Retirement Benefits in Korea
Statutory Requirements and Employer Responsibilities
Who Is Entitled to Statutory Severance Pay in Korea?
Under Korean labor law, employees who have completed at least one year of continuous service are entitled to statutory retirement benefits upon termination of employment, regardless of the reason for termination.
The entitlement applies to individuals who qualify as employees under the Labor Standards Act and whose contractual working hours average at least 15 hours per week.
Statutory retirement benefits may be provided through a retirement pension plan or a lump-sum severance pay system.
Retirement Pension System
Under the Act on the Guarantee of Employees’ Retirement Benefits, companies are required to implement a retirement pension plan. Although there are currently no sanctions for failing to do so, this may change under forthcoming regulatory amendments.
(※ Note: A company that does not adopt a retirement pension plan is deemed to operate a lump-sum severance pay system.)
To implement a retirement pension plan, the employer must obtain the consent of the employees’ representative (or hear their opinion, depending on the case), prepare the rules for the retirement pension plan containing the statutory provisions, and file them with the Ministry of Employment and Labor.
There are 2 main types of pension plans — Defined Benefit (DB) and Defined Contribution (DC) — and labor and management may choose which type to adopt. It is also possible to adopt both and allow employees to choose individually. Employers must provide annual training to employees on the operation of the retirement pension plan.
• Defined Benefit (DB) Plan
Under a DB plan, the amount the employee will receive at retirement is predetermined. The amount is the same as that under the lump-sum severance pay system: 30 days’ average wage* for each year of continuous service. The employer must contribute at least the statutory minimum funding amount every year to the pension provider. The accumulated funds are managed by the employer. At retirement, the benefits must be transferred within 14 days to the employee’s designated Individual Retirement Pension (IRP) account, and the employee may receive the payment either as a pension or as a lump-sum.
*For more details on the average wage, see our article here.
• Defined Contribution (DC) Plan
Under a DC plan, the employer’s annual contribution amount is predetermined. The employer must contribute one-twelfth of the employee’s annual total wages to the employee’s DC account maintained with the pension provider. Employees are responsible for managing and investing their account balance. At retirement, the accumulated balance must be transferred within 14 days to the employee’s designated IRP account, and the employee may receive the payment either as a pension or as a lump-sum.
Lump-Sum Severance Pay
If an employer does not operate a retirement pension plan, it must pay retirement benefits as a lump-sum cash payment. The amount is at least 30 days’ average wage for each year of continuous service.
Severance pay must be paid within 14 days after termination of employment, although the payment date may be extended by agreement between the employer and the employee.
Like wages, severance pay cannot be unilaterally offset by the employer against any damages or other claims it may have against the employee.
Frequently Asked Questions
Who is entitled to severance pay in Korea?
Employees who have completed at least one year of continuous service and whose contractual working hours average at least 15 hours per week over a four-week period are entitled to statutory severance pay upon termination of employment.
Is an employee dismissed for serious misconduct still entitled to severance pay?
Yes. In principle, entitlement to statutory severance pay does not depend on the reason for termination. An employee who meets the statutory eligibility requirements is entitled to severance pay even if they are dismissed for serious misconduct.
How is severance pay calculated in Korea?
Statutory severance pay is calculated based on at least 30 days’ average wage for each year of continuous service. Average wage is calculated based on the wages paid during the three months immediately preceding termination. *For more details on the average wage, see our article here.
When must severance pay be paid?
Severance pay must be paid within 14 days from the date of termination. The payment date may be extended by agreement between the employer and the employee.
Are employees with less than one year of service entitled to severance pay?
No. Employees with less than one year of continuous service are excluded from the statutory retirement benefit system.
Can an employer deduct money owed by the employee from severance pay?
As a general rule, an employer cannot unilaterally offset severance pay against damages or other claims it may have against the employee.
Employer Takeaways
In Korea, retirement benefits are a statutory entitlement, and failure to properly establish or operate a retirement benefit scheme may lead to legal and financial liability. Employers should ensure that their retirement pension or severance pay systems comply with all regulatory requirements.
