Severance Pay in Korea: Calculation, Bonuses and Deadlines

Who qualifies, and when it is due

Statutory severance in Korea is at least 30 days’ average wages for each year of continuous service. It is owed to employees with one year or more of continuous service whose contractual hours average at least 15 a week over four weeks, however the employment ends and whatever their nationality (Employee Retirement Benefit Security Act, Articles 4(1) and 8(1)). It is due within 14 days after the employment ends (Article 9(1)). If the average wage is lower than your ordinary wage, the ordinary wage is used (Labor Standards Act, Article 2(2)).

If you are a registered director, the head of a Korean branch or an investor-manager, whether you count as an employee depends on your actual duties and working relationship, not your title.

Severance, DB or DC: check which system applies

The formula below is for the statutory severance system. If the employer has set up a defined-benefit (DB) retirement pension, the plan must provide at least the same level. If it has set up a defined-contribution (DC) plan, your benefit is the balance built from employer contributions of at least one twelfth of annual wages each year and the investment results. Contributions unpaid when you leave, with the delay interest the Act provides for contributions, must be paid into your account within 14 days, unless an extension is agreed for special circumstances (Article 20(1), (3), (5)). Ask HR which system applies to you.

The formula

Severance = average daily wage × 30 × (days of continuous service ÷ 365)

The average daily wage is the wages for the three months immediately before the date your retirement takes effect, divided by the number of calendar days in that period (Labor Standards Act, Article 2(1)6). If you work until 30 September and your retirement takes effect on 1 October, the period is 1 July to 30 September, 92 days. The wages include amounts the employer was obliged to pay for that period even if they were not actually paid, but not payments whose entitlement had not yet arisen (Supreme Court 2022Da215784). Certain periods, and the wages for them, are excluded, including the first three months of probation, employer-caused shutdown, maternity leave, parental leave, leave for a work-related injury and leave for a non-work illness taken with the employer’s approval (Enforcement Decree, Article 2(1)). Temporary or ad hoc payments and payments in kind are left out, except as the Minister of Employment and Labor provides (Enforcement Decree, Article 2(2)).

A mid-term settlement of severance, allowed only for specified reasons such as a home purchase, restarts the service period from the settlement date (Act, Article 8(2)).

Which bonuses count

• Bonuses fixed in a collective agreement, rules of employment or contract, or paid consistently by established practice, are wages. Under the Ministry of Employment and Labor’s guideline, the total of such bonuses paid in the 12 months before leaving is spread over those months, so three twelfths enters the three-month calculation (MOEL Directive No. 96).
• Performance pay is a wage only if the obligation to pay it is directly or closely related to the work performed. On 29 January 2026 the Supreme Court looked at one employer’s two incentive schemes. An incentive funded by 20% of a division’s economic value added, whose rate swung with results employees could not control, was a distribution of business profit and not part of the average wage; a “target incentive” paid each year under fixed criteria linked to performance evaluations was a wage (2021Da248299). In a second case the same day, a special bonus paid only when the company recorded a net profit was excluded, both because practice had not made it a binding annual obligation and because it distributed profit (2022Da255454).
• These decisions turn on each scheme’s terms. Look at how your plan is funded, its conditions and its payment history, not its name.
• Allowances for unused annual leave can also affect the calculation, depending on when the leave arose and when the allowance became payable; an allowance whose entitlement had not yet arisen at the relevant date is not included unless the rules provide otherwise (2022Da215784). Ask the employer for its calculation.

A worked example (hypothetical)

Assumptions: the last working day is 30 September; monthly base salary ₩6,000,000, which is the whole ordinary wage; overtime pay of ₩1,500,000 a month in the period; an annual bonus of ₩12,000,000 paid in the previous 12 months under fixed rules and genuinely dependent on individual performance, so treated as a wage but not as an ordinary wage; an eight-hour day and the conventional 209 hours used to convert a monthly ordinary wage.

Whether each payment is a wage, whether it is part of the ordinary wage, excluded periods and the length of the period all change the result.

Payment deadline, interest and the IRP account

Severance must be paid within 14 days after the employment ends; the date can be extended by agreement only where there are special circumstances (Act, Article 9(1)). Final wages and other money due follow the same 14-day rule (Labor Standards Act, Article 36).

