When you hire a full-time staff member in Korea, be they a “contract” employee (계약직) or a “regular” employee (정규직), you have to provide them with something called “the four insurances” (사대보험). The four insurances are:
● National Pension Insurance (국민연금)
● Industrial Accident Insurance (산재보험)
● Employment Insurance (고용보험; what we would probably call “unemployment insurance”)
● National Health Insurance (건강보험)
These insurances are paid for as a percentage of the employee’s salary, and shared by both the employee and the company. The company pays approximately 10% of salary paid out while the employee pays approximately 7% of his/her salary received. The company withholds this entire amount and submits it to the respective department in charge of providing the insurance. The coverage is the same for everyone who participates, no matter how much has been paid in.
All makes sense, right? Not unlike employer-provided insurance systems in other OECD countries. Well there’s one unique thing about this arrangement here in Korea. There are certain types of compensation to which the four insurances - as well as income taxes - are not applicable. Some examples are:
● Car Allowance - up to W200,000 per month - for a vehicle owned by the employee or his wife, and regularly used for business
● Childcare Allowance - up to W100,000 per month per child
● Lunch Allowance - up to W100,000 per month - only if included in payroll
● Other Allowances - depending on your field of operation
Some employees may be reluctant to accept this arrangement as they think it will impact their retirement allowance, but they needn’t worry. When you calculate their retirement allowance, these non-taxable income sources are included in the 3-month-average basis.
Employers may worry that they have to submit every lunch receipt and every child care bill. Again, that’s a false fear. Staff members only have to prove once that they have children or a car to receive these benefits. And everyone eats lunch, so the government trusts you on that one.
When you factor in that a) this money is non-taxable income and b) it is also non-applicable when calculating payments for the four insurances, this quickly turns into serious savings for both employer and employee, making it a win-win situation. The government will survive, don’t worry.