Severance Pay (퇴직금) in Korea for Foreign Workers

Korea's Employee Retirement Benefit Security Act (근로자퇴직급여보장법) gives every qualifying worker a legally guaranteed severance payment at the end of their employment. The rule applies regardless of visa, nationality, or language, but most foreign workers do not know the formula, do not know the timeline, and cannot detect the handful of tricks employers use to get out of paying. This guide walks through each piece.

All figures are current as of April 2026. The law has been stable since 2010 apart from incremental changes to pension-plan rules; the 30-day formula and the 14-day rule have been in force for well over a decade.

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Who qualifies for severance in Korea

You qualify if you have worked for the same employer for at least 1 year continuously, and your average working hours are 15 hours or more per week across the employment. The standard is objective: your nationality, visa category, contract language, and tax treatment do not affect the entitlement. E-9, E-7, F-2, F-4, F-5, F-6, D-8, D-10, and any other visa allowing employment all qualify.

The following are excluded:

• Workers under 1 year of service, including those whose contract ended just before the 1-year mark (watch for this; it is a common employer tactic)
• Workers averaging under 15 hours per week
• Genuine independent contractors with real business autonomy
• Registered board members (등기임원) under a separate executive contract
• Public officials covered by separate civil-service pension schemes

Note: "Continuous service" is tested on actual employment, not on contract renewals. If you have been on three consecutive 1-year contracts with the same employer doing the same work, the law treats you as having 3 years of continuous service for severance purposes.

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The severance formula

The statutory minimum severance is:

30 days × (your average daily wage over the last 3 months) × (years of service)

Let's break this down with a worked example.

The average daily wage (평균임금)

Take the total wages paid in the 3 months before your last working day: base salary, regular allowances (housing, meal, transport if contractual), and a pro-rated share of any bonus received in the 12 months before departure (bonus ÷ 12 × 3 = the 3-month pro-rated share).

Divide by the total number of days in that 3-month period (90-92 days depending on the months).

Worked example

A worker earning:

• ₩3.5M/month base salary
• ₩200,000/month contractual meal allowance
• ₩6M annual bonus paid once in December
• Departing July 31 after exactly 2 years of service

Wages from May 1 to July 31 (92 days):

• Base: ₩3.5M × 3 = ₩10.5M
• Meal allowance: ₩200,000 × 3 = ₩600,000
• Bonus pro-rated: ₩6M × 3/12 = ₩1.5M
• Total: ₩12.6M

Average daily wage: ₩12.6M ÷ 92 = ₩136,957/day

Severance: ₩136,957 × 30 × 2 = ₩8,217,420

For fractional years, multiply proportionally. A worker with 2 years and 6 months of service multiplies by 2.5.

Base amount floor (평균임금 vs 통상임금)

If your ordinary wage (통상임금, used for overtime calculations) is higher than the average wage, the employer must use the higher of the two. This matters for workers whose last 3 months contained a period of unpaid leave or medical leave that depressed their average. The rule protects you from a gaming of the calculation.

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DB, DC, and IRP: the three severance account types

Since 2005 (with phased rollout through 2012), Korean employers have had to move severance from a traditional single-payment system to one of three plan types. Most foreign workers encounter all three without knowing which they have.

DB (Defined Benefit / 확정급여형)

The employer promises to pay the statutory severance formula at termination. The employer manages the reserve and bears the investment risk. You see the same lump sum whether markets go up or down. Most large Korean companies (Samsung, LG, Hyundai, government-affiliated organizations) use DB.

DC (Defined Contribution / 확정기여형)

The employer contributes at least 1/12 of your annual wage to a retirement account each year. You bear the investment risk (you choose the funds within the employer-selected provider). Your severance at termination is whatever the account is worth, not the statutory formula. Common at mid-size Korean companies and many foreign-invested companies.

Critical for foreign workers: the employer must fund DC contributions on time, each year. If your DC account is underfunded, you can file a complaint for wage theft.

