Korean Severance Pay Explained
Under Korea's Labor Standards Act and the Act on the Guarantee of Employees' Retirement Benefits, any employee with at least 1 year of continuous service is entitled to severance pay upon leaving employment. The formula is: Average daily wage × 30 days × (total days worked ÷ 365).
Average Daily Wage Formula
Average daily wage = (total wages in the last 3 months + pro-rated bonus + pro-rated leave pay) ÷ calendar days in the last 3 months. The "last 3 months" means the 3 months immediately before the resignation date.
What Counts as Wages
Base salary, regular allowances, overtime pay, annual bonuses, and annual leave pay all count toward the average daily wage. Meal allowances and commuting subsidies that qualify as non-taxable may be excluded depending on company policy.
Retirement Pension vs. Severance Pay
Companies may offer defined benefit (DB) or defined contribution (DC) pension plans instead of direct severance pay. DB plans calculate benefits the same way as traditional severance pay. DC plans contribute 1/12 of annual wages monthly. Check with your HR department which system applies to you.
Frequently Asked Questions
Is severance pay taxed in Korea?
Yes. Korean severance pay is subject to retirement income tax (retirement income tax), which is lower than regular income tax. The effective rate decreases with longer service. This calculator shows pre-tax amounts.
What if I worked less than 1 year?
Workers with less than 1 year of continuous service are not entitled to statutory severance pay under Korean law. However, if your company has a specific policy or if you are enrolled in a DC pension plan, partial benefits may apply. Confirm with your HR department.