Working and Business > Salary Deductions/Benefits

Severance Pay Entitlement

Severance Pay (known in Korean as Taechikum 대지금금) for foreign workers, teachers among them, is a common issues of contention between employers and (foreign) workers. Severance regulations apply equally to Korean and Foreign workers.

Small business obligation: In the past, companies with less than five employees were not required to pay severance.  That is no longer the case. Every company, including small businesses with less than five employees, must pay their employees severance. Note though, that employees of business with less than 5 employees, are only entitled to receive 50% of the full severance entitlement for the period going from 01 December 2010 to 31 December 2012..

By Korean law  all full-time employees, Korean national and foreign nationals alike) are entitled to receive severance pay (aka retirement allowance system or Taechikum) of one month’s salary for each year of employment. 

The Severance Pay issue is one you should broach with your prospective employer at the onset of negotiations. Make sure that your contract clearly states that you will receive one month’s salary for each year (12 months) of employment.  Don’t be surprised if you meet with resistance (btw, you might want to think twice about working for an employer who balks at clarifying your severance pay rights in the contact). Some employers have been known to try and get out of paying severance by having the employee waive that right in their contracts, by having them sign an 11-month contract or by firing staff before the end of their 12-month contact, usually in the 11th month.

Entitlement to Severance:
- a full year of employment (if one day short of contract, no entitlement).
- more than 15 hours per week or more than 60 hours per month

No Severance Pay:
- if work one day less than stipulated contract
- if work less than 15 hours per week or less than 60 hours per month
- if company has 5 or fewer employees
NOTE: Universities are not automatically exempt from paying severance. Best to ask about severance in the beginning when negotiating your contract.  For example, some universities enroll staff in a private pension scheme instead (note that in this case, their staff are not enrolled in the national pension plan either).

Payment Schedule:
- Severance is to be paid within two week of termination of employment*
- The Employer can choose to pay at the end of the year if an employee is staying in the job or at the end, when the employee is leaving.
Note: In 2009, a Korean Court found that severance paid each month as part of employee's monthly pay is illegal and cannot be considered severance pay.  Furthermore, the Court found that employment contracts that allow employers to pay their employees severance pay on a monthly basis are invalid.  Severance pay must be paid to employees on an annual basis.
*Note that severance pay is not lumped in with your weekly or monthly pay. It is only paid out after your employment has terminated.

Severance Payment Calculation:
- the amount of the last three months' wages are divided by the Contractual Working Hours as defined in the Rules of Employment (note your contract may not indicate what the contractual working hours are so you should ask to see the rules of employment before you begin working).

Severance Payment Amount:
The amount of Severance is equal to one month of wages calculated as the average of the last three months of employment.  Bonuses received during that time, and stipulated in the Rules of Employment, are not included in the calculation of Severance.  Severance would be based upon regularly received wages, which can include housing allowances, gas allowances etc. as long as they are received on a monthly or quarterly basis. 
The amount of wages received over the last three months is divided by the Contractual Working Hours as defined in the Rules of Employment.  The Contractual working hours may not be stated in the contract but in the Rules of Employment.  Korean Labor Practices have 5 traditional values for the number of contractual working hours.  The numbers range from 174 to 243 hours per month and are calculated based upon the number of duty hours and paid leave days.  All parties, the employer and employee, should verify the number of Contractual working hours to ensure they can properly calculate the amount owed for Severance.
Note that if you have a housing allowance mentioned in your contract and if that allowance is giving in KRW, that amount should be included in the calculate of your severance.  However, if your accomodations are provided by your employer, the value is not included in the severance calculation.

The Ministry of Employment and Labor has jurisdictions over matters over severance pay and often may, when requested to do so, contact employers to remind them of their legal obligations. All full-time employees are entitled to severance pay and if you have a work permit, you are considered full-time.  However, it is true that some Korean judges have ruled that because the contract stipulated 40 or more hours of teaching a week, some hagwon teachers were not eligible for severance pay if their teaching hours were less than 40. So again, pay careful attention to what is in the contract (search site for ‘contract’ or ‘teaching hours’).

The Ministry of Employment and Labor operates a Consultation Center for foreign employees and foreign employers.
Phone Counselling service is available Monday thru Friday between 9:00 AM and 6:00PM
Domestic calls: 1350 (ext 5 for service in English)
If calling from outside Korea:  +83-52-702-5989 (Ext 5 for service in English)

The International Cooperation Bureau (according to the MOEL website provides information on the MOEL homepage and policies. Tel: 02-2110-7436/7445 (82-2-21100-7436/7445) or email: molab506@moel.go.kr
For more information on the Employment Permit System, you can contact the Foreign Workforce Policy Division at 02-2110-7198 (82-2-2110-7198)

The Act also includes the following:
Equal Treatment: No employer may include any discrimination in the terms of labor conditions because of nationality, religion or social status.
Scope of Application stipulates that the act applies to all enterprises except small family businesses, domestic servants, and those exempted by Presidential decree.

Editor's Note: The information above is based on the information K4E has available at the time of writing. Given how difficult it is to obtain clear and complete information in Korea as well as how quickly rules can change, please see this as a guide and do follow-up with the appropriate Korean government bodies to confirm its accuracy and/or to get the most current answers. K4E would appreciate your feedback should you find out that our information is out-of-date.

Last Updated on 2016-01-28


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