IRP (Individual Retirement Pension / 개인형퇴직연금)

When you leave an employer with a DC plan, the balance rolls into your personal IRP account. IRP is also where any severance lump sum must be deposited (not your regular bank account) under current rules for amounts over ₩3M.

For foreigners leaving Korea: IRP funds can only be withdrawn on:

• Termination of employment plus ARC cancellation (proof of permanent departure), or
• Reaching age 55

In practice, plan to coordinate your IRP withdrawal with immigration, because you usually cannot access severance until after you have surrendered your ARC. Keep a Korean bank account open until the withdrawal clears.

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The 14-day rule and what happens if the employer delays

Article 9 of the Employee Retirement Benefit Security Act requires the employer to pay severance within 14 days of the last working day. The clock starts at termination, not at the date the final paycheck normally runs.

Extensions are only valid with the worker's written consent. Verbal assurances do not count.

If the employer misses the 14-day deadline

• 20% annual interest accrues on the unpaid amount, payable to you, from day 15 onward
• Criminal liability: up to 3 years prison or a ₩30M fine for the responsible officer under Article 44
• Civil liability: you can sue for the principal plus interest plus damages

Most non-payment cases are resolved through the Ministry of Employment & Labor's administrative process (see below), not the courts. The criminal threat is what usually makes employers pay.

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Retirement income tax (퇴직소득세)

Severance is not taxed at your regular income bracket. Korea applies a special 퇴직소득세 (retirement income tax) formula that reduces effective tax significantly for long service.

Simplified: the severance amount is divided by years of service to produce an "annual conversion amount," which is taxed at progressive rates, then multiplied back by years of service. The longer your service, the lower the effective rate.

For foreigners:

• Tax is withheld by the employer at source
• Your country's tax treaty with Korea may allow you to credit this against home-country tax
• US citizens: severance is reported on your US return as foreign earned income; FEIE may apply depending on whether it was paid while you were a US resident or non-resident

Request a 퇴직소득 원천징수영수증 (retirement income tax withholding receipt) from your employer. You will need it for home-country tax filing and for any claim under a tax treaty.

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Common employer traps for foreign workers

1. "Severance included in your salary"

Banned by law since 2010. Any contract clause saying the monthly salary already contains severance is void. The employer still owes you the full statutory severance on top. Keep pay slips showing base salary as evidence.

2. Annual contract "renewals" that reset the clock

If you sign a new 1-year contract each January and the work continues, the law treats that as one continuous employment. The employer cannot reset the severance clock by changing the contract date. Save every contract and pay slip.

3. Termination one day before the 1-year mark

This happens with E-9 workers (EPS system), English teachers, and some freelancers. If your contract ends at 11 months 29 days, you get no statutory severance. Some employers do this deliberately. If the pattern repeats (you are replaced by another worker on the same 11-month cycle), it may constitute an abusive practice, but it is hard to challenge.

Mitigation: negotiate before signing that if your actual working period reaches 12 months, you qualify for severance.

4. Misclassification as contractor (3.3% withholding)

Many foreign designers, IT workers, writers, and online tutors are paid as 프리랜서 under 3.3% withholding without being genuine contractors. The Labor Standards Act tests for de-facto employment:

• Do you work fixed hours?
• Do you report to a supervisor?
• Is your work integrated into the company's operations?
• Do you use company tools/equipment?
• Can you substitute another worker for yourself?
• Do you have genuine business risk?

If the first 4 are yes and the last 2 are no, you are probably an employee regardless of tax status. You can file a complaint for severance and unpaid wages.

5. DC plan not funded

Under DC, the employer must contribute 1/12 of annual wages each year. If they skipped years, you are owed those contributions plus interest. Check your DC statement at least annually.

6. Pressure to sign a "waiver" at departure

Any document that purports to waive your statutory severance is void. Sign only a receipt acknowledging that you received the correct amount. If the amount is wrong, do not sign.

