Key facts at a glance
- ✓All workers (including foreigners) with 1+ year of continuous service are entitled to severance
- ✓Severance equals approximately one month of salary per year worked
- ✓Employer must pay within 14 days of your last working day
- ✓You are entitled regardless of whether you quit or were let go
- ✓File a free complaint at the Labor Board if employer refuses to pay
Overview
Severance pay (퇴직금, toejikgeum) is one of the most important financial protections for workers in Korea. Under the Labor Standards Act (근로기준법) and the Employee Retirement Benefit Security Act (근로자퇴직급여 보장법), every employer in Korea must provide severance benefits to employees who have worked for one year or more.
This law applies equally to Korean and foreign workers. Your visa type, nationality, or the reason you are leaving does not affect your entitlement. Whether you are an English teacher on an E-2 visa, an IT worker on an E-7 visa, or a factory worker on an E-9 visa, the same rules apply.
Despite the clear legal requirement, many foreign workers in Korea never receive their severance pay. Some employers claim foreigners are not eligible, some delay payment hoping the worker will leave the country, and some simply refuse. Knowing your rights and the enforcement process is essential.
1 year
Minimum service for severance
14 days
Payment deadline after leaving
~1 month
Severance per year worked
Free
Labor complaint filing
Source: Korea Ministry of Employment and Labor, 2026
Legal entitlement
Under Article 34 of the Employee Retirement Benefit Security Act, an employer must establish a retirement benefit system for all employees who have worked continuously for one year or more. The conditions for eligibility are straightforward.
Who qualifies
- •Any employee who worked continuously for 1 year or more at the same employer
- •Averaged 15 or more working hours per week during the employment period
- •Applies regardless of visa type, nationality, or reason for leaving
- •Applies to contract workers whose contract was renewed or extended beyond 1 year
Who does NOT qualify
- •Employees who worked less than 1 continuous year
- •Part-time workers who averaged fewer than 15 hours per week
- •Independent contractors (though misclassification as a contractor when you are actually an employee is illegal and can be challenged)
Watch out for contract manipulation: Some employers try to avoid severance by issuing a series of 11-month contracts with short breaks in between. If you can prove that the work was essentially continuous (same job, same employer, brief gap), the labor board may rule that the employment was continuous and you are entitled to severance. Document everything.
Calculation formula
The severance pay formula is defined by law and is the same for all workers in Korea.
Severance pay formula
Severance = (Average Daily Wage) x 30 x (Total Years of Service)
Average Daily Wage = Total earnings in the last 3 months / Total calendar days in those 3 months
“Total earnings” includes base salary, regular allowances, and any fixed bonuses paid during the 3-month period. It does not include one-time bonuses or irregular payments.
Example calculations
| Monthly Salary | Years Worked | Severance Amount |
|---|---|---|
| 2.5M KRW | 1 year | ~2.5M KRW |
| 3.0M KRW | 2 years | ~6.0M KRW |
| 4.0M KRW | 3 years | ~12.0M KRW |
| 5.0M KRW | 5 years | ~25.0M KRW |
Note that service periods are calculated proportionally. If you worked 1 year and 6 months, you receive 1.5 times the monthly severance amount. The calculation is not rounded down to the nearest full year.
When your employer must pay
Under Article 9 of the Employee Retirement Benefit Security Act, the employer must pay severance within 14 days of the employee's last working day. This applies regardless of the reason for separation.
You quit voluntarily
Full severance owed within 14 days of your last day
Your contract expires and is not renewed
Full severance owed within 14 days of contract end date
You are laid off or terminated
Full severance owed within 14 days of termination date
You are leaving Korea
Same 14-day rule applies. Arrange for bank transfer before departing
Company goes bankrupt
Severance is a priority claim. Apply through the Wage Claim Guarantee System (체당금제도)
Penalty for late payment: If the employer fails to pay severance within 14 days without a valid agreement to extend the deadline, they must pay an additional penalty of 20% annual interest on the unpaid amount for each day of delay. This penalty is defined in Article 37 of the Labor Standards Act.
Retirement pension vs. severance pay
Since 2012, Korean employers have been required to choose between two retirement benefit systems: the traditional severance pay system or a retirement pension system. Both provide roughly the same benefit amount, but they work differently.