Qualifying unpaid wages and lump-sum retirement benefits carry statutory interest at 20% a year from the day after the 14-day period (Article 37(1)1; Enforcement Decree, Article 17). The rule is tied to the 14-day date, so an agreement to pay later does not by itself remove the interest. Regular wages already overdue carry statutory interest from the day after their scheduled payday, and leaving does not restart that clock (Article 37(1)2, (2)); this payday rule was added by a 2024 amendment, so check its transitional application for older arrears. The statutory rate does not apply during certain excepted periods, including insolvency proceedings and cases where it is appropriate to dispute the amount before a court or the Labor Relations Commission (Article 37(3); Enforcement Decree, Article 18).

Severance is generally paid by transfer to an individual retirement pension account (IRP) that you designate, or another account the Act permits; if you do not designate one, it goes to an IRP in your name (Act, Article 9(2), (3)). The Enforcement Decree lists exceptions, including retirement at age 55 or older and small amounts. One exception is specific to foreign nationals: a worker who was employed in Korea in a status permitting employment under Article 23(1) of the Immigration Act Enforcement Decree (C-4, E-1 to E-10 and H-2, and H-1 when working, which Article 23(5) treats the same way) and has left Korea after the employment ended (Enforcement Decree, Article 3-2(1)4). F-2, F-4, F-5, F-6 and D-7 to D-9 holders are not covered by that exception. Confirm with the employer which route and evidence apply before the payment date.

If you work in E-9 or H-2 status under the Foreign Workers Employment Act, severance is generally paid through the departure-guarantee insurance (출국만기보험) your employer must hold, within 14 days after you leave Korea or, in some cases, after you apply (Foreign Workers Employment Act, Article 13). Check any shortfall against the statutory amount with the employer.

Things that do not reduce statutory severance

• A clause stating that your salary “includes severance”. An agreement during employment to receive severance in instalments with salary, other than a lawful mid-term settlement, is a void advance waiver (Supreme Court en banc 2007Da90760; 2010Da95147). Whether amounts already paid can be recovered or set off depends on whether they were genuinely separate from wages.
• A separation payment. It is a separate, negotiated amount and should be listed separately in the agreement.
• The reason for leaving. Resignation, termination by agreement and dismissal for cause all qualify.
• The end of a fixed-term contract. A contract that simply expires still qualifies if you completed one year of continuous service. Gaps between successive contracts with the same employer can raise the question whether service was continuous, so keep all contracts.

Tax, pension and leaving Korea

Severance is taxed as retirement income, separately from employment income (Income Tax Act, Article 22). How a separation payment is taxed depends on its nature, and published tax rulings do not treat every payment the same way. Confirm the withholding with the employer and take tax advice, especially if another country may also tax the payment.

If you are leaving Korea, also check the National Pension. A lump-sum refund on departure is available to foreign nationals only in the cases the National Pension Act sets out, such as where your home country pays Korean nationals a comparable lump sum, or where a specific status-based exception or a social security agreement applies (National Pension Act, Articles 126(4) and 127). Confirm with the National Pension Service.

If severance is not paid or is miscalculated

Ask the employer in writing for the calculation and the components of the average wage. If the employer does not pay or the figure is wrong, the options include a written demand, a petition to the regional office of the Ministry of Employment and Labor and a civil claim. Severance claims are subject to a three-year limitation period from when they arise on leaving; wage claims run from each payday (Labor Standards Act, Article 49; Employee Retirement Benefit Security Act, Article 10). Take advice before relying on correspondence or a complaint to stop time running.

Frequently asked questions

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Scope and sources

General information on Korean law in force on 1 October 2026, MOEL Directive No. 96 and the Supreme Court decisions cited.

• Asked to resign: what to check before you sign
• Separation agreement clauses
• Ask about an unpaid or miscalculated severance payment
• Employee Retirement Benefit Security Act (Korean text)
• Enforcement Decree of the Employee Retirement Benefit Security Act (Korean text)
• Labor Standards Act (Korean text)
• Supreme Court 2021Da248299 (Korean text)
• Supreme Court 2022Da255454 (Korean text)
• Supreme Court 2022Da215784 (Korean text)