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How to claim unpaid severance

Step 1: Written demand

Send the employer a written demand for payment, ideally by 내용증명 (certified mail with delivery receipt from any Korea Post branch, ₩10,000-₩20,000). This creates a timestamped record for the Labor Office and preserves your deadline.

Step 2: File with the Ministry of Employment & Labor

You can file at the regional Labor Office (지방고용노동관서) in person, or online at minwon.moel.go.kr. The process:

1. Prepare evidence: employment contract, pay slips, bank statements showing salary deposits, any written communication with the employer
2. File the complaint (민원신청) specifying unpaid severance and the amount
3. A labor supervisor (근로감독관) summons you and the employer for mediation
4. Typical timeline: 4-12 weeks from filing to resolution

If the employer refuses to pay during mediation, the supervisor can refer the case for criminal prosecution. Most employers pay at mediation once they realize the Labor Office is serious.

1350 multilingual helpline

Call 1350 from any Korean phone for free Labor Ministry consultation in English, Vietnamese, Chinese, Indonesian, Filipino, Russian, Thai, and Khmer (hours vary by language). They will walk you through the filing process.

Step 3: Legal Aid Corporation (대한법률구조공단)

If your annual income is below certain thresholds, the Legal Aid Corporation provides free legal representation. Their website is klac.or.kr. Foreign residents are eligible.

Step 4: Small claims court (소액심판)

For amounts under ₩30M, small claims court (민사소액사건) is a relatively fast civil route (3-6 months). Hire a Korean lawyer or use the Legal Aid Corporation. A labor case is usually faster through the Labor Office than through the courts.

If you have already left Korea

All of the above are still available. File online from abroad, or appoint a Korean representative (friend, lawyer, immigration consultant). The statute of limitations on unpaid severance is 3 years from the date payment became due.

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Leaving Korea: coordinate severance with your departure

Timing is everything if you are leaving Korea. A typical sequence:

1. Final working day: receive final paycheck and unused-leave payout (this is separate from severance)
2. Within 14 days: severance paid into your IRP account
3. After severance confirmed: cancel ARC at your local 구청 or HiKorea
4. After ARC cancellation: apply to withdraw IRP lump sum
5. After tax residency certificate: apply for NPS lump-sum refund (see our pension refund guide)

Order matters. If you cancel your ARC before severance is paid, the employer can still pay it, but your IRP withdrawal and pension refund both assume an active departure record. Keep a Korean bank account open through the entire sequence.

Before your last day, obtain from your employer:

• 근로소득 원천징수영수증 (employment income withholding receipt for the year)
• 퇴직소득 원천징수영수증 (retirement income tax withholding receipt)
• 지급명세서 copy (payment statement filed with NTS)

You will need these for your home-country tax filing, for any US FBAR/FATCA reporting, and to prove income if you later need a visa, loan, or reference.

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What to do next

1. Today: pull out your employment contract and the latest 3 months of pay slips. You will need them for any severance calculation.
2. If you are still employed: log into your company's retirement benefit portal (DB or DC) and check the reported balance. Raise any gaps with HR.
3. Before leaving the job: confirm in writing with HR the amount, payment timeline, and account the severance will go to.
4. After termination: mark day 14 on your calendar. If severance has not arrived, send an 내용증명 letter.
5. If unpaid: call 1350 for free multilingual Labor Ministry consultation, then file a complaint at minwon.moel.go.kr.

For a rough calculation of what you are owed based on your current salary and service length, use our severance pay calculator. For the wider picture of what to settle before you leave the country, see our leaving Korea guide.

If your situation is unusual (executive contract, DC underfunded, misclassified contractor, overseas employer with Korean presence), hire a Korean labor lawyer (노무사 for administrative, 변호사 for court). The typical consultation fee is ₩100,000-₩300,000, and the investment usually pays for itself many times over in a disputed severance case.

What's changed

• 2026-04-21: Guide first published covering statutory severance entitlement, DB/DC/IRP plan types, the 14-day rule, common employer traps, and the Ministry of Employment & Labor claim process for foreign workers.