Oct. 24, 2017
From next year, employee welfare fund corporations of a certain size or larger will be allowed to spend part of their fundamental assets (i.e. accumulated principal).
The Ministry of Employment and Labor (MOEL) has announced that an amendment to the Enforcement Decree of the Framework Act on Labor Welfare containing this feature was deliberated and passed at a cabinet meeting on October 24th (Tue.).
So far employee welfare fund corporations have been able to use only returns generated from the management of their fundamental assets and part* of the contributions made for the current year to finance their welfare projects, but unable to spend their accumulated fundamental assets.
* less than 50% of the contributions made in the relevant fiscal year (less than 80% of the contributions in cases where the fund corporation is established by an SME, where the employer operates the selective welfare system or where the employer offers welfare benefits to dispatched workers or workers of contractors (or subcontractors))
However, employers' contributions to their employee welfare funds are continuing to decline amid the prolonged economic downturn, and funds' returns are dwindling because of the low interest rates.
There has been much concern that these circumstances could lead to a scaling-down or discontinuation of currently implemented labor welfare projects and even threaten the existence of employee welfare funds.
And measures have been called for to address the welfare gap between large companies and SMEs and between different types of employment, which is further widening due to the low growth trend and economic slump.
* The non-statutory welfare benefits of small- and medium-sized enterprises with fewer than 300 employees were just 39.8% of those of companies with 300 employees or more (2016 Enterprise Labor Cost Survey, MOEL).
So MOEL came up with an improvement measure to address this structural problem and to ensure that the employee welfare fund system can help strengthen win-win cooperation between principal contractors and subcontractors and reduce the welfare gap between large companies and SMEs.
The main contents of the amendment to the Enforcement Decree of the Framework Act on Labor Welfare are as follows.
1) Eligible fund corporations
○ To be eligible to spend fundamental assets, an employee welfare fund corporation should have fundamental assets of at least 3 million won per worker.
Eligibility is limited to fund corporations of a certain size or larger, considering that too much use of fundamental assets might undermine the sustainability of welfare projects and the financial soundness of funds.
* As of the end of 2015, of 1,543 employee welfare fund corporations, 849 or 55% were those with fundamental assets of at least 3 million won per worker.
2) Spending requirements and limits
Meanwhile, an eligible fund corporation can spend an amount determined by the welfare fund council every five years but not exceeding 20/100 of the total amount of fundamental assets for the preceding fiscal year.
In such cases, at least a certain portion* of the amount intended for fund-financed projects must be spent on promoting the welfare of dispatched workers or workers of direct contractors.
* The amount spent per dispatched worker or worker of a direct contractor should be at least 25% of the amount spent per worker employed by the business owner who set up the fund corporation. (The Enforcement Regulations of the Framework Act on Labor Welfare is to be revised.)
The aim of the measure is to strengthen win-win cooperation between principal contractors and subcontractors and to reduce the welfare gap between large companies and SMEs.
The amendment passed by the Cabinet will enter into force next January three months after its promulgation.
Chung Hyoung-woo, the Director-General of MOEL's Labor Standards Policy Bureau, said, "By allowing use of fundamental assets to the minimum extent necessary, this measure is expected to ensure the sustainability of welfare projects and to greatly help strengthen win-win cooperation between principal contractors and subcontractors and reduce their welfare gap."