Severance Pay in Korea

Severance Pay Is a Legal Right, Not a Benefit

In Korea, severance pay (퇴직금, pronounced "twe-jik-geum") is not a generous perk offered by good employers -- it is a legal obligation under the Labor Standards Act (근로기준법) and the Employee Retirement Benefit Security Act (근로자퇴직급여 보장법). Every employer in Korea, from multinational corporations to small hagwon (학원) owners, must pay severance to qualifying employees.

This applies equally to all workers regardless of nationality. Whether you are an E-2 English teacher, an E-7 skilled professional, an F-series visa holder, or any other foreign worker, you have the same severance rights as a Korean citizen. Your employer cannot waive this obligation through employment contracts or verbal agreements -- any clause attempting to do so is legally void.

Eligibility Requirements

To qualify for severance pay, you must meet both of the following conditions:

• 1 year or more of continuous employment with the same employer. The probation period counts toward this requirement. Even if you changed positions within the same company, your tenure is continuous.
• 15 or more hours of work per week on average (calculated over a 4-week period). Part-time workers who meet this threshold are fully eligible. Ultra-short-time workers (under 15 hours/week) are excluded.

Important: it does not matter whether you quit voluntarily, are laid off, or are terminated for cause. As long as you meet the above conditions, you are entitled to severance pay. The reason for separation is irrelevant.

Calculation Formula

How to Calculate Your Average Daily Wage

Your average daily wage is based on your last 3 months of earnings before your final day. Take the total gross pay you received during those 3 months and divide it by the total number of calendar days in that period (typically 89-92 days).

What Counts as "Wages"

• Base salary (기본급): Always included
• Regular bonuses (상여금): Included if paid regularly and uniformly. Bonuses paid over a period longer than 3 months are prorated to fit the 3-month window.
• Fixed overtime pay (고정 연장수당): Included if it is a regular, predetermined part of your pay
• Unused annual leave pay (미사용 연차수당): Included if it arose within the last year of employment

Example Calculation

Suppose you worked exactly 2 years (730 days) and your total gross pay over the last 3 months was 9,000,000 KRW over 91 calendar days. Your daily average wage = 9,000,000 / 91 = 98,901 KRW. Your severance = 98,901 x 30 x (730 / 365) = 5,934,060 KRW.

Severance Pay Tax (Retirement Income Tax)

Severance pay is taxed as retirement income (퇴직소득), which has its own tax schedule separate from regular employment income. The good news is that retirement income tax is generally much lower than regular income tax, especially for workers with longer service periods.

The tax calculation involves several steps: first, a service-length deduction (근속연수공제) reduces your taxable amount based on how many years you worked. Then the remaining amount is annualized, taxed at progressive rates, and multiplied back by your service years. The longer you worked, the more favorable the deduction.

For a foreign worker who worked 2 years and received about 6 million KRW in severance, the retirement income tax is often minimal -- sometimes just a few tens of thousands of won.

The 14-Day Payment Deadline

By law, your employer must pay your severance within 14 days of your last working day. If they fail to do so without a valid, mutually agreed-upon reason for extension, they are liable for late payment interest at 20% per year on the unpaid amount. This deadline applies regardless of whether you resigned, were fired, or your contract simply ended.

What If Your Employer Refuses to Pay?

Unfortunately, some employers -- particularly smaller hagwon or businesses -- try to avoid paying severance to foreign workers. Here is the step-by-step process to claim your rights:

Tip: You can file a labor complaint even after leaving Korea. Contact the nearest Korean embassy or consult with a Korean labor attorney. The statute of limitations for severance claims is 3 years.

DC vs DB Retirement Pension Systems

Some employers use a retirement pension system instead of the traditional lump-sum severance. There are two main types:

• DB (Defined Benefit / 확정급여형): The employer bears the investment risk. Your payout is calculated the same way as traditional severance -- based on your final average wage and service period. This is generally better if your salary increases steadily over time.
• DC (Defined Contribution / 확정기여형): The employer deposits at least 1/12 of your annual salary into your pension account each year, and you manage the investments. Your final payout depends on investment performance. This can be better if you expect your salary to remain flat or decrease.

Calculate Your Severance Pay

Enter your start date, end date, and salary information to instantly calculate your expected severance pay amount.

Frequently Asked Questions