduction. The starting point of calculation will not waver only if the legal character of the already paid amount is confirmed first.
Because of this structure, management that looks only at whether working hours have increased beyond the presupposed hours of Fixed OT has loopholes. Even for the same hours, payment standards vary depending on whether it is weekday extended work, statutory night work overlaps, or it is the portion exceeding 8 hours on a holiday. Even in cases where the ordinary wage forming the basis of wage calculation has changed while the calculation basis of fixed allowances remains the same, amounts need to be re-compared. The total sum of hours and the total sum of wages are connected but are not the same information.
Conversely, the conclusion that already agreed fixed amounts can be immediately recovered or deducted from the next month's wages does not follow simply because the actual calculated amount is less than the fixed allowance. Reviews vary depending on under what conditions the payment of the fixed amount was agreed and whether separate settlement regulations exist. The principle of additionally paying for deficiencies cannot be read backwards into the authority to automatically claw back excess payments.
Employment Contracts and Wage Statements Answer Different Questions
Employment contracts show what is agreed to be worked and at what price, and wage statements show what items and amounts were received on the corresponding payday. Workers can understand their compensation only when both documents explain the same content. If the contract states that there is a fixed extended work allowance, but the statement displays only a gross total, it is difficult to immediately know which part of the actual payment corresponds to that allowance.
The Ministry of Employment and Labor’s guidance on wage statements explains that amounts by item such as basic salary, allowances, and bonuses, calculation methods for items that vary according to working hours, and deduction details must be recorded. If extended, night, or holiday work was ordered, those hours are also matters to be included in the calculation method. This information is not a simple document format, but the basis connecting agreements and actual payments. It is difficult to judge the appropriateness of component items or additional allowances based solely on the net amount deposited into the bank account.
Even in the stage of verifying actual hours, caution is required in equating a single access record with total working hours. Article 50 of the Labor Standards Act views waiting time and the like under the employer's direction and supervision as working hours. On the other hand, the mere fact of staying at the company does not explain that all those hours were immediately work. Comparing commute records, work instructions, actual performance contents, and break usage together can shift the focus of disputes from simple stay-time to actual work.
When workers inquire about settlements, asking questions based on itemized grounds is more useful than a single question asking ‘Is the inclusive wage system correct?’ Once the amounts of basic salary and fixed allowances, types of included work, hours and ordinary hourly wages used in calculations, and methods of processing differences from actual hours are confirmed, the issues become concrete. Companies can explain based on the same data, and even when disagreements remain, the exact parts where calculations or contract interpretations diverged are revealed.
What Companies Must Manage Is Not Fixed Labor Costs, But Actual Work Costs
From a management perspective, fixed allowances can be a factor making monthly labor costs easy to anticipate. However, that anticipated amount does not become the ceiling for the amount that must be legally paid. If actual work increases while only the same amount remains in settlements, a problem arises where changes in frontline workloads are not properly reflected in labor cost data. Apart from the issue of paying additional allowances, this becomes incomplete information for judging manpower deployment and work design.
Therefore, labor cost planning requires a structure that divides basic compensation, anticipated overtime allowances, and settlement amounts according to actual work. If additional work is repeated in specific tasks, one can look into work distribution, deadlines, and approval procedures together, rather than stopping at tweaking the name of the fixed allowance. When settlement data is connected to frontline work operations, companies gain grounds to compare whether to increase manpower, change procedures, or adjust work scopes.
Allowance payments and working hour limits are also separate issues. Working hour regulations set by law do not disappear simply because wages were paid, nor do inclusive wage agreements replace those regulations. Calculating costs and operating labor lawfully must be done together. The explanation that ‘you can work more because allowances are included’ reduces these two management responsibilities into one.
Ultimately, the answer to whether overtime pay is included in the inclusive wage system depends on the specific details of the agreement. However, the obligation to make additional payments for actual work does not always disappear simply because it is included. Workers need explanations so they know what their wages are compensation for, and companies need management where those explanations and actual calculations match. What is more important than the name inclusive wage is whether the agreed compensation and the price of actual labor align.
