Severance Pay in Korea: Eligibility, Calculation, and Equal Treatment Rules — Foreign Workers' Guide

Severance Pay in Korea: Key Rules at a Glance

Severance pay (퇴직금) is not simply "money you get for working a long time." The law sets specific eligibility requirements and a calculation method, and employers who reduce the amount arbitrarily or apply different rates to different workers are acting unlawfully. Below is a summary of the standards in force as of 2026, organized around the relevant statutory provisions and court rulings.

Note: Your employment contract may specify terms more favorable than the statutory minimum — if so, those terms apply. If your contract falls below the statutory standard, the law automatically governs.

1. Eligibility — Two Requirements

Article 4 of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제4조) guarantees severance pay to workers who satisfy both of the following conditions:

• Continuous employment of at least 1 year
• Scheduled weekly working hours of at least 15 hours

There is no distinction between regular, contract, or temporary employment. What matters is the actual working situation, not the employment type. The Ministry of Employment and Labor has consistently interpreted the law to mean that even non-civil-servant miscellaneous employees of national or local government entities are entitled to severance pay if they have worked for at least one year.

2. Severance Pay Calculation Formula

Severance Pay = Average Wage × 30 days × (Years of Continuous Employment)

Average wage (평균임금) is the total wages paid during the three months before retirement divided by the total number of calendar days in that period, as defined in Article 2, Paragraph 1, Item 6 of the Labor Standards Act (근로기준법 제2조 제1항 제6호).

A frequently disputed point is whether bonuses are included. The Supreme Court has ruled that bonuses paid regularly and continuously must be included in the average wage as the pro-rated three-month portion of the annual bonus, even if no bonus was actually received during the three months before retirement (Supreme Court 77Da1321). By contrast, one-off payments that are not compensation for work do not constitute wages (Supreme Court 95Da19256).

Additionally, where actual wages were reduced due to suspension from duty or a standby order, there is a ruling that severance pay must be calculated based on the ordinary wage the worker would have received had there been no such abnormal circumstances (Seoul Civil District Court 89GaHap1099).

3. Differential Payment Is Prohibited — Same Workplace, Same Standard

Article 4 of the Labor Standards Act (근로기준법 제4조) (equal treatment) and Article 4 of the Act on the Guarantee of Workers' Retirement Benefits prohibit applying different severance pay rates or standards based on job type, position, or employment type. The Supreme Court ruled that an agricultural land improvement association's application of different severance pay standards to regular and temporary workers was unlawful (Supreme Court 2002Da328).

However, the Ministry of Employment and Labor interprets that even if the method of payment differs (e.g., different types of retirement pension), this does not constitute a differential system as long as the payment standard and rate are identical.

4. Work Rules vs. Collective Agreement — Which Takes Precedence?

Even if a progressive severance pay system remains in the work rules (취업규칙), if the collective agreement (단체협약) is revised to adopt the statutory severance pay system, the revised collective agreement takes precedence. The Ministry of Employment and Labor's administrative interpretation (February 25, 2004) states that a collective agreement revision formally signed and sealed by labor and management is valid and cannot be overturned by the outcome of a union general meeting.

5. Payment Deadline and Delay Interest

The employer must pay severance pay within 14 days of the retirement date under Article 9 of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제9조). If the deadline is missed, delay interest of 20% per annum accrues under Article 17 of the Enforcement Decree of the Labor Standards Act (근로기준법 시행령 제17조). In the event of non-payment, a complaint may be filed with the competent Regional Labor Office.

6. What If Company Rules Are More Favorable Than the Law?

If a company's severance pay rules are more favorable than the minimum standard under the Labor Standards Act, those rules must be applied (Supreme Court 81DaKa137). Conversely, if company rules fall below the statutory standard, the statutory standard applies automatically.

If the severance pay calculation feels complicated, try the severance pay calculator at Workbear (workbear.kr). You can easily check everything from average wage calculation to your estimated severance pay. If you suspect severance pay has not been paid, you can also use the AI search feature to instantly find relevant laws and how to respond.

This article is for informational purposes only and does not constitute legal advice. For specific cases, consult a certified labor attorney (노무사) or lawyer.