Severance pay and annual leave

Severance is a statutory entitlement

An employee who has worked continuously for one year or more is entitled, on leaving, to a retirement benefit of at least 30 days' average wage for each year of continuous service. This is set by the Employee Retirement Benefit Security Act, and it applies regardless of why you are leaving — resignation, dismissal, contract expiry or the end of a fixed term.

Three things follow, and each of them contradicts something foreign employees are commonly told.

It is not conditional on good behaviour. Resigning does not forfeit it. Leaving without completing a second year does not forfeit the first. An employer who says severance is only for people who "finish properly" is describing a policy they invented.

It is not a bonus. It appears in employment contracts because the law requires it to be provided, not because the employer chose to offer it. Treating it as a negotiable perk — "we pay a higher salary instead of severance" — is not something the parties can lawfully agree between themselves.

It is calculated on average wage, not base salary. This is the part that costs people the most money and the part almost nobody checks.

Average wage, and why the split on your payslip matters

Average wage (평균임금) is broadly the total wages paid over the three months before you leave, divided by the number of calendar days in that period. It is a wider concept than base salary: regular allowances and, in defined proportions, annual bonuses feed into it.

So a contract structured as a small 기본급 plus large allowances is not neutral. It reduces the base for overtime premiums, it can reduce some insurance bases, and where allowances are structured to fall outside the wage definition it reduces severance too. When you are comparing two offers with the same headline number, the split between base and allowances is a real difference in what the job pays — see reading a Korean payslip for how the lines break down.

One practical consequence: the three months immediately before departure are the measuring period. Leaving right after an unpaid period, or after months of unusually low hours, produces a lower figure than leaving after normal ones. This is rarely worth engineering around, but it is worth knowing before you choose a departure date.

Retirement pension schemes

Many employers no longer pay severance as a lump sum from company funds. Instead they operate a retirement pension scheme, of which two types are common:

• Defined benefit (DB). Your entitlement is calculated the traditional way — the 30-days formula on your final average wage — and the employer funds it externally.
• Defined contribution (DC). The employer pays a set amount into an account in your name each year, and it is invested. What you receive is the account balance, which may be more or less than the traditional formula would have produced.

If you are on a DC scheme, you have an account somewhere with your money in it, and you should know which provider holds it. On leaving, the balance is generally transferred to an individual retirement pension account (IRP) rather than paid directly, and taking it out in cash before retirement age has tax consequences that differ from receiving it as a pension. For anyone leaving Korea permanently this interacts with the national pension lump-sum refund, which is a separate scheme entirely — the two are frequently confused, and claiming one has nothing to do with the other.

Annual leave

Paid annual leave (연차유급휴가) works differently in the first year than afterwards, which is the source of most of the confusion.

Unused leave is generally compensated in money rather than simply lost, unless the employer has properly operated the statutory procedure for encouraging you to take it. That procedure has formal requirements — written notice, at defined times — and an employer who has not followed it cannot rely on it.

Public holidays are a separate matter from annual leave. Do not let a contract count them against your leave entitlement without noticing, and be aware that leave practice varies enormously by employer type: a university and a hagwon offer entirely different working years even where both are hiring on an E-2.

Which employers this applies to

The Labor Standards Act applies in full to workplaces with five or more employees, and some provisions apply to smaller ones. Severance under the retirement benefit legislation applies broadly, including to small employers, and to part-time employees whose weekly hours reach the threshold.

Your visa status does not change any of this. An employee on E-2, E-7, H-1 or F-6 has the same statutory entitlements as a Korean national doing the same job. Labour law protects employees, and it does not ask what is printed on your residence card.

What does matter is whether you are an employee at all. Someone engaged as an independent contractor — invoicing rather than receiving a payslip, with no social insurance enrolment — falls outside these entitlements. If your working reality looks like employment (fixed hours, direction from a manager, work at the employer's premises) while your paperwork says contractor, that mismatch is itself something the labour authorities will look at, and it is decided on the substance rather than on the label.

When payment is due, and when it is not made

Severance and any outstanding wages are generally payable within fourteen days of leaving, extendable only by agreement between the parties. Silence after two weeks is not a negotiation; it is late payment.

If it does not arrive:

1. Ask in writing. Email or a message, stating your last working day, your service period and the amount you calculate. This creates a record and resolves a good proportion of cases immediately.
2. Call 1350. The Ministry of Employment and Labor helpline answers in English and will tell you whether your calculation is right and what the next step is.
3. File a complaint with the regional labour office. This is a normal administrative process, it is free, and it does not require a lawyer. Unpaid wages and severance are among the most common complaints they handle.
4. Use the free advice services. Foreign workers' support centres and the Korea Legal Aid Corporation both assist with exactly this, at no cost.

Do this before you leave Korea if you possibly can. Pursuing a claim from abroad is possible but materially harder, and it is one of the items on the leaving Korea checklist for that reason.

The evidence to keep

• Your signed contract, and any amendments.
• Every payslip — these establish average wage.
• A record of your actual start and end dates.
• Anything in writing about leave taken or refused.
• The insurance enrolment records, which independently evidence your employment period.

Employers who intend to underpay tend to be vague about dates and documents. An employee with a complete file is not someone it is worth trying that on, which is the main reason to keep one.