Severance Pay (퇴직금) in Korea: Who Qualifies, How It Is Calculated, and Payment Rules

Severance is a statutory right, not a bonus

Severance pay (퇴직금) in Korea is a mandatory payment under the Guarantee of Workers’ Retirement Benefits Act (근로자퇴직급여보장법), not a discretionary benefit. It applies to all workers in Korea — full-time, part-time and fixed-term — regardless of nationality, visa category, contract language or tax treatment. E-9, E-7, F-series and other employment-permitted visas all qualify.

You qualify if you have worked for the same employer for at least one year continuously and your working time averages 15 hours or more per week over a four-week period. The reason you leave does not matter: resignation, end of a fixed-term contract, dismissal and retirement all trigger the entitlement. Even a ‘severance included in salary’ clause does not remove it — such clauses are generally void, and you can still claim the statutory amount.

How the amount is calculated

The statutory formula is:

Severance = average daily wage × 30 × years of service

where years of service is the total days of continuous service divided by 365.

The average daily wage is based on the wages paid in the three months before your last working day, divided by the number of calendar days in that period (usually 90 to 92). What counts includes:

• Base salary
• Regular contractually-guaranteed allowances (meal, housing, transport if fixed)
• Overtime paid during the reference period
• A pro-rated share of any annual bonus (roughly one-quarter of it added into the 3-month base)

If your ordinary wage (통상임금) is higher than the calculated average wage, the employer must use the higher figure. As a rough check, stable workers typically see about one month of wages per year of service.

Payment deadline and what happens if it is late

Severance must be paid within 14 days of your last working day (Article 9 of the Guarantee of Workers’ Retirement Benefits Act). The clock starts at termination, not at the date your final paycheck normally runs, and it can only be extended by agreement with you.

If payment is late:

• 20% annual interest accrues on the unpaid amount from day 15 onward, payable to you.
• Non-payment is a criminal offence — up to three years in prison or a 30 million won fine for the responsible officer (Article 44).

Ask for a written breakdown showing the service period, the average-wage calculation and the payment date. Keep your payslips and bank records — a payment line marked ‘final salary’ does not prove severance was included.

Departure insurance for many foreign workers

Workers employed through Korea’s Employment Permit System (typically E-9, and some H-2 workers) have departure guarantee insurance (출국만기보험), funded monthly by the employer at about 8.3% of the ordinary wage. The insurance pays out when you leave Korea — normally within about 14 days of departure.

The key point: the insurance payout is a floor, not a cap. If the insurance pays less than the statutory severance amount (30 days of average wage per year), the employer must pay you the difference as a top-up. So your legal entitlement is always at least the statutory figure. Coordinate the insurance claim with your exit, and confirm your policy details before the final travel date.

IRP transfer and tax

Since April 2022, severance is generally transferred into your Individual Retirement Pension (IRP, 개인형퇴직연금) account by default rather than paid into a normal bank account. Exceptions include amounts of 3 million won or less, retirement at age 55 or older, death, and a foreigner leaving Korea after termination — so if you are leaving the country, you can often have severance paid directly without IRP routing. Ask the employer or your bank about this before departure.

Severance is not taxed at your normal income bracket. Korea applies a special retirement income tax (퇴직소득세) formula that reduces the effective rate for longer service. Your employer withholds and remits this; request the retirement-income withholding receipt.

Note — severance rules, the insurance procedure and tax formula change, and each case depends on your service and wage records. If there is a dispute, the Ministry of Employment and Labor (고용노동부) local office can mediate. Our Korea work visa guide covers the employment-eligibility side.