Korean Severance Pay: What You Are Actually Owed

Korean severance is described almost everywhere as one month’s salary for each year worked. That sentence gets the order of magnitude right and almost everything else wrong.

What decides the figure is your continuous service, your contractual weekly hours, the average wage in your final three months — and, before any of that, which retirement benefit scheme your workplace actually runs. On a defined contribution plan, the last three months barely enter into it.

Ask which scheme you are on before you calculate anything.

Two gates, and neither is about attendance

An employer’s obligation to provide a retirement benefit scheme does not extend to an employee whose continuous service is under one year, or whose contractual working hours average under 15 a week over four weeks.

Both have to be cleared — the minimum continuous service and the same 15-hour line that governs weekly holiday pay.

The first gate is measured on the employment relationship, not on days attended:

The second gate runs on contractual hours averaged over four weeks, so a single quiet week does not push a 20-hour employee below it.

The formula, and the part people get backwards

daily average wage × 30 days × (days of continuous service ÷ 365)

Three years of service at a daily average wage of ₩150,000:

₩150,000 × 30 × 3  =  ₩13,500,000

That is the whole statutory calculation. Everything difficult is inside “daily average wage”.

The divisor is calendar days

Average wage is the total wages paid in the three months before you leave, divided by the total calendar days in that period — not by the days you actually worked.

three-month wage total   ₩15,000,000
calendar days in period          92
                          ──────────
daily average wage         ≈ ₩163,043

Divide the same ₩15,000,000 by the roughly 62 working days in a quarter and you get about ₩242,000 — nearly 50% too high. This is the single most common error in do-it-yourself severance arithmetic, and it runs in the direction that makes people think they were underpaid when they were not.

Bonuses and unused leave enter on their own terms

Not everything paid in the final three months belongs in the total, and not everything in the total was paid in the final three months.

So the audit runs item by item, on when the entitlement arose and whether it is a wage — base pay, then fixed allowances, then premium pay, then regular bonus, then unused leave.

The ordinary wage floor

If your final three months contained leave, reduced hours or an unpaid period, the average wage can come out artificially low.

The Labor Standards Act answers this directly: where the computed average wage is lower than the ordinary wage, ordinary wage is used as the average wage. A Ministry of Government Legislation interpretation in May 2026 reconfirmed that this applies to the severance calculation.

compute the three-month average wage
  → compare with ordinary wage
  → if average < ordinary, use ordinary

The severance calculator on this site takes the ordinary daily wage as an input for that reason, and tells you when the floor is doing the work.

DB and DC decide different things

The employer’s DC floor is one twelfth of annual total wages.

“DB if your pay rises, DC if you invest well” is a comparison, not a choice

The generalisation is fair enough on its own terms. Someone expecting sustained promotion and pay growth is helped by a structure that keys off the final wage level; someone with flat pay and a long horizon of good returns may do better carrying the investment result themselves.

But it describes an investment trade-off, not an option on your desk.

On DC, audit contributions — not a final average wage

Applying the ordinary severance formula to a DC plan produces a number that means nothing. The plan is built forward from yearly contributions, not backward from a closing salary.

What to check instead:

A shortfall from three years ago is invisible in the closing balance. It shows up only in the contribution record.

Fourteen days, and where the money goes

Retirement benefits are payable within 14 days of the date the entitlement arises. The period can be extended by agreement between the parties where there are special circumstances — which is an agreement, not an announcement from payroll.

Since 2022, ordinary severance is in principle transferred to an IRP account the employee nominates, rather than paid to a regular bank account.

There are statutory exceptions, and one of them matters here: a foreign national who worked in Korea on a status permitting employment and who actually departs after leaving the job can fall outside the IRP transfer requirement.

Departure guarantee insurance is a separate instrument

Not every foreign worker has one. It is an Employment Permit System arrangement — E-9 and H-2 — and not a retirement pension product of the DB or DC kind.

The employer accrues it at 8.3% of monthly ordinary wage, and a payout event can arise where the worker has a year or more of service and departs, or on certain changes of status.

Because it accrues on ordinary wage while statutory severance is computed on average wage, the two figures do not match:

statutory severance        ₩10,000,000
departure insurance payout  ₩8,700,000
                            ──────────
employer still owes          ₩1,300,000

That difference is the employer’s to pay. “We took out the insurance, so the severance is settled” is not a defence, and this is the most common way an EPS worker is underpaid on the way out.

The claim mechanics — when to file, the airport route, and what to do if you have already flown — are in departure guarantee insurance for EPS workers.

Being foreign does not change the arithmetic

Whether you hold E-7, F-5 or a Korean passport, the calculation is the same. What a foreign worker gets is not a lower standard but an additional payment route to reconcile:

continuous service
  → four-week average of 15 hours
  → three-month average wage
  → compare with ordinary wage, take the higher
  → statutory entitlement
  → which scheme: ordinary severance, DB or DC
  → EPS departure guarantee insurance, if applicable
  → settle the shortfall

What to have in front of you before you leave

• contract start date, and the legal leaving date
• contractual weekly working hours
• the last three months of payslips
• bonuses paid across the last twelve months
• unused annual leave allowance, and when the entitlement arose
• which retirement scheme, in writing
• for DC, the contribution record year by year
• for EPS workers, the departure insurance accrual

Three failure modes, one per scheme. On ordinary severance and DB it is a mis-stated average wage. On DC it is missing employer contributions. On E-9 and H-2 it is the unpaid gap between the insurance payout and the statutory figure.

Severance in Korea is not “a year worked, a month paid”. It is: clear both gates, compute the average wage properly and test it against ordinary wage, then follow the scheme your workplace actually runs to the number it produces — and, if there is an insurance policy in the picture, check what it left behind.