How Severance Pay Is Calculated in Korea

Who is entitled to severance pay

In Korea, severance pay is money an employer must pay a departing employee under the Employee Retirement Benefit Security Act. There are two conditions: you worked continuously at the same workplace for at least one year, and your scheduled working hours averaged at least 15 a week over four weeks. Not only regular staff but also contract, part-time and daily workers qualify if they meet these conditions, and today the rule applies regardless of workplace size. Even if the contract is labelled freelance or outsourcing, you may be recognized as an employee and receive severance pay if you actually worked under the company's direction and supervision. Conversely, falling even one day short of a year generally means no severance pay, so count your service precisely when setting your last day. Service runs from the hiring date to the last working day, and the date of leaving is treated as the day after the last working day. What matters is whether you worked through the day the year is completed.

The severance formula

Statutory severance pay is at least 30 days' average wage for each year of continuous service. As a formula, it is daily average wage × 30 days × days of service ÷ 365. Days of service are calendar days from the hiring date to the day before leaving, so a part-year remainder is reflected in proportion to the days. For example, if you worked three years and six months, the six months are added by days, not just the three years. The formula is the legal minimum, so if company rules or a collective agreement set something more favorable, that applies. In the end, severance depends on two things, the daily average wage and the days of service, and most differences arise in how the average wage is worked out. People often ask whether leave of absence or probation counts toward service. Probation counts as continuous service, while leave of absence depends on the reason and the law, so check it separately.

Working out the average wage: bonuses and leave pay

The average wage is the total wages received in the three months before leaving, divided by the total days in those three months. The total is calendar days, not working days, so it falls between 89 and 92. Total wages include not just base pay but everything paid in return for work, such as overtime, night and holiday allowances and regular allowances. For bonuses, the usual method is to add 3/12 of the total bonuses paid in the 12 months before leaving, whether or not one fell within the three months. Pay for unused annual leave is handled similarly: add 3/12 of such pay received in the year before leaving. However, according to the Ministry of Employment and Labor's interpretation, unused leave pay that arises only because of leaving is not included. Money that is not payment for work, such as reimbursed travel expenses or congratulatory and condolence payments, is excluded. Periods set by law, such as parental leave or time off for a work injury, are excluded from the three-month calculation.

• Base: total wages for the last 3 months ÷ calendar days in those months
• Bonuses: add 3/12 of the amount paid in the last 12 months
• Leave pay: add 3/12 of pay received in the last year (excluding pay arising from leaving)
• Statutory excluded periods such as parental leave are left out

Comparing with the ordinary wage

The average wage can be low depending on the last three months, for example if you had many unpaid absences or allowances fell just before leaving. So the law says that if the average wage calculated this way is less than the worker's ordinary wage, the ordinary wage is used as the average wage. The ordinary wage is pay agreed to be paid regularly and uniformly for scheduled work, such as base pay and fixed allowances. The daily ordinary wage is usually the hourly ordinary wage times scheduled daily hours. What counts as ordinary wage has shifted with court rulings and interpretations over time, so if your allowances are complex, it is hard to judge alone. In practice, you work out both the average wage and the ordinary wage and use the larger. The Ministry of Employment and Labor's severance calculator lets you enter both for comparison, so entering figures with your payslips beside you is the most accurate approach.

A worked example

The following are assumptions that only show the structure. Suppose a worker on a 40-hour week (209 scheduled hours a month) earns a monthly base salary of KRW 3 million plus KRW 600,000 of overtime pay every month and KRW 3.6 million of bonuses a year, and leaves after exactly three years (1,095 days). Assume the last three months have 92 calendar days and there is no leave pay. Three months' wages of KRW 10.8 million plus the bonus portion of KRW 900,000 (KRW 3.6 million × 3/12) make KRW 11.7 million; divided by 92 days, the daily average wage is about KRW 127,174. If only the base salary counts as ordinary wage, the daily ordinary wage is KRW 3 million ÷ 209 hours × 8 hours, about KRW 114,833, so the average wage is higher and is used. Severance is about KRW 127,174 × 30 days × 1,095 days ÷ 365 days, about KRW 11,446,000. Leaving out the bonus drops the daily average wage to about KRW 117,391 and severance to about KRW 10,565,000, nearly KRW 900,000 less. In reality tax is deducted, so check with a calculator and the company's settlement statement.

