Advisory Case on Determining Whether a One-Time Incentive Payment Is Included in Average Wages

1. The Client's Situation

After failing to meet its management targets in the previous year, the client paid a one-time incentive bonus, limited to 2026 only, in order to boost employee morale and motivation to work. Subsequently, in the course of calculating the severance pay of some employees, the question arose as to whether this incentive bonus should be included in average wages. In particular, unlike regular bonuses or performance-based pay, a clear determination was needed as to the legal nature of a sum paid on a one-time, non-standard basis. The client therefore requested a legal review to minimize the risks associated with severance pay calculation.

Your Legal Team reviewed the matter focusing on the Supreme Court's precedential standards regarding the concept of "wages" included in average wages under the Labor Standards Act. We comprehensively analyzed whether the incentive bonus was paid as consideration for the provision of labor, whether it had a direct and close connection to the work performed, and whether it could be regarded as a continuous and regular payment. As a result, we explained that the incentive bonus, paid on a one-time basis, was difficult to recognize as consideration for labor, and that since the obligation to pay was not directly linked to the provision of labor, it could be excluded from the calculation of average wages. In addition, we presented, as reference materials, lower court rulings that denied the wage character of payments in similar cases.

By securing a legal determination that the incentive bonus could be excluded from the basis for calculating average wages, the client was able to prevent unexpected cost burdens arising from additional severance payments. Furthermore, this provided an opportunity to establish internal standards to reduce disputes over wage character when designing incentive and reward programs in the future. Through this, the client was able to strengthen both labor risk management and the stability of its HR systems.

Your Legal Team provides customized legal services across the full range of corporate labor matters, including advice on average wage and severance pay calculation, determination of wage character, and the design of HR and labor systems.