Recovering Subcontractor Insurance Premiums in South Korea
Table of Contents
- 1. How is the insurance premium obligation allocated in South Korean construction subcontracting?
- 2. Can a subcontract agreement shift premium liability to the subcontractor?
- 3. What losses does the general contractor suffer when a subcontractor fails to enroll?
- 4. How do courts determine whether premiums were included in the subcontract price?
- 5. How does an unjust enrichment claim proceed in South Korea?
- 6. FAQ
Case background: Company A, a general contractor on a government-commissioned construction project in the Seoul metropolitan area, included a special condition in its subcontracts requiring the subcontractors to enroll in industrial accident and employment insurance and pay the premiums themselves. The subcontractors never enrolled. Company A ended up absorbing tens of millions of won in premiums — on top of the subcontract prices it had already paid in full. Could it get any of that money back?
Why did the general contractor end up bearing the entire premium burden?
※ This case description is based on actual litigation handled by Attorney Park Soyoung. Identifying information and certain factual details have been modified to protect the parties involved.
Under South Korean insurance law, when construction is performed through a chain of subcontracts, the general contractor is the default employer for insurance purposes. To transfer that status to a subcontractor, the general contractor must enter into a written handover agreement and apply to COMWEL for approval within 30 days of the subcontract commencement date. In this matter, that deadline was missed. Company A became responsible for the premiums covering all subcontract work. The key issue was whether the subcontract prices had already included those premium amounts — and if so, whether the subcontractors had been unjustly enriched by retaining a benefit they were contractually obligated to bear.
1. How is the insurance premium obligation allocated in South Korean construction subcontracting?
The general contractor (principal contractor) is the default employer for industrial accident and employment insurance purposes. This obligation can be transferred to a subcontractor only by following a specific statutory procedure.
The general contractor as default employer
Article 9(1) of the Act on the Collection of Insurance Premiums for Employment Insurance and Industrial Accident Compensation Insurance (the “Premium Collection Act”) provides that where a business such as construction is carried out through multiple tiers of subcontracting, the original principal contractor is treated as the employer under the Act. Absent any further steps, the general contractor bears the full premium obligation for the entire project, including subcontract portions.
Procedure for transferring employer status to a subcontractor
Under Article 7(3) of the Enforcement Decree of the Premium Collection Act, employer status may be transferred if the general contractor: (i) executes a written agreement with the subcontractor for the handover of premium payment obligations, and (ii) applies to COMWEL for recognition of the subcontractor as employer within 30 days of the subcontract commencement date. Missing that window leaves the general contractor as employer.
| Scenario | Employer (insurance) | Premium obligation |
|---|---|---|
| Default (no approval application filed) | General contractor | General contractor |
| Exception (written agreement + COMWEL approval within 30 days) | Subcontractor | Subcontractor |
Relevant Statute
Act on the Collection of Insurance Premiums for Employment Insurance and Industrial Accident Compensation Insurance
Article 9 (Consolidated Application for Contract Work) ① Where a business prescribed by Presidential Decree, such as construction, is performed through multiple tiers of subcontracting, the original principal contractor shall be deemed the employer subject to this Act. Provided, however, that where approval is obtained from the Service in accordance with the Presidential Decree, the subcontractor shall be deemed the employer subject to this Act.
② Where a business under paragraph (1) is subcontracted from a foreign business operator without a domestic place of business and is performed in South Korea, the first subcontractor with a domestic place of business shall be deemed the employer subject to this Act.
Enforcement Decree of the Act on the Collection of Insurance Premiums for Employment Insurance and Industrial Accident Compensation Insurance
Article 7 (Consolidated Application for Contract Work) ① The term “business prescribed by Presidential Decree, such as construction” in the main clause of Article 9(1) of the Act means construction business.
② Recognition of a subcontractor as employer under the proviso to Article 9(1) of the Act is limited to cases where the subcontractor falls under any of the following subparagraphs. <Amended Dec. 31, 2018; Feb. 18, 2020; May 7, 2024>
1. A constructor under Article 2 subparagraph 7 of the Framework Act on the Construction Industry
2. A housing construction business operator under Article 4 of the Housing Act
3. An electrical construction business operator under Article 2 subparagraph 3 of the Electrical Construction Business Act
4. An information and communications construction business operator under Article 2 subparagraph 4 of the Information and Communications Construction Business Act
5. A fire-fighting facilities business operator under Article 2(1) subparagraph 2 of the Fire-Fighting System Installation Business Act
6. A national heritage repair business operator under Article 2 subparagraph 5 of the Act on National Heritage Repair, etc.
