The legal risk that companies paying freelancers and outsourced workers don't see coming

Key Takeaways

Even if a contract labels someone a "freelancer," courts will treat them as an employee when the actual way they work resembles an employee's — what matters is the real working arrangement, not the label on the contract
Once worker status is recognized, retroactive claims for severance pay, annual-leave allowances, and dismissal-notice pay can arise at the same time as the retroactive assessment of unpaid four-major-insurance premiums
As the employee-presumption rule moves toward legislation, the structure shifts so that, in a dispute, the company itself must prove the person is "not an employee" — a far more unfavorable position than today
The defining feature of freelancer labor disputes is that a single person's case spreads into a group claim by the dozens of others contracted in the same way
The only line of defense is to review your contract structure and working arrangements proactively now, rather than after a dispute has already broken out

If you pay people at 3.3%, this article may be about your company

You sign a service (subcontract) agreement, pay wages with 3.3% withholding tax, and file no four-major-insurance enrollment. Many companies believe this structure is legally fine. But the standard a court applies is not what the contract says. It is how the person actually works.

In January 2024, the Supreme Court recognized a broadcaster's announcer, who had signed a freelance contract, as an employee. She commuted according to the broadcaster's programming schedule and performed her work the same way as full-time announcers. The contract said "freelancer." The court looked at the actual working arrangement rather than the contract label.

The types of companies most exposed to this risk are as follows.

Industry	Main worker type	Risk level
Insurance & finance	Insurance planners, FCs, FPs — engagement contracts but with quota targets, work instructions, and mandatory training	★★★★★ Very high
Delivery & platforms	Delivery riders, designated drivers, quick-service couriers — dispatch controlled via platform apps, with time constraints	★★★★★ Very high
IT, development & content	Developers, designers, video editors — fixed attendance, use of in-house equipment, repeated work instructions	★★★★☆ High
Education & learning	Visiting instructors, study-paper teachers — assigned territories, fixed schedules, teaching instructions	★★★★☆ High
Sales & marketing	Engaged sales reps, brand ambassadors — sales-target quotas, mandatory daily reporting	★★★☆☆ Medium

The core criterion courts use to determine worker status is not the form of the contract but substantive subordination. Courts weigh, in particular, the following factors together. Does the company set the content of the work and exercise considerable direction and supervision? Are commuting hours fixed, and does the worker use a location (in-house equipment) designated by the company? Is the worker restricted from providing labor to other companies at the same time? The more these conditions are met, the higher the likelihood that worker status will be recognized. Writing "freelancer" in the contract makes no difference.

The moment they are recognized as an employee, the bills arrive

The moment a single freelancer files a complaint with the labor office or brings a civil suit, claiming "I was actually an employee," costs the company must bear arise from several directions at once. And they apply retroactively, going back into the past.

The main claims that arise simultaneously are as follows.

Severance pay — For continuous service of one year or more, 30 days of average wages × years of service. For a three-year contract, the equivalent of about three months' wages is claimed retroactively.
Unused annual paid-leave allowance — Up to 25 days per year × daily wage. Claimed retroactively for the entire period within the most recent three years.
Dismissal-notice pay — 30 days' wages. Applies when the end of the contract is treated as a "dismissal."
Retroactive four-major-insurance enrollment and unpaid premiums — The employer's portion plus surcharges. The National Health Insurance Service and National Pension Service can impose this ex officio.
Overtime pay — For work beyond statutory limits, a 50% premium on ordinary wages. Claimed retroactively for the entire period.

If one worker who worked under an engagement contract for three years is recognized as an employee, the amount the company must bear — adding up severance pay, annual-leave allowance, and the retroactive four-major-insurance portion — can exceed 30–50% of that worker's annual wages. On top of this come the legal costs and administrative burden incurred during litigation.

More importantly, once the employee-presumption rule is legislated, the burden of proof is reversed. Today, the side claiming "I am an employee" must prove it; but once the employee-presumption rule takes effect, the mere fact of having provided labor "presumes" the person to be an employee. The company must then prove that "this person is not an employee." The Ministry of Employment and Labor is pushing related legislation within 2026. (Source: Ministry of Employment and Labor legislative plan, Jan 2026)

Why one person's dispute shakes the entire organization

Freelancer labor disputes have a characteristic that sets them apart from other labor disputes. Because the contract model applied to one person applies identically to dozens or hundreds of others contracted the same way, disputes turn collective very quickly.

