Severance Pay in Korea for Foreign Workers (2026): The 1-Year Rule, the Formula, Retirement Income Tax, and the E-9 Departure Insurance

Korea's severance pay (퇴직금, toejikgeum) is the most generous of its labour rules and the one foreigners most often lose. It is not a bonus and not conditional on good behaviour: every employee who works one year or more, at 15 or more hours a week, is owed 30 days of average wages for every year of service when the job ends, whatever the reason and whatever the visa. On a ₩3M monthly salary, a three-year contract ends with a cheque of about ₩9M — roughly a tenth of everything you earned.

Who is entitled

The Act on the Guarantee of Employees' Retirement Benefits applies to every workplace with at least one employee, since December 2010 including businesses with fewer than five staff. The conditions are two: one year of continuous service and 15 or more hours a week averaged over four weeks. Nationality and visa are irrelevant — E-2 teachers, E-7 engineers, E-9 factory workers, F-6 spouses on part-time contracts, D-2 students on a 20-hour job all qualify once they pass the year mark.

"Continuous" is the word employers play with. Renewing a one-year contract does not reset the clock. Being made to sign as a "new" employee after a one-day gap does not reset it either, if the work in fact continued. A three-month probation counts. Unpaid leave generally counts as service. What does break continuity is an actual resignation followed by re-hiring after a real gap, or a transfer to a different legal employer.

The formula

Severance = average daily wage × 30 × (days of service ÷ 365).

The average wage (평균임금) is the total pay of the three months before you left — base, overtime, allowances, everything taxable or not — divided by the number of calendar days in those months (89–92). Annual bonuses and unused-leave pay are added at 3/12 of what was paid in the last year. If the result is lower than your ordinary wage (통상임금, the fixed contractual pay per day) — because you were on reduced hours or unpaid leave before leaving — the ordinary wage is used instead. Our Korean-language sister page on ordinary wage explains the 2024 Supreme Court change that pulled most fixed bonuses into it.

An employee who earned ₩3.2M a month for exactly three years therefore gets about ₩3.2M × 3 = ₩9.6M — the "one month per year" rule of thumb, slightly adjusted for the 30-day versus calendar-month difference.

Payment is due within 14 days of the last working day. Companies with a retirement pension plan (DB or DC, 퇴직연금) pay through it: in a DC plan the money has been accumulating in your name at 1/12 of annual pay per year and you get the balance, which can be more or less than the formula depending on the investment returns. Since April 2022 severance above ₩3M for employees under 55 is transferred to an IRP account rather than paid in cash; a departing foreigner can then withdraw the IRP in full (Part 14 covers the mechanics, and Part 7 of our investing course the tax).

Retirement income tax

Severance is not salary. It is retirement income, taxed on its own with two deductions that make the effective rate low for short service: a service-year deduction (₩1M per year for the first five years, ₩2M per year for years 6–10, ₩2.5M for 11–20) and a conversion deduction applied after the amount is annualised over your service years. The remaining amount is run through the normal 6–45% brackets, divided back by 12 and multiplied by the years. For three years and ₩9.6M the tax is roughly ₩100,000; for ten years and ₩50M it is around ₩1.2M. The calculator shows the exact steps.

Two things do not affect it: the 19% flat rate (retirement income is outside it), and your residency status — a non-resident's Korean severance is taxed the same way at source.

E-9 and H-2 workers: the departure guarantee insurance

Employers of E-9 and H-2 workers with five or more staff do not pay severance directly. Instead they pay 8.3% of monthly ordinary wage into a departure guarantee insurance (출국만기보험) with Samsung Fire under the EPS system. When the worker leaves Korea, the insurer pays out the accumulated amount — at the airport counter or into a home-country account within 14 days of departure. Because 8.3% of ordinary wage over the years often comes to less than the statutory formula (overtime and bonuses are excluded from the base), the employer must top up the difference when the worker leaves; ask the EPS centre to calculate it. The claim window is three years.

A related product, the return-cost insurance (귀국비용보험, ₩400,000–600,000 depending on nationality, paid by the worker in the first months), is refunded on departure as well.

When it is not paid

Unpaid severance is the single most common labour complaint by foreign workers. The remedy is administrative, free and does not require a lawyer: file a jinjeong (진정) at the regional Labour Office (고용노동청) with your contract, payslips and bank records. The office summons the employer, calculates the amount, and if it is not paid, refers the case for prosecution — employers pay in most cases at that stage. Interest of 20% a year runs from the 15th day. The Ministry's counselling line 1350 has English, Chinese, Vietnamese and other languages, and the Foreign Workers Support Centres (외국인노동자지원센터) help with the paperwork.

If the company has gone bankrupt, the state pays severance up to a ceiling through the Wage Claim Guarantee Fund (체당금), which covers the last three years of unpaid severance. Your visa status does not affect the claim; you can even file after leaving Korea through a representative.

Severance arrives when a job ends. Health insurance is the deduction that keeps going whether you work or not — and for foreigners it has a minimum premium and a visa-renewal sting. That is the next part.