③ To obtain recognition of a subcontractor as employer under the proviso to Article 9(1) of the Act, the principal contractor shall execute a written agreement (including an agreement in electronic document form) with the subcontractor for the handover of premium payment obligations and shall apply to the Service for recognition of the subcontractor as employer within 30 days of the commencement date of the subcontract work. <Amended Jun. 8, 2021>
④ The Service shall not approve recognition of a subcontractor as employer if any of the following occurs in the relevant subcontract work for which the principal contractor has applied: <Amended Jun. 29, 2012>
1. An occupational accident under Article 5 subparagraph 1 of the Industrial Accident Compensation Insurance Act occurs between the 15th day after commencement of the subcontract work and the date of the approval application
2. An occupational accident under Article 5 subparagraph 1 of the Industrial Accident Compensation Insurance Act occurs after commencement of the subcontract work and before the approval application, and insurance benefits must be collected from the principal contractor under Article 26(1) subparagraph 1 of the Act in connection with that accident
2. Can a subcontract agreement shift premium liability to the subcontractor?
Yes. Even where the general contractor remains the statutory employer, the parties may contractually allocate the economic burden of the premiums to the subcontractor through the special conditions of the subcontract.
Special conditions clause in this case
In this matter, the subcontracts between Company A and subcontractors B and C contained a special conditions clause (Article 7) requiring all on-site workers to be enrolled in industrial accident and workplace compensation insurance and obligating the subcontractors to submit proof of enrollment to the general contractor. The court upheld the validity of this clause and found that the subcontractors had assumed the premium payment obligation.
Mandatory itemization of premiums in contract cost schedules
Article 22(7) of the Framework Act on the Construction Industry requires the parties to a construction contract to expressly state in the contract cost breakdown schedule the amounts of premiums that the contractor is legally obligated to pay, including industrial accident and employment insurance premiums. Accordingly, the subcontract cost breakdown schedules in this case separately itemized industrial accident insurance premiums (labor cost × 3.7%) and employment insurance premiums (labor cost × 0.79%).
Relevant Statute
Framework Act on the Construction Industry
Article 22 (Principles Governing Construction Contracts) ① The parties to a construction contract (including a subcontract; the same hereinafter) shall contract on equal terms through mutual agreement fairly, and shall perform the contract faithfully in good faith.
② The parties to a construction contract shall clearly set forth in the contract document the contract price, construction period, and other matters prescribed by Presidential Decree at the time of contracting, and shall exchange and retain signed or sealed copies of the contract.
③ The Minister of Land, Infrastructure and Transport shall encourage the preparation and use of standard contract forms for construction work contracts and construction management consignment (in the case of subcontracts, including the standard subcontract form for construction recommended by the Fair Trade Commission under the Act on Fair Transactions in Subcontracting; hereinafter “standard contract form”) so that the contracting parties may contract on equal terms fairly. <Newly inserted Aug. 6, 2013>
④ A constructor shall record matters concerning construction work in a construction work register in accordance with Ordinance of the Ministry of Land, Infrastructure and Transport. <Amended Mar. 23, 2013; Aug. 6, 2013; Apr. 30, 2019>
⑤ Where the terms of a construction contract are significantly unfair to one party and fall under any of the following subparagraphs, those terms shall be void to that extent. <Newly inserted Aug. 6, 2013; Amended Jun. 9, 2020>
1. Cases where, without reasonable cause, changes in contract amount arising from design changes or changes in economic conditions after contracting are not recognized, or the burden thereof is shifted to the other party
2. Cases where, without reasonable cause, changes in the construction period arising from changes in construction content after contracting are not recognized, or the burden thereof is shifted to the other party
3. Cases where, in light of all circumstances including the form of the contract and the content of the construction work, the other party is held responsible for matters that were difficult to foresee at the time of contracting
4. Cases where contract terms are not specifically defined or there is a dispute between the parties, and determining those terms unilaterally according to one party’s intent infringes on the other party’s legitimate interests
5. Cases where a party’s liability for damages for breach of contract is excessively reduced or increased in a manner that infringes on the other party’s legitimate interests
6. Cases where rights of the other party recognized under the Civil Act or other applicable statutes are excluded or restricted without reasonable cause
⑥ A constructor shall notify the project owner of the matters recorded in the construction work register under paragraph (4) in the manner prescribed by Presidential Decree. <Amended Aug. 6, 2013; Feb. 3, 2016; Apr. 30, 2019>
⑦ The parties to a construction contract shall clearly state in the contract cost breakdown schedule for that construction work (including the subcontract cost breakdown schedule; the same in this paragraph) the amounts of insurance premiums under the Act on the Collection of Insurance Premiums for Employment Insurance and Industrial Accident Compensation Insurance, national pension insurance premiums under the National Pension Act, health insurance premiums under the National Health Insurance Act, long-term care insurance premiums under the Long-Term Care Insurance Act, and other costs that the constructor is legally obligated to bear in connection with that construction work, in the manner prescribed by Presidential Decree. Where the amount stated in the contract cost breakdown schedule exceeds the premiums actually paid, matters concerning settlement thereof shall be prescribed by Presidential Decree. <Amended Aug. 6, 2013; Apr. 30, 2019>
⑧ Where two or more constructors agree with a project owner to jointly undertake a project ordered by a party other than the State, a local government, or a public institution prescribed by Presidential Decree, and one of those constructors wishes to request a change to the agreed terms from the project owner, that constructor shall notify the other constructors in writing of the reasons therefor no later than 10 days before the date of the request. <Newly inserted Dec. 31, 2018; Amended Apr. 30, 2019>
3. What losses does the general contractor suffer when a subcontractor fails to enroll?
The general contractor is left paying the full premium burden for work performed by the subcontractor — a direct out-of-pocket loss equal to the premium amounts the subcontractor should have borne.