Severance pay vs. retirement pension
Source: Korea Ministry of Employment and Labor
Defined Benefit (DB) pension
The employer contributes to a pension fund managed by a financial institution. The benefit amount is calculated the same way as traditional severance (one month per year). The employer bears the investment risk. This is the most common type for larger companies.
Defined Contribution (DC) pension
The employer contributes a fixed amount (at least 1/12 of annual salary) to an individual pension account each year. The employee can choose how to invest the funds. The final payout depends on investment performance. This is becoming more common for smaller companies and contract workers.
As a foreign worker, check your employment contract or ask HR which system your employer uses. If your employer has a retirement pension, your severance funds are held in a separate account at a bank or insurance company, which is safer than the traditional system where the employer holds the funds directly.
What to do if your employer refuses to pay
Unfortunately, many foreign workers in Korea face employers who refuse to pay severance. Some common excuses include: “Foreigners are not eligible,” “You did not complete a full year,” “We already included severance in your monthly salary,” or “You need to sign a waiver.” None of these are valid under Korean law.
Step-by-step action plan
Document everything. Save your employment contract, pay stubs, bank transfer records, work schedule, and any communication with your employer about severance. Take screenshots of KakaoTalk messages.
Send a written demand. Write a formal request for severance payment via registered mail (내용증명, naeyong-jeungmyeong). State the amount owed and a deadline (typically 14 days). This creates a legal record.
Call the Foreign Workers Consultation Center at 1350. This free government hotline offers counseling in English, Chinese, Vietnamese, and other languages. They can explain your rights and help you draft a complaint.
File a complaint at the Regional Labor Office (고용노동부 지방관서). You can file in person or online through the Ministry of Employment and Labor website (minwon.moel.go.kr). The service is free.
Attend the mediation hearing. The labor inspector will call both you and your employer in for a hearing. Many cases are resolved at this stage, as employers face criminal penalties for non-payment.
If mediation fails, request a payment order. The labor office can issue a corrective order requiring the employer to pay. Employers who violate this order face fines or criminal prosecution.
Statute of limitations: You must file your severance claim within 3 years of your last working day. After 3 years, your right to claim expires. If you are leaving Korea, file before you depart or arrange for someone to represent you.
Filing a labor board complaint
The Korean labor complaint process is relatively straightforward and specifically designed to be accessible to workers, including foreigners with limited Korean ability.
Where to file
File at the Regional Labor Office (지방고용노동관서) that has jurisdiction over your workplace location. There are offices in every major city. You can find the nearest office at moel.go.kr or by calling 1350.
What to bring
- •Your employment contract (or any written agreement)
- •Pay stubs or bank statements showing salary payments
- •Proof of employment dates (ARC registration, work schedule records)
- •Copy of your written demand letter and proof of delivery
- •Your passport and ARC
Timeline
After filing, the labor office typically schedules a hearing within 2 to 4 weeks. The investigation process usually takes 1 to 3 months total. Most cases involving clear-cut severance claims are resolved through mediation without needing to go to court.
If the labor office process does not resolve your case, you can escalate to the Labor Relations Commission (노동위원회) or file a civil lawsuit. For lawsuits, the Korea Legal Aid Corporation (대한법률구조공단, call 132) provides free legal representation to foreign workers whose income is below a certain threshold.
Tax on severance pay
Severance pay in Korea is subject to income tax, but it is taxed more favorably than regular salary. Severance is classified as “retirement income” (퇴직소득) and is taxed separately from your regular employment income.
How severance tax works
The tax calculation uses a special formula that divides the severance by your years of service, then applies progressive tax rates to that annualized amount. This results in a much lower effective tax rate compared to adding the severance to your regular income.
For most foreign workers with 1 to 3 years of service and monthly salaries in the 2M to 5M KRW range, the effective tax rate on severance is typically 2% to 6%. Your employer is responsible for withholding the tax before paying you.
| Severance Amount | Years of Service | Approximate Tax | Effective Rate |
|---|---|---|---|
| 3M KRW | 1 year | ~60K-180K KRW | 2-6% |
| 6M KRW | 2 years | ~120K-360K KRW | 2-6% |
| 15M KRW | 3 years | ~300K-900K KRW | 2-6% |
Flat tax option for foreigners: Foreign workers in Korea can elect to be taxed at a flat 19% rate on all income (including severance) instead of the progressive tax rates. For severance, the progressive system almost always results in a lower tax rate, so the flat tax option is rarely beneficial for severance specifically. Consult a tax professional if your total income situation is complex.