Severance Pay: Who Qualifies

Severance pay in Korea surprises foreign workers twice. The first surprise is that it exists at all: a statutory, non-negotiable lump sum — about a month of pay per year of service — owed to almost every employee who stays a year, whether they quit, get fired, or simply don’t get renewed. The second surprise is how often employers quietly structure around it: eleven-month contracts, “freelancer” labels, severance “included” in monthly pay.

The governing statute is the Act on the Guarantee of Employees’ Retirement Benefits (근로자퇴직급여 보장법). This guide covers what the entitlement is, the two thresholds that decide who qualifies, the freelancer question that decides most real disputes, and how payment actually works — including the separate system for E-9 workers.

1. The rule: 30 days’ pay per year worked

An employer must pay a departing employee at least 30 days of average wages for each year of continuous service (art. 8). Average wages (평균임금) means your total pay over the final 3 months divided by the days in that period — so it captures not just base salary but regular allowances, and overtime actually paid in that window.

The arithmetic is friendly: three years at an average of ₩3 million a month points to roughly ₩9 million; partial years after the first count proportionally. Because the final three months set the rate, what happens in those months matters — a point section 6 returns to.

A five-minute estimate — final three months’ total pay, divided into a daily rate, times 30, times your years — tells you whether the number you were offered is even in the right neighborhood.

Two refinements are worth knowing when the sums are large. Regular annual bonuses and annual-leave pay can enter the calculation in proportional ways rather than simply whatever landed in the last three months — so a payout that looks too small deserves a proper recalculation, not a shrug. And if the final months were abnormal — unpaid leave, a sudden pay cut — the law’s aim is your normal earning level, which is an argument worth making with records in hand.

2. Who qualifies — the two thresholds

Just as important is what does not matter: company size (the smallest workplaces are covered), your nationality or visa type, how the job ended — resignation, dismissal, or non-renewal — and whether anything about severance was written into your contract. The entitlement is statutory; a contract that promises less, or nothing, does not change it.

3. Employee in substance: the freelancer question

Most severance disputes in the foreign community are not about the arithmetic — they are about the label. Hagwon teachers on “independent contractor” agreements, workers paid with 3.3% tax withheld instead of payroll deductions, staff called “partners” — the question in every case is the same: were you an employee in substance?

What the label says matters far less than how the work ran: fixed working hours set by the business, a schedule and workplace you did not control, direction and supervision over how you worked, the business’s materials and premises, pay tied to time rather than results. Where the substance looks like employment, severance (and the rest of labor law) generally follows, whatever the contract calls you — though each case turns on its facts and is worth assessing properly before you rely on it.

4. How it must be paid

• Within 14 days of leaving (art. 9), extendable only by genuine agreement — and unpaid severance for a departed worker accrues 20% annual interest, the same as wages.
• Into an IRP account, as a rule. For most workers under 55, the employer must pay severance by transfer into an individual retirement pension (IRP) (개인형퇴직연금) account you designate, rather than your bank account (art. 9(2)) — so opening the IRP promptly is part of getting paid on time.
• Pension plans change the shape, not the substance. Employers running DB/DC retirement-pension plans meet the duty through the plan; the value must be at least equivalent to the statutory lump sum.
• Leaving Korea for good does not forfeit anything — the money is yours, and departure-related withdrawal of the IRP is handled through the financial institution. Sort the account mechanics before you fly, not after.

On tax: severance is taxed separately from salary, as retirement income, under rules that are generally gentler than ordinary income tax — and routing through the IRP interacts with when that tax falls due. The mechanics are a financial-institution conversation rather than a legal one, but budget on the gross figure being trimmed, not paid over untouched.

5. E-9 workers: departure guarantee insurance

Employers of E-9 workers must enroll them in departure guarantee insurance (출국만기보험) — premiums of 8.3% of ordinary monthly wages — and that enrollment stands in for the severance system (Act on Employment of Foreign Workers art. 13). After a year or more of service, the insurance benefit is paid within 14 days of your departure from Korea (or of your application, for status changes and post-departure claims).

One number to check: the insurance payout is built from premiums, and where it comes to less than the statutory severance the arithmetic in section 1 produces, the difference is generally for the employer to make up. Compare the two figures before you leave, while collecting the paperwork is still easy.

6. Common disputes and traps

• “Your severance is included in your salary.” Folding severance into monthly pay generally does not extinguish the entitlement — the practice is treated as invalid in principle, because the money is only calculable when you leave. Do not accept the line at face value; have the contract read.
• The 11-month contract. Ending employment just short of a year is the crude way around the entitlement, and just-under-a-year offers deserve to be read with that in mind. But repeated renewals that in fact continue the same work accumulate continuous service — a gap on paper does not always reset the clock.
• Final-quarter wage games.Because the last 3 months set the average wage, cutting hours, dropping allowances, or moving you to “standby” just before departure shrinks the number. Keep records of what changed and when.
• Resign-and-rejoin paperwork.Signing a “resignation” and a “new contract” at renewal time can be used later to argue the clock reset. Where work genuinely continued, the argument is weak — but the paper helps the employer, so understand what you are signing.

7. If it isn’t paid

Unpaid severance rides the same enforcement machine as unpaid wages: the labor office complaint, the criminal backstop, the government wage fund — which covers up to ₩7 million of severance for the final 3 years of service — and free legal aid for workers under the ₩4 million wage threshold. The whole sequence, with its deadlines, is covered in Unpaid Wages: Labor Office vs. Lawsuit.

Start with two numbers: your first day of work, and your average monthly pay over the last three months. Between them they decide whether you qualify and roughly what you are owed.

Frequently asked questions

Written by Attorney Chulho Choi (SOL & LUNA / Law Firm Myeong, KBA-registered specialist in Civil and Criminal Law). Reviewed as of August 2026. Updated when laws change.