Severance Pay (퇴직금) in Korea for Foreign Workers

Miss the 14-day severance deadline and 20% annual interest starts accruing from day 15. That is the law. 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. This guide walks through each piece.

All figures are current as of June 2026.

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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
• 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)

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 divided by 12, multiplied by 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 divided by 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 reduced 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, Korean employers have used severance systems built around three plan types. You may encounter any of the three depending on your employer.

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.

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 because you choose from the products available inside the plan. Your severance at termination is whatever the account is worth.

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. Under Article 9(2) of the Employee Retirement Benefit Security Act, severance is routed into an IRP by default. The law lists exceptions: amounts of ₩3M or less, retirement at age 55 or older, death, and departure from Korea after termination. Because departure is one of those exceptions, a foreign worker leaving Korea can often avoid IRP routing entirely.

For foreigners leaving Korea, there are two common paths:

• Request direct payment under the departure exception. Because departure from Korea after termination is one of the Article 9(2) exceptions, you can ask your employer to pay severance directly rather than route it through an IRP. Establish your departure so the employer can apply the exception.
• Handle an existing IRP before you close accounts. If the money is already sitting in an IRP, ask the financial institution that holds it how to withdraw or surrender the account. A full IRP surrender outside the standard pension events can trigger 16.5% other-income tax. At age 55, IRP can instead be drawn as a pension.

Coordinate the timing with your employer, immigration, and the financial institution that holds the IRP before closing Korean accounts.

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E-9 and H-2 workers: Departure Guarantee Insurance (출국만기보험)

If you are an E-9 worker under the Employment Permit System (EPS), or an H-2 working-visit worker, your severance usually does not come from a DB, DC, or IRP plan. It comes through a separate mechanism called Departure Guarantee Insurance (출국만기보험).

Under the Act on Foreign Workers' Employment, your employer must pay into a Departure Guarantee Insurance account each month at a rate of 8.3% of your monthly ordinary wage (통상임금). That 8.3% is roughly one month of pay spread across a year, so it is designed to fund the same one-month-per-year severance the statutory formula produces. The insurance is paid out to you on departure from Korea, normally within 14 days of leaving.

The important protection: the insurance payout is a floor, not a cap. If the amount the insurance pays is less than the statutory severance (30 days of average wage multiplied by your years of service), your employer must pay you the difference as a top-up under the Employee Retirement Benefit Security Act. So if the insurance underperforms, you are still entitled to the full statutory figure.

Two practical points for E-9 and H-2 workers:

• Calculate your statutory severance using the 30-day formula above and compare it against what the insurance pays. If the insurance figure is lower, demand the shortfall from your employer in writing.
• The payout is tied to departure, so coordinate the claim with your exit. Confirm the insurer, your policy number, and the payout account before your last working day.

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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 by agreement with the worker. Get any extension in writing so you have evidence of the agreed date.

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

The criminal penalty is a victim-consent offence (반의사불벌죄): prosecutors cannot pursue the case if you explicitly object, for example after a settlement.

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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. If you also file in another country, ask a tax adviser there how that country treats Korean retirement income.

Request a 퇴직소득 원천징수영수증 (retirement income tax withholding receipt) from your employer. You may need it for tax filing or later proof of income.

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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

If your contract ends at 11 months and 29 days, you do not meet the 1-year statutory severance threshold. If a repeated pattern looks abusive, ask the Labor Office or a labor professional before assuming the clock has reset.

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

4. Misclassification as contractor (3.3% withholding)

Some workers are paid as freelancers (프리랜서) under 3.3% withholding even though the working relationship may look like employment. Labor status depends on the real working relationship, not only on the tax label:

• 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 work is controlled like employment, you can ask the Labor Office to review whether you were misclassified and whether severance or unpaid wages are owed.

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. Certified mail (내용증명) can help create a timestamped record for the Labor Office.

Step 2: File with the Ministry of Employment and 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. The labor supervisor reviews the evidence and the employer's response

If the employer refuses to pay during mediation, the supervisor can refer the case for criminal prosecution.

1350 multilingual helpline

Call 1350 from any Korean phone for Labor Ministry consultation. The official 1350 phone guide documents foreign-language 상담 for English and Chinese. They can explain the filing process and direct you to the right office.

Step 3: Legal Aid Corporation (대한법률구조공단)

If you need legal representation, check the Legal Aid Corporation (대한법률구조공단) at klac.or.kr or ask 1350 where to get help.

Step 4: Small claims court (소액심판)

Civil court is a separate route if the administrative process does not resolve the dispute. For court filing, use the Legal Aid Corporation or a Korean lawyer.

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 matters 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. Because departure is an Article 9(2) exception, you can ask your employer to pay it directly rather than route it through an IRP. E-9 and H-2 workers receive their Departure Guarantee Insurance (출국만기보험) payout on departure instead.
3. Handle immigration departure steps through the immigration office or HiKorea
4. If any severance is already sitting in an IRP: ask the financial institution that holds the IRP how to withdraw or surrender the account
5. After departure planning: apply for any separate NPS lump-sum refund if you are eligible (see our pension refund guide)

Order matters, so keep a Korean bank account open until expected payouts have cleared.

Before your last day, get 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 may need these for tax filing, a later visa, a loan, or a reference.

If you want a full picture of what to claim around your departure (severance plus pension refund, EPS insurance, year-end tax refund), run the Benefits Checker. It lists every payment you may be eligible for, sorted by amount, with the official source for each.

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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 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, such as an executive contract, DC underfunding, misclassified contractor status, or an overseas employer with Korean presence, talk to a Korean labor professional (노무사 for administrative cases, 변호사 for court).

@misc{seoulstart-korea-severance-pay-guide,
  author = {{Seoulstart Editorial Team}},
  title = {{Severance Pay (퇴직금) in Korea for Foreign Workers}},
  year = {2026},
  publisher = {Seoulstart},
  url = {https://seoulstart.com/guides/korea-severance-pay-guide},
  note = {Last updated June 6, 2026}
}