Can Workers at Small Businesses (Under 5 Employees) Receive Severance Pay? 2026 Complete Guide

Can Workers at Small Businesses (Under 5 Employees) Receive Severance Pay?

One of the most common questions from workers at small workplaces is: "Our company has fewer than 5 employees — can I still receive severance pay (퇴직금)?"

The short answer is: in principle it is difficult, but there are exceptions.

The General Rule: Workplaces with Fewer Than 5 Employees Were Previously Exempt

The Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법) applies to workplaces with 1 or more ordinary employees. However, workplaces that ordinarily employ fewer than 5 workers are not subject to certain provisions of the Labor Standards Act (근로기준법) — such as restrictions on unfair dismissal (부당해고) and overtime premium pay — and the severance pay system was similarly restricted in the past.

Currently, the Act on the Guarantee of Workers' Retirement Benefits applies in full to workplaces with 1 or more ordinary employees. As of 2026, any workplace with at least 1 ordinary employee is obligated to pay severance pay. However, disputes still arise in practice because eligibility can vary depending on how the "ordinary number of employees" is calculated. Note that your employment contract may specify terms that differ from this statutory minimum.

The Key Issue: When Headcount Fluctuates Above and Below 5

Severance pay calculations become complicated at workplaces where the number of employees fluctuates. According to Ministry of Employment and Labor administrative interpretations (1999.11.11., 2001.10.26.), the following rules apply:

  1. Only periods during which the workplace ordinarily had 5 or more employees are counted toward severance pay.
  2. All such periods are added together to calculate the total length of service.
  3. Both the reference date for calculating average wages and the statute of limitations for the severance pay claim are based on the actual retirement date.

For example, if you worked for a total of 3 years but the workplace had 5 or more employees for only 2 of those years, you are entitled to 2 years' worth of severance pay (average wage × 30 days × 2).

Can Daily or Part-Time Workers Also Receive Severance Pay?

Yes. The Supreme Court has held that even a daily laborer working fewer than 25 days per month is entitled to severance pay if a continuous and subordinate employment relationship is recognized (Supreme Court Decision 78다2089). The continuity of the actual employment relationship matters more than the form of work.

In addition, workers employed for fewer than 15 hours per week (ultra-short-hour workers) are excluded from severance pay coverage (Article 4 of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제4조), but part-time workers who work 15 hours or more per week are entitled to severance pay.

Items Included in Average Wages for Severance Pay Calculation

Severance pay is calculated as average wage × 30 days × years of service. The average wage is the total wages paid during the 3 months before retirement divided by the total number of calendar days in that period.

The 2026 minimum wage is KRW 10,320 per hour (KRW 2,156,880 per month), so calculating severance pay using an average wage below this amount is unlawful.

Late-Payment Interest and How to File a Complaint for Unpaid Severance Pay

An employer must pay severance pay within 14 days of the retirement date (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 on the unpaid amount (Article 17 of the Enforcement Decree of the Labor Standards Act / 근로기준법 시행령 제17조).

If you have not received your severance pay, you may file a complaint (진정) with the competent Regional Employment and Labor Office, or apply for relief with the Labor Relations Commission (노동위원회).

Calculate Your Severance Pay at Workbear

To calculate your expected severance pay directly, use the severance pay calculator at Workbear (workbear.kr). Enter your length of service and average wage to instantly see your estimated severance pay. If you suspect unpaid severance pay, you can also use the AI search feature or the complaint drafting assistant.

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

Frequently Asked Questions

I worked for 2 years at a workplace with fewer than 5 employees. Can I receive no severance pay at all?

In principle, the severance pay provisions of the Labor Standards Act 근로기준법 do not apply to workplaces that ordinarily employ fewer than 5 workers. However, if there was any period during your employment when the workplace ordinarily had 5 or more employees, you may claim severance pay for that period. According to a Ministry of Employment and Labor administrative interpretation 1999.11.11. , severance pay is calculated by adding up the length of service during periods when the headcount was 5 or more.

From what date is the statute of limitations for a severance pay claim calculated?

The statute of limitations for a severance pay claim 근로자퇴직급여 보장법 제10조, Article 10 of the Act on the Guarantee of Workers' Retirement Benefits runs from the actual date of retirement — not from the date the workplace headcount fell below 5 during employment. The limitation period is 3 years, so you must file your claim within 3 years of your retirement date.

What happens if severance pay is not paid within 14 days?

An employer must pay severance pay within 14 days of the employee's retirement date Article 9 of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제9조 . If the deadline is missed, a delay interest rate of 20% per annum applies to the unpaid amount Article 17 of the Enforcement Decree of the Labor Standards Act / 근로기준법 시행령 제17조 . However, the payment deadline may be extended by agreement between the parties.

Are bonuses included in the severance pay calculation?

Regularly paid bonuses are recognized as wages and are included in the calculation of average wages 평균임금 . The Supreme Court has held that only the portion of bonuses paid during the 3-month period before retirement that corresponds to those 3 months should be included in the average wage calculation Supreme Court Decision 76다1497 .