There are three structural reasons disputes turn collective.

Identical contract structure — When a single company has dozens to hundreds of workers contracted the same way, one person's dispute becomes the opening shot of a group claim. A single ruling can then apply to all the remaining delivery riders.
Disputes proceed in public — Labor-office complaints and court rulings are public information. Other workers in the same situation often see them and band together.
Spread through labor platforms and communities — As sharing of labor-related information becomes more active, dispute methods and claim standards spread rapidly.

The same pattern repeats globally. Uber and Lyft paid more than KRW 430 billion in total settlements over driver-misclassification issues. Microsoft paid about KRW 130 billion in a class action over temporary workers. In every case, these were workers initially classified as "independent contractors under contract." (Source: Nematzadeh PLLC, 2024 / LA Times, 2000)

According to Electronic Times (May 2026), as the push to legislate the employee-presumption rule takes concrete shape, the insurance industry fears that social-insurance costs for its more than 700,000 insurance planners could reach the trillions of won. Domestically, the delivery-platform industry is already calculating the impact if the employee-presumption rule is applied to 1.29 million riders (540,000 Baemin Connect + 750,000 Coupang Eats partners, per WiseApp). The larger the scale and the more identical contract structures there are, the more the ripple effect of a dispute grows exponentially.

What to check right now — proactive review, not after the fact

Given the ripple effect of the collective disputes described above, the most substantive risk management is to first check whether the same situation exists in your own organization right now. Once a labor dispute breaks out, the cost has already been incurred. Now, before the employee-presumption rule is legislated, is the last proactive opportunity to review your contract structure and working arrangements.

Checkpoints to verify right now

Check	Contract & document review	Actual working-arrangement review
	Does the subcontract/engagement agreement specify the scope of work concretely?	Are commuting hours and location controlled by the company?
	Does the contract include clauses on work direction and supervision?	Does the worker exclusively use company equipment and systems?
	Is the fixed-pay method structured the same as an employee's wages?	Is substituting a third party or holding a second job effectively impossible?
	Beyond 3.3% withholding, are there no earned-income-tax issues?	Are there workers providing 15 or more hours per week for one year or longer?

If even one item in the right-hand column applies, that contractual relationship has entered the danger zone for a labor dispute. "Everything is running fine right now" means a dispute has not yet started — not that there is no risk.

The most realistic way to prevent disputes after the fact

Reviewing the contract structure of freelancers and outsourced workers is hard for an HR team to handle alone. It requires interpreting labor law, reviewing contracts, and judging four-major-insurance applicability all at once. In particular, if the pay method is designed incorrectly, retroactively correcting the risk already incurred is practically impossible.

HCG Payroll Outsourcing goes beyond simple payroll processing to review, from an expert's perspective, whether the pay classification of freelancers and outsourced workers is appropriate. Specifically, it builds a risk-management framework as follows.

Pay-classification diagnosis — We review the pay structure of workers under 3.3% withholding and analyze their actual working arrangements, supporting labor advisory so that labor risks from worker-status determinations can be checked in advance.
Four-major-insurance applicability review — We cross-check and analyze the four-major-insurance filing status by employment type, including specially employed workers, to check in advance for retroactive-application risks arising from missed filing criteria or enrollment gaps.
Pay-structure redesign support — For contract structures where risk is identified, we connect labor advisory to guide improvement directions for the contract, working arrangement, and pay method.
Ongoing legislative monitoring — We monitor changes in related legislation, such as the employee-presumption rule, and immediately notify client companies when an impact is expected. We maintain a response framework even after legislation.
Dispute-response support — When a dispute arises — such as a labor-office complaint or civil suit — we systematically provide pay-payment history and contract-related records to support legal response.

Using freelancers and outsourced workers is not the problem in itself. The problem is the gap between the form of the contract and the actual working arrangement. If you do not review that gap now, your options will be far narrower once legislation is complete. Before a dispute breaks out, reviewing the pay structure first is the most realistic line of defense.

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