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Navigating Severance Pay in Korea: A 2023 Guide for Employers



Understanding Severance Pay Under Korea's Labor Law: A Guide for Employers

As of January 1, 2013, South Korea's Labor Law mandates that all employers must pay severance to employees who have worked for more than a year. This includes a broad range of employment types, from part-timers to executives.


Eligibility Criteria for Severance Pay and Retirement Allowance

  • Employees working over 15 hours per week.

  • Employment duration of more than one year.

Obligations Regardless of Contractual Terms

Employers are obligated to pay severance within 15 days of an employee’s departure, regardless of the employment contract's terms, lack of 4 major insurances, or absence of income tax reports. This applies to all employees, including high-level positions like Representative Directors, provided they are not fully authorized to manage staffing and expenses.


Recommendation for Employers

It is advisable for employers to allocate around 8.4% of the payroll into a Retirement Fund account monthly as severance allowance. If an employee leaves before completing a year, the funds can be retained by the employer.


Change in Rules for Small Businesses

Before 2013, employers with fewer than five employees could limit severance payments to 50%. This exception no longer applies.


FAQs

  1. Who is eligible for severance pay under South Korea's Labor Law?

    • Employees working more than 15 hours a week and have been employed for over a year.


  1. What if an employee leaves before completing a year?

    • The employer retains the funds if they had been depositing into a Retirement Fund.


  1. Does the law apply to high-level positions like a Representative Director?

    • Yes, if they don’t have full authority over staffing and expenses.


  1. What happens if there's no formal employment contract?

    • Severance must still be paid based on the actual payments made to the employee.


  1. Were there any exceptions for small businesses before 2013?

    • Yes, businesses with less than five employees could pay only 50% severance, which is no longer applicable.


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For more details, please send an e-mail to jz@taxjz.com or If you would like a free consultation with an English-speaking Accountant in Korea, please schedule a call at: Schedule a Call with Jz

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