Deadline, retirement pensions and interim settlement

The employer must pay severance within 14 days of the date of leaving, and in special circumstances the deadline can be extended by mutual agreement. If the company has a retirement pension plan, the payment method differs. Members of a defined benefit (DB) or defined contribution (DC) plan in principle receive their retirement benefit by transfer to an individual retirement pension (IRP) account in their own name, so open an IRP before leaving and tell the company. Statutory exceptions, such as leaving after a certain age or small amounts, allow payment to an ordinary account. Interim settlement, receiving severance early while still employed, is allowed only for reasons set by law: buying a home in your name with no home of your own, paying a jeonse or rental deposit without a home of your own, long-term medical care for yourself or family, recent bankruptcy or individual rehabilitation, or a wage peak system, among others. After an interim settlement, service is counted again from that point, so later severance is smaller.

• Deadline: within 14 days of leaving; extendable by agreement
• With a retirement pension: transferred to an IRP in principle
• Interim settlement: only statutory reasons such as a first home, jeonse deposit, long-term care, bankruptcy
• Service is recounted after an interim settlement

Misconceptions and retirement income tax

Severance pay is subject to retirement income tax, which is calculated separately from employment income and designed to be relatively light. It deducts an amount based on years of service, converts the sum to an annual equivalent to apply the rates, and then scales it back by years of service, so the longer you work, the lower the burden. If you receive severance into an IRP and draw it as a pension, the retirement income tax is deferred and later paid at a reduced rate compared with the original tax when you receive the pension. Because the calculation is complex, confirm the amount with the company's withholding receipt and National Tax Service guidance. Misconceptions are common too. A contract that includes severance in the monthly salary is generally not recognized, and the amount is not fixed simply because a year has passed; it depends on how the average wage is calculated.

• 'Severance is included in my monthly pay' — such split-payment agreements are generally void
• 'Part-timers get no severance' — 1+ year and 15+ hours a week qualifies
• 'Severance uses base pay only' — allowances, bonuses and leave pay count
• 'Severance is taxed like salary' — it is taxed separately as retirement income, relatively lightly

Steps to check before leaving

Most errors in severance settlement come from not checking the basic data. First, fix your hiring date and last working day to count days of service and whether you reach one year. Next, gather payslips for the last three months and records of bonuses and leave pay for the last year, and calculate the average wage yourself. Check whether the company has a retirement pension plan and whether it is DB or DC, and open an IRP in advance if needed. After leaving, get the company's severance statement and withholding receipt and compare them with your own calculation. If there is a gap, ask the company which item causes it and record the answer. If you have annual leave left, also check the settlement of unused leave pay.

• Count days of service and the one-year threshold from your hiring and last working dates
• Gather 3 months of payslips and a year of bonus and leave pay records
• Check pension plan membership and type; open an IRP if needed
• Compare the settlement statement and withholding receipt with your own calculation
• Check settlement of unused annual leave pay

Common situation 1: severance not paid after 14 days

If the deadline passes without payment, first ask the company in writing or by text for the payment date and amount, keeping a record. If it still does not pay and there was no extension agreement, you can file a petition with the regional employment and labor office with jurisdiction over the workplace. You can apply online on the Ministry of Employment and Labor's website, and a labor inspector will investigate and direct payment. Late severance carries statutory late-payment interest, and there are criminal penalties for the employer. If the company has gone bankrupt and cannot pay, the substitute payment system lets the state pay part on its behalf. The right to claim severance expires after three years, so do not delay. If you need legal help, the Korea Legal Aid Corporation or labor counseling services are available.

Common situation 2: leaving just before one year

Sometimes you are asked to leave or a contract ends a few days before your first anniversary. If continuous service is even one day short of a year, there is no statutory severance, so first count your service precisely. A one-year fixed-term worker who completes the full contract is generally treated as having worked one year. And even with several short renewed contracts or brief gaps between them, service may be treated as continuous if you effectively kept doing the same job. Conversely, if a company repeatedly ends contracts just before a year to avoid severance, it is worth consulting the labor office. If you are leaving for your own reasons, discussing in advance whether your last day can be adjusted to complete the year is also an option. Eligibility for unemployment benefits is separate from severance, so check it separately.

Limits and disclaimer

This article explains the general structure of severance calculation under Korea's Employee Retirement Benefit Security Act and Labor Standards Act as of October 2026. What is included in the average and ordinary wage, how leave of absence is treated, how retirement income tax is calculated and the exceptions to IRP transfer can change with amendments, court rulings and administrative interpretations. The calculation example is an assumption to show the structure, not an actual payment. Check exact amounts with the company's settlement statement, the Ministry of Employment and Labor's severance calculator and counseling center, and National Tax Service guidance. If you have a dispute with the company over the amount or payment, help from the regional labor office, the Korea Legal Aid Corporation or a certified labor attorney is the safe route. This article is not legal or tax advice.