📌 목차 (Table of Contents)

Table of Contents

When a foreign employee leaves a Korean company, the final settlement is often handled the way headquarters handles departures everywhere else, and in Korea that regularly produces underpayments. Korean statutory severance and annual leave rules apply to foreign employees exactly as they apply to Korean nationals. The whole settlement must be paid within 14 days, and late amounts carry 20% annual delay interest and criminal penalties.

Nationality Doesn’t Change the Entitlement

Who Is Covered
Statutory severance applies to any worker with at least one year of continuous service who averaged 15 or more hours a week. Nationality and visa category don’t matter, and neither does company size.

The Executive Title Question
A registered director gets a retirement allowance only if the articles of incorporation or a shareholders’ resolution provide for one. Unregistered or nominal “executives” are often workers in substance, and then statutory severance applies.

The One Visa Category That Works Differently
Workers hired under the Employment Permit System for non-professional jobs are covered by a mandatory departure guarantee insurance, paid out when they leave Korea. If statutory severance is higher than the insurance payout, which is common when the worker earned a lot of overtime, the employer pays the difference. Professional visa holders receive ordinary severance.

How Severance Is Actually Calculated

The Formula
Severance is at least 30 days of average wage per year of service. Average wage is total wages for the three calendar months before departure divided by the calendar days in that period. If that comes out lower than ordinary wage, ordinary wage is used instead.

What Goes Into the Wage Base

  • Base salary, plus overtime, night and holiday premiums, and allowances paid for work
  • 3/12 of the bonuses paid in the prior 12 months
  • 3/12 of the leave allowance paid in the prior year
  • Not included: the leave allowance that arises at departure itself

Expat Allowances and Equity
Housing, schooling, and cost-of-living allowances paid regularly and uniformly under the contract are likely to count as wages. Reimbursements of actual expenses generally don’t. Equity from a foreign parent is usually outside the wage base, but that depends on who bears the cost and how the award is tied to the Korean job.

Severance Structures Korean Courts Don’t Recognize

“Severance-Inclusive” Salaries
In 2010, the Supreme Court sitting en banc held that paying severance in installments during employment is invalid as severance. The employee can still claim full severance on departure. The employer can try to recover what it paid as unjust enrichment, but only a limited amount can be offset against the severance.

Interim Settlements Outside the Permitted Reasons
Paying severance early is allowed only for specific statutory reasons. An interim payment made for any other reason doesn’t reset the service period.

Advance Waivers
Statutory severance can’t be waived in advance. A release signed after departure is treated differently.

Annual Leave: The Statutory Minimum Beats the Global Policy

The Statutory Entitlement
At workplaces with 5 or more employees:

  • 1 day per month of full attendance in the first year, up to 11 days
  • 15 days after a year with at least 80% attendance
  • 1 more day for every two additional years of service, up to 25 days
  • Unused leave is paid out unless the statutory leave-use promotion procedure extinguished it, and all unused accrued leave is paid on departure

The “One Year Plus One Day” Rule
After an October 2021 Supreme Court decision, the Ministry of Employment and Labor changed its interpretation. The 15 days for a year of service vest only if employment continues into the day after that year ends. That single day often changes the settlement for foreign hires on one-year contracts.

Global PTO Policies and Fiscal-Year Accounting
Unlimited PTO and “use it or lose it” rules don’t override the statutory entitlement. Companies that track leave by calendar year must compare the result with each employee’s hire-date calculation at departure and pay whichever is more favorable to the employee.

The Leave Allowance Rate Just Went Up for Many Employers
In December 2024, the Supreme Court sitting en banc dropped the “fixedness” requirement for ordinary wage. Many conditional bonuses may now count toward ordinary wage, which raises the leave allowance and overtime rates.

The Fourteen-Day Deadline and What Happens If You Miss It

One Deadline for Everything
Final wages, leave allowance, and severance are all due within 14 days of departure. The deadline can be extended only by written agreement with the employee.

Delay Interest and Penalties
Late amounts carry 20% annual delay interest, except during a genuine dispute before a court or labor commission. Since October 23, 2025, amendments to the Labor Standards Act:

  • allow damages of up to three times the unpaid amount for intentional arrears or non-payment lasting three months or more;
  • extend the 20% delay interest to wages owed to current employees.

Where the Money Goes
Severance generally has to be paid into the employee’s individual retirement pension account. A foreign employee leaving Korea is an exception, so severance can be paid directly, but the employer must withhold retirement income tax. Confirm the account and paperwork before the employee’s last day.

Practical Sequencing for a Foreign Employee’s Final Settlement

  1. Confirm the employee’s status and service dates, including whether the last day falls just before or just after a service anniversary.
  2. Rebuild the three-month wage base from Korean payroll records, then compare it with ordinary wage.
  3. Reconcile the global PTO record with the Korean statutory entitlement on a hire-date basis.
  4. Check for severance-inclusive pay, interim settlements, advance waivers, and departure insurance shortfalls.
  5. Settle payment logistics before the employee leaves Korea.
  6. Pay everything within 14 days, or get a written extension, and have any release signed after departure.