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How to calculate severance pay in Korea


Step-by-Step Guide

1. Eligibility

  • Employees are eligible for severance pay if they have worked continuously for at least 1 year under the same employer.

  • Part-time and full-time workers are both eligible if they meet the 1-year criterion.

2. Basic Formula

The standard calculation for severance pay in Korea is:

Severance Pay=Average Daily Wage×30×Years of Service

3. Definitions

a. Average Daily Wage:

  • Calculated based on the employee's total earnings (including base salary, bonuses, and allowances) over the last 3 months divided by the number of days in the same period. Average Daily Wage=Total Earnings in 3 Months/Total Days in 3 Months

b. Years of Service:

  • The total period of employment with the company, rounded to the nearest full year. Partial years may be calculated proportionally.

4. Key Considerations

  • Severance pay is taxable, but a portion of it may be tax-exempt depending on the employee's earnings.

  • Special arrangements in employment contracts or collective bargaining agreements can modify severance pay but must comply with minimum legal standards.

  • Employers must pay severance within 14 days of employment termination unless both parties agree to extend the period.

Example Calculation

Imagine an employee worked for 3 years and 6 months, earning the following over the last 3 months:

  • Base salary: 6,000,000 KRW

  • Bonuses: 1,000,000 KRW

  • Allowances: 500,000 KRW

Step 1: Calculate Total Earnings for 3 Months

6,000,000+1,000,000+500,000=7,500,000 KRW6,000,000 + 1,000,000 + 500,000 = 7,500,000

Step 2: Determine Total Days in 3 Months Assuming there are 90 days in 3 months:

Average Daily Wage=7,500,000/90=83,333 KRW

Step 3: Apply the Formula For 3.5 years of service:

Severance Pay=83,333×30×3.5=8,750,000 KRW

Special Cases

  • Resignation vs. Termination: Employees are entitled to severance pay even if they resign voluntarily.

  • Fixed-term Contracts: Employees on short-term contracts can also qualify if their contract is renewed and the total duration exceeds 1 year.

Useful Resources

  • South Korea Ministry of Employment and Labor: www.moel.go.kr

  • Online severance pay calculators available through Korean government or private HR websites.

If you need further assistance or clarification on severance pay regulations in Korea, feel free to ask!


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