퇴직금 (退職金) is one of the most misunderstood parts of Korean employment — and one of the most valuable. A foreign worker who spent three years at a Korean company can walk away with the equivalent of an extra three months’ salary. Yet many foreigners leave Korea without ever claiming it, either because they didn’t know it existed or didn’t know they qualified.
This covers the legal basis, who qualifies, how to calculate the amount, and how to actually collect it.
1. What Is 퇴직금?
퇴직금 is a statutory severance payment required by the Employee Retirement Benefit Security Act (근로자퇴직급여보장법). It’s not a bonus or a contractual extra — it’s a legal entitlement for virtually every employee in Korea who meets the basic threshold.
The formula is simple: one month’s average wage for every year of continuous service. Work three years, receive three months’ average pay. Work five years, receive five months’. The employer must pay this within 14 days of your last working day.
This applies to all employees regardless of nationality. Your visa type (E-7, E-2, F-4, D-10, etc.) does not affect your severance pay entitlement.
2. Who Qualifies
Three conditions must all be met:
- Continuous employment of 1 year or more (계속근로기간 1년 이상)
- Average weekly hours of 15 or more (주 15시간 이상)
- Covered by the Labor Standards Act — applies to all private employers with 1+ employees
If you worked 11 months and resigned, you don’t qualify. If you worked part-time for 10 hours per week for 3 years, you don’t qualify. Both thresholds — 1 year and 15 hours/week — must be met simultaneously throughout the employment period.
Contract Type Doesn’t Matter
Both permanent (정규직) and fixed-term (계약직) employees qualify. Part-time (단시간 근로자) employees qualify if they work 15+ hours per week on average. The law does not distinguish between Korean and foreign nationals.
The Probation Period Counts
If your contract included a probation period (수습기간), those months count toward the 1-year threshold. A 3-month probation followed by 9 months of regular employment = 1 year qualifying period.
3. How to Calculate Your 퇴직금
Step 1: Calculate Your Average Daily Wage (평균임금)
Average daily wage = Total wages paid in the 3 months before resignation ÷ Total calendar days in those 3 months
“Total wages” includes base salary, regular allowances, bonuses paid in that period, and any other amounts included in your pay. It excludes non-recurring items like expense reimbursements.
Step 2: Calculate 퇴직금
퇴직금 = Average daily wage × 30 days × (Total employment period in days ÷ 365)
Practical Examples (2026)
| Monthly Salary | Employment Period | Estimated 퇴직금 |
|---|---|---|
| ₩3,500,000 | 1 year | ~₩3,500,000 |
| ₩3,500,000 | 3 years | ~₩10,500,000 |
| ₩5,000,000 | 3 years | ~₩15,000,000 |
| ₩5,000,000 | 5 years | ~₩25,000,000 |
| ₩7,000,000 | 5 years | ~₩35,000,000 |
These are approximate figures based on flat monthly salary. Actual calculation uses average daily wage × 30 × years. If your salary varied year-over-year, the 3-month average before departure is what matters — not your starting salary.
Free Official Calculator
The Ministry of Employment and Labor offers a free severance pay calculator at moel.go.kr. Enter your employment start/end dates, salary components, and it calculates the exact amount.
4. IRP Accounts and How Payment Works
Since 2022, employers with 10 or more employees are required to deposit severance pay into an Individual Retirement Pension (IRP / 개인형퇴직연금) account rather than paying it directly in cash.
What this means for you:
- You need to open an IRP account at any Korean bank or securities firm before your last working day
- Your employer deposits the 퇴직금 into the IRP
- You can then withdraw it as a lump sum (일시금 수령) — but this triggers income tax on the full amount
- Or leave it invested for retirement, which defers the tax
For foreigners leaving Korea permanently: You will almost certainly want the lump-sum withdrawal. When you withdraw, the IRP administrator withholds tax automatically. The rate is determined by the tax office, typically around 11–16.5% on the taxable portion (퇴직소득세), which is often lower than regular income tax due to the retirement income tax calculation method (연분연승법) that spreads the income notionally over your employment period.
Smaller employers (under 10 employees): May still pay directly to your bank account. The IRP requirement doesn’t apply to them.
5. The 14-Day Payment Deadline
Under Article 9 of the Employee Retirement Benefit Security Act, the employer must pay 퇴직금 within 14 days of the employment termination date. Failure to pay on time results in a late payment penalty of 20% annual interest on the unpaid amount — calculated from day 15 onward.
If your employer tries to delay payment: you can file a complaint with the Ministry of Employment and Labor immediately. The penalty interest is substantial enough that employers have a strong incentive to pay on time.
6. Resignation vs. Dismissal: Does It Matter?
No. Whether you resigned voluntarily or were dismissed, you are entitled to 퇴직금 if you meet the 1-year / 15-hours-per-week threshold. The law doesn’t differentiate.
However, if you were dismissed for cause (예: gross misconduct), the employer may attempt to reduce or withhold payment. This is only legally possible in very specific circumstances — the employer must prove the misconduct caused actual financial damage to the company. Ordinary dismissals, poor performance, or business restructuring do not reduce your 퇴직금 entitlement.
