Penalties for unpaid wages get heavier from October 8

The amended Labor Standards Act passed in April this year takes effect on October 8, 2026. Not many provisions change, but for companies that find it tight to meet payroll, the changes will weigh differently. That is because the statutory penalty for failing to pay what is owed to a departing employee on time is going up.

What changes

When an employee leaves, the employer must pay all money owed, including wages and severance pay, within 14 days, and if there are special circumstances, the date can be extended by agreement between the parties (Article 36). Until now, violating this obligation carried imprisonment for up to 3 years or a fine of up to 30 million won. For violations after October 8, when the amended Act takes effect, Article 107 applies and the penalty becomes heavier: imprisonment for up to 5 years or a fine of up to 50 million won.

Penal provisions in principle follow the law in force at the time of the act, so the previous statutory penalty applies to violations completed before the effective date. However, where non-payment continues past the effective date, which point in time is used as the standard must be examined case by case.

You should also know the procedure. When a former employee files a petition with the labor office, a labor inspector calls in both sides, confirms the amount unpaid and orders payment. If payment is not made by the deadline given, the matter may be turned into a criminal case and referred, and from that point the statutory penalty above becomes a real issue. It is usual to separate the amounts you accept from those you dispute and to pay the accepted portion first.

The rule on non-desire for punishment remains

Some articles say the amendment abolished the rule that a case cannot be prosecuted against the victim's wishes (반의사불벌), but the text shows otherwise. The provision that no indictment can be filed if the affected employee clearly states that they do not want punishment remains after the amendment. However, it does not apply where an employer whose name has been publicly disclosed for unpaid wages fails to pay wages again during the disclosure period.

In the end, a settlement with the employee remains the most realistic means of ending the criminal process in an unpaid wage case. With the statutory penalty going up, a settlement arguably matters even more.

Burdens that have grown beyond criminal punishment

• Late-payment interest at 20 percent per year from the day after 14 days have passed since the employee left (Article 37, Article 17 of the Enforcement Decree)
• Late-payment interest also where regular wages are not paid on the set date during employment (Article 37(1)2)
• Where wages were withheld with clear intent, where wages went unpaid for a total of 3 months or more within 1 year, or where the total unpaid amount is 3 months' ordinary wages or more, the employee may ask the court for damages of up to 3 times the amount (Article 43-8)

Treble damages apply to grounds arising on or after October 23, 2025. The court sets the amount taking into account the period and circumstances of non-payment, how much effort the employer made to pay, late-payment interest already paid and the employer's financial situation. If non-payment is unavoidable, drawing up a payment plan and keeping a record of paying at least part of it first will matter in this assessment.

If cash flow makes it difficult to pay severance, start by signing an extension agreement with the employee before the 14 days are up. A single agreement stating the date and amount can make a big difference to late-payment interest and criminal liability.