Korea Severance Pay: Rules and Eligibility

The formula, step by step

Step one is the average daily wage. Take the total wages of the three calendar months before leaving, add 3/12 of the annual bonus and 3/12 of unused annual-leave pay, then divide by the calendar days in that three-month window, which is 89 to 92 days, depending on the months. Step two is to multiply by 30, which gives roughly one month of pay. Step three is to multiply by years of service. Service is counted in days divided by 365, so part-years count proportionally: 548 days is 1.50137 years, not one or two.

In one line, severance equals average daily wage times 30 times service days divided by 365. The shortcut "one month per year" is close but wrong whenever the window is not 90 days or bonuses apply. In one worked case, the real figure is about 608,000 won higher than the shortcut.

Who qualifies

Two tests decide eligibility, and nothing else does. First, at least one year with the same employer. This is a cliff: 364 days gives nothing, and 365 days gives a full year's worth. Second, an average of at least 15 hours per week over four weeks. Part-time workers who clear 15 hours qualify on the same formula.

Nationality and visa type are not in the test: foreign workers qualify on the same terms, and Labor Standards Act Article 6 bars nationality discrimination in working conditions. Even workers with irregular status have been found eligible. The reason for leaving does not matter either. Voluntary resignation, dismissal and contract end all qualify. What matters is employee status: a genuine independent contractor is not covered, while a worker labelled a contractor who in reality works like an employee may still be covered.

The ordinary-wage floor

Under Labor Standards Act Article 2(2), if the average daily wage is lower than the ordinary daily wage, the ordinary wage applies instead. The ordinary daily wage is monthly ordinary wage divided by 209 times eight. The 209 divisor fits a 40-hour week with paid weekly rest. Schedules with paid Saturdays use 226 or 243 instead. The floor matters most when recent months included unpaid leave or reduced hours that drag the three-month average down.

Regular bonuses count as ordinary wage after the Supreme Court en banc rulings of 19 December 2024 and the MOEL guidelines of 5 February 2025, which dropped the old "fixed" requirement. Purely discretionary bonuses with no payment obligation may not count. Samsung TAI bonuses were included because their criteria were in the employment rules, while SK Hynix bonuses were excluded. A base-salary-only figure is also wrong. The average wage includes fixed allowances, regular bonuses counted at 3/12, and unused annual-leave pay counted at 3/12.

Worked examples

Take 9,000,000 won over 92 days, for three years. Average daily wage is 97,826.09 won. Times 30 gives 2,934,782.61 won. Times three years gives 8,804,348 won. Take a bonus case: 3,500,000 won per month, for five years. Three months' wages are 10,500,000 won. Add 3/12 of the 2,400,000 won annual bonus, which is 600,000 won, giving 11,100,000 won. Divide by 92 days, which gives 120,652.17 won per day. Times 30 gives 3,619,565.10 won. Service of 1,826 days is 5.00274 years, so severance is 18,107,742 won. The shortcut would give only 17,500,000 won, about 608,000 won less.

Take a floor case: 2,000,000 won per month, for one year. The average method gives 2,000,000 won. The ordinary method gives about 2,296,650 won. The floor applies, so the worker gets 296,650 won more than the average method alone. Take a part-year case: 10,500,000 won over 92 days, for 548 days. Average daily wage is 114,130.43 won. Times 30 gives 3,423,913.04 won. Times 1.50137 gives 5,140,560 won.

DB, DC, IRP and payment

Defined benefit, or DB, means the employer bears the investment risk and the payout follows the same 30-days-per-year formula as lump-sum severance. Defined contribution, or DC, is different. The employer contributes at least 1/12 of annual wages per year into an individual account. The payout is contributions plus investment returns, never the formula. If you are on DC, do not use the formula number.

Individual retirement pension, or IRP, is the third route. Since 14 April 2022, severance is in principle transferred to the employee's IRP account rather than paid in cash. Exceptions include retirement after age 55, amounts of 3,000,000 won or less, death, and foreign workers departing Korea. Retirement pension coverage becomes mandatory for all workplaces by 2030. Severance must be paid within 14 days of leaving. The deadline can only be extended by agreement with the employee. If the employer misses it, delay interest of 20% per year applies. You have three years to claim unpaid severance, and the MOEL helpline 1350 offers help in English. The result is pre-tax: severance is taxed as retirement income, with deductions that grow with years of service, plus local income tax.

Check the window, the bonus and leave additions, the floor and your plan type, then run your figures through the Korea severance pay tool. See all guides for the country on the South Korea page, and browse more guides on the Calcotia blog.