Severance Pay

Severance pay equals the employee's average monthly pay (averaged over the last 3 months) multiplied by years of service. The formula is: avg. monthly pay × months employed ÷ 12.

Any employee with 1 or more years of continuous service is entitled to at least 30 days' average pay per year of service under the Labor Standards Act.

Since 2012, mid-term severance settlement has been generally restricted. It is only permitted under specific legal circumstances: purchasing a home without current ownership, securing a lease deposit (jeonse), covering medical costs requiring 6+ months of treatment, or when bankruptcy proceedings have been initiated. Employees enrolled in a DC-type (defined contribution) pension plan can make mid-term withdrawals instead.

Yes. Severance pay in Korea is subject to a special retirement income tax (퇴직소득세), which is generally lower than regular income tax thanks to tenure-based deductions and an annualized calculation method. For 10 years of service with ₩100M in severance, the effective tax rate is roughly 3–5%. The longer your tenure, the lower your tax burden. Note that this calculator shows the pre-tax severance amount.

Under the Korean Labor Standards Act, severance pay is only legally required for employees with 1 or more years of continuous service. Employees with less than 1 year of service are generally not entitled to statutory severance, though some companies voluntarily pay a prorated amount. Check your employment contract or company policy to see if this applies to you.