Premium amounts paid in this case
In this matter, subcontractors B and C failed to enroll in either industrial accident or employment insurance. Company A paid all premiums to COMWEL in a lump sum covering the entire project, including the subcontract portions, from approximately April through August 2023. The breakdown was as follows.
| Subcontractor | Industrial Accident Insurance | Employment Insurance | Total |
|---|---|---|---|
| Company B (1st subcontract) | KRW 35,202,936 | KRW 7,516,302 | KRW 42,719,238 |
| Company C (2nd subcontract) | KRW 20,430,429 | KRW 4,362,174 | KRW 24,762,603 |
| Total | KRW 55,633,365 | KRW 11,878,476 | KRW 67,481,841 |
How the approval deadline was missed
Company B had independently filed a business commencement notice with COMWEL on September 20, 2022. However, because Company A failed to apply to COMWEL for recognition of the subcontractors as employers within 30 days of the subcontract commencement date, Company A remained the statutory employer. Consequently, Company B cancelled its prior business commencement registration on January 29, 2023.
4. How do South Korean courts determine whether premiums were included in the subcontract price?
Courts examine the contract documents holistically — in particular the subcontract cost breakdown schedule, the construction cost calculation sheet, and any completion payment requests — to determine whether the subcontract price encompassed the premium amounts.
The court’s reasoning in this case
The court found that the subcontract prices paid by Company A to subcontractors B and C under the direct payment arrangement already included the industrial accident and employment insurance premiums the subcontractors had agreed to bear. The key documentary evidence was as follows.
- The 1st subcontract cost breakdown schedule between Company A and Company B itemized industrial accident insurance at KRW 28,602,315 (labor cost × 3.7%) and employment insurance at KRW 6,106,980 (labor cost × 0.79%).
- The 2nd subcontract cost breakdown schedule between Company A and Company C itemized industrial accident insurance at KRW 20,532,729 (labor cost × 3.7%) and employment insurance at KRW 4,384,014 (labor cost × 0.79%).
- Following revisions to the labor cost base for Company B’s work, the premiums were finally settled at KRW 35,202,933 (industrial accident) and KRW 7,516,302 (employment).
- For Company C, the final settled amounts were KRW 20,430,429 (industrial accident) and KRW 4,362,174 (employment).
- The construction cost calculation sheets (amended) attached to the subcontractors’ completion payment requests — submitted pursuant to the direct payment arrangement — also separately itemized each of the premium amounts.
The subcontractors’ argument and its rejection
The subcontractors argued that because they had received a reduced subcontract price (less than the original contract amount), the premiums were not actually included in what they were paid. The court rejected this argument, finding that the objective documentary record — the itemized schedules and the contract history — left no room for such an inference.
5. How does an unjust enrichment claim proceed in South Korea?
An unjust enrichment claim is brought as ordinary civil litigation. The general contractor may claim the full premium amounts paid, together with delay damages from the day after service of the complaint.
Legal basis
Article 741 of the Civil Act of South Korea provides that a person who obtains a benefit from another’s property or services without legal justification, thereby causing loss to that other person, shall return the benefit. Here, the subcontractors received subcontract prices that already included the premium amounts, but failed to enroll in insurance — obtaining a benefit of the premium amounts without legal justification, to Company A’s detriment.
Outcome of this case
The court ordered Company B to pay Company A KRW 42,719,238, together with delay damages at the annual rate of 20% prescribed under the Act on Special Cases Concerning Expedition of Legal Proceedings, running from April 25, 2024 (the day after service of the complaint). Company C was ordered to pay KRW 24,762,603, with delay damages running from April 24, 2024.
Practical checklist before filing
Before initiating an unjust enrichment claim, the general contractor should assemble the following documents.
- Subcontract agreement and special conditions (full text)
- Subcontract cost breakdown schedule showing insurance premium line items
- Construction cost calculation sheet (original and all amended versions)
- COMWEL premium payment receipts
- Evidence of the subcontractor’s failure to enroll
- Records relating to the employer recognition approval application
6. FAQ
In construction and real estate disputes, individual contract clauses often determine the outcome of litigation. This case illustrates how the special conditions clause and the insurance premium line items in the subcontract cost schedule became the decisive evidentiary foundation. For subcontract premium disputes and other construction-related legal issues in South Korea, having counsel review the contract documents before execution is the most effective form of risk management.
※ The legal information provided in this article is intended for general informational purposes only. Legal outcomes vary depending on the specific facts of each case. For advice on a particular matter, please consult a qualified attorney.