7. When Your Contract Was Renewed Multiple Times
If you worked at the same company on multiple consecutive fixed-term contracts, the employment periods are generally combined for 퇴직금 calculation — as long as there was no genuine break in employment between contracts.
A common employer tactic: inserting a 1-day gap between contract renewals to “reset” the clock. Courts have repeatedly struck this down when the gap was clearly artificial and the work relationship was continuous. If this happened to you, the combined tenure still applies for 퇴직금 purposes.
8. Tax on 퇴직금
퇴직금 is treated as 퇴직소득 (retirement income) under the Income Tax Act — not as ordinary earned income. The tax treatment is more favorable:
- A portion is exempt based on years of service
- The taxable amount is spread notionally over the employment period (연분연승법), reducing the effective rate
- The IRP administrator handles withholding — you receive the net amount after tax
For most mid-career foreign workers (3–5 years employment, ₩3–7M monthly salary), the effective tax rate on 퇴직금 is typically in the 5–15% range — much lower than the marginal income tax rate on regular salary.
US citizens note: 퇴직금 received as a lump sum is generally treated as ordinary income for US federal tax purposes, though the Korea-US tax treaty may provide some relief. Consult a US expat tax specialist if your 퇴직금 is substantial.
9. What to Do If Your Employer Refuses to Pay
If your employer doesn’t pay within 14 days of your last working day:
- Send a formal written demand (내용증명) by registered mail — this creates a legal record and starts the clock for criminal liability
- File a complaint with the Ministry of Employment and Labor (고용노동부) — moel.go.kr or call 1350; the district labor office will investigate
- Apply for a payment order (지급명령) through the court system — a relatively quick civil procedure for clear-cut unpaid wage claims
- File a criminal complaint — failure to pay 퇴직금 is a criminal offense under Article 44 of the Employee Retirement Benefit Security Act, punishable by up to 3 years imprisonment or ₩30 million fine
The criminal complaint route sounds extreme, but it’s commonly used in Korea and is often the fastest way to prompt payment from an uncooperative employer. The Ministry of Employment and Labor handles both civil and criminal complaints simultaneously.
10. 퇴직금 for Part-Time Workers
Part-time employees (단시간 근로자) who work 15 or more hours per week on average are entitled to the same 퇴직금 as full-time employees. The calculation uses the same average daily wage formula.
If your hours varied week to week — sometimes over 15, sometimes under — the test is the weekly average over the employment period. If the average exceeds 15 hours per week, you qualify.
Frequently Asked Questions
Q: I left Korea 6 months ago and didn’t receive my 퇴직금. Is it too late?
A: No. The statute of limitations for 퇴직금 claims is 3 years from when the payment was due. You can still file a complaint or civil claim within that period.
Q: My contract said I waive my right to 퇴직금. Is that valid?
A: No. Statutory rights under the Employee Retirement Benefit Security Act cannot be waived by contract. Any such clause is void. You are still entitled to full 퇴직금.
Q: I worked 11 months and was let go before the 1-year mark. Do I get anything?
A: Not as 퇴직금 — the 1-year threshold is strict. However, if your employer dismissed you specifically to avoid paying 퇴직금, that may constitute unfair dismissal, which has separate remedies through the Labor Relations Commission.
Q: My company went bankrupt. Can I still get my 퇴직금?
A: Wage arrears including 퇴직금 have priority status in bankruptcy proceedings. Additionally, the government’s Wage Claim Guarantee Fund (임금채권보장기금) can cover unpaid 퇴직금 up to certain limits when employers are insolvent. Apply through the Ministry of Employment and Labor.
Q: How do I open an IRP account if I’m leaving Korea?
A: Open one at any major Korean bank (Shinhan, KB, Woori, Hana, etc.) or online securities firm before your last working day. Bring your ARC and passport. The process takes 30–60 minutes in person. Online options are available but may require a Korean phone number and digital certificate.
Q: My employer wants to give me a “settlement agreement” instead of 퇴직금. Should I sign?
A: Be cautious. Settlement agreements (합의서) can legally waive your right to additional claims if the agreed amount fairly represents your entitlements. Never sign a settlement for less than your statutory 퇴직금 amount without consulting a labor attorney. Free legal consultation is available through the Korea Workers’ Compensation and Welfare Service (근로복지공단).
Q: Does severance pay affect my ability to claim NPS refund?
A: No. 퇴직금 and the NPS lump-sum refund (반환일시금) are separate systems. You can claim both.
Key Resources
- Ministry of Employment and Labor: moel.go.kr — complaint filing, 퇴직금 calculator
- 1350 Hotline: Ministry of Employment and Labor general inquiry
- Korea Workers’ Compensation and Welfare Service: kcomwel.or.kr — free legal consultation, wage arrears support
- Source: Employee Retirement Benefit Security Act (근로자퇴직급여보장법), Income Tax Act (소득세법)