Korea’s statutory severance pay is generally calculated using the formula: average daily wage × 30 days × total days of service ÷ 365.
However, the actual take-home amount may vary depending on severance income tax, years of service, and whether any interim settlement was previously paid.
Before leaving a job, employees should check the average wage calculation, bonus inclusion, legal conditions for interim settlement, and tax deduction structure.
Korean severance pay is calculated based on average wages and total days of service, not simply the final monthly salary.
1. Core Formula for Korea Severance Pay
The core of severance pay calculation in Korea is the average daily wage. This is generally calculated by dividing the total wage paid during the three months before retirement by the total number of calendar days in that period.
The standard formula used by Korea’s Ministry of Employment and Labor is average daily wage × 30 days × total days of service ÷ 365.
| Category | Calculation Basis | Key Checkpoint |
|---|---|---|
| Basic Formula | Average daily wage × 30 × service days ÷ 365 | 30 days of average wage per year |
| Average Wage | Total wages for previous 3 months ÷ total calendar days | Based on pre-tax wages |
| Service Days | From employment start date to retirement date | More accurate than rounded years |
| Eligibility | At least 1 year of continuous service | Weekly working hours also matter |
2. What Is Included in Average Wage?
One of the most common disputes is what should be included in the average wage. It is not limited to the basic monthly salary.
Regular and fixed allowances, certain bonuses, and unused annual leave allowance may be included depending on their nature and payment rules.
Severance pay is not calculated as “last monthly salary × years of service.” The key factors are the three-month average wage and total service days.
| Item | Inclusion Possibility | Important Note |
|---|---|---|
| Base Salary | Included | Main wage component |
| Fixed Allowances | May be included | Depends on regularity and uniformity |
| Bonus | May be partially reflected | Often converted into a 3-month portion |
| Annual Leave Pay | May be included | Depends on timing and entitlement |
| Meal/Transport Support | Case-by-case | Wage vs. reimbursement distinction |
3. Why Take-Home Severance Pay Can Differ
The gross severance amount and the actual amount deposited into the employee’s bank account are not the same.
Severance income tax and local income tax are deducted before payment. The tax burden is generally affected by the total severance amount and years of service.
| Category | Effect on Take-Home Amount | How to Check |
|---|---|---|
| Gross Severance | Pre-tax severance amount | Check company calculation sheet |
| Years of Service | Major factor in tax calculation | Confirm start and retirement dates |
| Severance Income Tax | Deducted before payment | Review National Tax Service method |
| Local Income Tax | Usually 10% of income tax | Included in final deduction |
4. Interim Settlement Is Not Always Allowed
In Korea, interim settlement of severance pay is generally restricted. Employees cannot receive it simply because they request it.
It is allowed only when specific legal conditions are met, such as home purchase by a non-homeowner, housing deposit needs, long-term medical care, personal rehabilitation, bankruptcy, or disaster damage.
Interim settlement is not automatically approved. A legal reason, supporting documents, and company procedures are usually required.
| Reason | Possible Condition | Example Documents |
|---|---|---|
| Home Purchase | Non-homeowner purchasing a home | Purchase contract, proof of non-homeownership |
| Housing Deposit | Residential lease deposit need | Lease agreement |
| Medical Care | Long-term care for employee or dependent | Medical certificate, treatment cost records |
| Rehabilitation | Court-approved personal rehabilitation | Court decision document |
| Disaster Damage | Damage caused by disaster | Proof of damage |
5. Documents to Check Before Leaving
Most severance disputes occur because the employee and company use different calculation assumptions.
Before leaving, employees should organize payslips, bonus records, unused annual leave pay, employment start date, and retirement date.
| Document | Purpose | Important Note |
|---|---|---|
| Payslips | Confirm 3-month wage total | Use pre-tax amount |
| Employment Contract | Identify wage components | Check allowance nature |
| Bonus Records | Check average wage inclusion | Regularity matters |
| Annual Leave Records | Confirm unused leave settlement | Check final payroll |
| Severance Statement | Review company calculation | Compare with official formula |
6. Example Severance Pay Calculation
Assume that the total wage paid during the three months before retirement is KRW 9,000,000 and the total calendar days in that period are 92 days. The average daily wage would be about KRW 97,826.
If the total service period is 1,825 days, or about five years, the estimated gross severance pay is calculated using KRW 97,826 × 30 × 1,825 ÷ 365.
| Item | Example Amount | Calculation |
|---|---|---|
| 3-Month Wages | KRW 9,000,000 | Pre-tax basis |
| Total Days | 92 days | Calendar days in 3 months |
| Average Daily Wage | Approx. KRW 97,826 | 9,000,000 ÷ 92 |
| Service Days | 1,825 days | Approx. 5 years |
| Estimated Severance | Approx. KRW 14,673,900 | Pre-tax amount |
7. How to Check If the Company Calculation Is Correct
If the severance amount provided by the company seems lower than expected, first check the calculation formula and wage components.
The most common issues are missing allowances, excluded bonus amounts, annual leave settlement errors, and incorrect service period calculation.
| Checkpoint | Possible Error | Response |
|---|---|---|
| Average Wage | Some allowances excluded | Compare with payslips |
| Bonus | Not reflected | Check payment rules |
| Annual Leave Pay | Omitted from settlement | Confirm unused leave balance |
| Service Days | Incorrect start/end date | Compare with contract |
| Tax | Confusion between gross and net amount | Review severance income tax |
This article is based on Korea’s Ministry of Employment and Labor severance pay calculator, the statutory severance pay calculation formula, the legal conditions for interim severance settlement under Korean retirement benefit rules, and the National Tax Service’s severance income tax calculation structure.
Key reference: Severance pay = average daily wage × 30 days × total days of service ÷ 365. Interim settlement is allowed only under legally prescribed reasons. Severance income tax is calculated based on severance amount, years of service deductions, and related tax rules.
Final Thoughts
Korea’s severance pay is not calculated simply by multiplying the final monthly salary by years of service.
The key factors are the average daily wage, total service days, bonus treatment, annual leave settlement, and tax deductions.
Before leaving a job, employees should compare the company’s calculation with the official formula and review the severance income tax structure to estimate the actual take-home amount.
VN BizLab Insight
This article is based on public materials from Korea’s Ministry of Employment and Labor, Korean legal information sources, and the National Tax Service. Actual severance pay may vary depending on employment contracts, wage components, company rules, and retirement date.