Introduction to the Severance Payment Under Korean Labor Law

We’ve been frequently asked about the Severance Payment under Korean labor law.  Basically, the severance payment is being regulated by the Guarantee of Workers’ Retirement Benefits Act(“GWRBA”), not by Labor Standard Act(“LSA”).  (Some Korean law related sites refer to LSA as it regulates the severance payment issue, but it is wrong)

GWRBA shall be applied to all businesses and workplaces regardless of the number of employees.  GWRBA provides for the minimum amount of severance payment which every employer would be required to pay to a retiring or resigning employee.

Having said the above, it is noted that under GWRBA basically an employee is entitled to receive severance payment at the rate of 30 days’ “average wage” for each “continuous year of service.”

When calculating the amount of “average wage”, base salary and other payments such as overtime payment, position allowance, incentive allowance paid to all employees to promote efficiency shall be included.  With respect to bonus payment, if paid irregularly and one-time out of company’s profit, it shall not be included.

Under the established court precedents, the “continuous year of service” means the period from the time of execution of an employment contract to the time of employment termination.”  If, however, an employee were absent from work for a certain period of time during the “continuous years of service”, such as taking a personal leave for study or serving in military, those non-employment periods would be excluded from “continuous years of service”.

We hope this to be of assistance to you.  If you have more questions on severance paymnet or any other Korean labor law related issues, please send an email to Mr. Wonil Chung (a Korean Licensed Attorneyt) at chungwi@nate.com or use Legal Consultstion page.