For assistance with compliance related to retirement benefit systems under Korean labor law, please contact us.
Statutory Requirements and Employer Responsibilities
Under Korean labor law, employees who have completed at least one year of continuous service are entitled to statutory retirement benefits upon termination of employment, regardless of the reason for termination. The entitlement applies to individuals who qualify as employees under the Labor Standards Act and whose contractual working hours average at least 15 hours per week.
Statutory retirement benefits may be provided through a retirement pension plan or a lump-sum severance pay system.
Under the Act on the Guarantee of Employees’ Retirement Benefits, companies are required to implement a retirement pension plan. Although there are currently no sanctions for failing to do so, this may change under forthcoming regulatory amendments.
(※ Note: A company that does not adopt a retirement pension plan is deemed to operate a lump-sum severance pay system.)
To implement a retirement pension plan, the employer must obtain the consent of the employees’ representative (or hear their opinion, depending on the case), prepare the rules for the retirement pension plan containing the statutory provisions, and file them with the Ministry of Employment and Labor.
There are 2 main types of pension plans — Defined Benefit (DB) and Defined Contribution (DC) — and labor and management may choose which type to adopt. It is also possible to adopt both and allow employees to choose individually. Employers must provide annual training to employees on the operation of the retirement pension plan.
Under a DB plan, the amount the employee will receive at retirement is predetermined. The amount is the same as that under the lump-sum severance pay system: 30 days’ average wage* for each year of continuous service. The employer must contribute at least the statutory minimum funding amount every year to the pension provider. The accumulated funds are managed by the employer. At retirement, the benefits must be transferred within 14 days to the employee’s designated Individual Retirement Pension (IRP) account, and the employee may receive the payment either as a pension or as a lump-sum. *For more details on the average wage, see our article here.
Under a DC plan, the employer’s annual contribution amount is predetermined. The employer must contribute one-twelfth of the employee’s annual total wages to the employee’s DC account maintained with the pension provider. Employees are responsible for managing and investing their account balance. At retirement, the accumulated balance must be transferred within 14 days to the employee’s designated IRP account, and the employee may receive the payment either as a pension or as a lump-sum.
If an employer does not operate a retirement pension plan, it must pay retirement benefits as a lump-sum cash payment. The amount is at least 30 days’ average wage for each year of continuous service.
Severance pay must be paid within 14 days after termination of employment, although the payment date may be extended by agreement between the employer and the employee.
Like wages, severance pay cannot be unilaterally offset by the employer against any damages or other claims it may have against the employee.
Who is entitled to severance pay in Korea?
Employees who have completed at least one year of continuous service and whose contractual working hours average at least 15 hours per week over a four-week period are entitled to statutory severance pay upon termination of employment.
Is an employee dismissed for serious misconduct still entitled to severance pay?
Yes. In principle, entitlement to statutory severance pay does not depend on the reason for termination. An employee who meets the statutory eligibility requirements is entitled to severance pay even if they are dismissed for serious misconduct.
How is severance pay calculated in Korea?
Statutory severance pay is calculated based on at least 30 days’ average wage for each year of continuous service. Average wage is calculated based on the wages paid during the three months immediately preceding termination. *For more details on the average wage, see our article here.
When must severance pay be paid?
Severance pay must be paid within 14 days from the date of termination. The payment date may be extended by agreement between the employer and the employee.
Are employees with less than one year of service entitled to severance pay?
No. Employees with less than one year of continuous service are excluded from the statutory retirement benefit system.
Can an employer deduct money owed by the employee from severance pay?
As a general rule, an employer cannot unilaterally offset severance pay against damages or other claims it may have against the employee.
In Korea, retirement benefits are a statutory entitlement, and failure to properly establish or operate a retirement benefit scheme may lead to legal and financial liability. Employers should ensure that their retirement pension or severance pay systems comply with all regulatory requirements.
For assistance with compliance related to retirement benefit systems under Korean labor law, please contact us.
