South Korea’s Ministry of Land, Infrastructure and Transport announced a revised system on December 18, 2025, mandating direct payment of construction wages to workers and direct remittance of material and equipment costs, bypassing traditional principal and subcontracting accounts. The change aims to structurally prevent wage defaults and exploitation within the construction and shipbuilding industries, sectors plagued by complex multi-tiered subcontracting arrangements.
The revised regulations, detailed in an amendment to the Construction Industry Act, allow subcontractors to receive payments from project owners—the initial funders—without requiring prior approval from the primary contractor. This represents a significant shift in the financial flow of large-scale projects, directly addressing a long-standing issue of delayed or withheld payments trickling down to laborers and suppliers.
Government officials have prioritized eliminating structural wage arrears, with the novel “wage segregation payment system” at the core of the initiative. Under the system, project owners will be required to separate and deposit wage funds into a dedicated financial institution, effectively creating an escrow system. A similar approach will be used for materials and equipment costs, ensuring those funds are directly available to suppliers.
The move follows a September 2, 2025, government announcement outlining a comprehensive plan to tackle systemic wage issues. The initial focus is on the construction and shipbuilding sectors, known for their intricate subcontracting chains. The implementation of the direct payment system is currently contingent on legislative approval, with the timing dependent on parliamentary proceedings, according to a November 11, 2025 report.
The government is also considering a system where project owners directly remit wages to subcontracted workers. This direct payment approach is intended to eliminate opportunities for wage theft or intermediary exploitation. The Ministry anticipates that these measures will fundamentally alter the payment landscape, preventing the diversion of funds intended for labor and materials.
The changes are expected to be implemented first in industries with extensive multi-tiered subcontracting, such as construction and shipbuilding. The government has not yet specified a firm implementation date, citing the need for legal revisions and ongoing consultations with industry stakeholders.
