Calculate your estimated severance pay based on Korean Labor Standards Act
Under the Korean Employee Retirement Benefit Guarantee Act, severance pay is a lump sum paid to workers who have worked continuously for 1 year or more upon separation. It is an important system for ensuring retirement security.
Severance Pay = Daily Average Wage x 30 days x (Days of Service / 365). Daily average wage is the total wages paid during the 3 months before separation divided by the total number of days in that period.
Average Wage = Total wages received in 3 months before separation (A+B+C) / Total days in the 3-month period. This calculator automatically computes the actual number of days in the 3-month period based on the separation date.
Workers who have worked continuously for 1 year or more are eligible. The continuous service period runs from the start date to the separation date, and applies to workers working 15 hours or more per week.
Severance pay is triggered when a worker has continuously worked at the same workplace for 1 year or more and then separates. Any worker working 15 hours or more per week — full-time, contract, or part-time — is eligible. Workers with less than 1 year of service are not entitled to severance pay, and the continuous service period is calculated from the start date to the separation date.
Severance pay is calculated using the formula: Daily Average Wage × 30 days × (Days of Service ÷ 365). The daily average wage is the total wages paid during the 3 months before separation divided by the total number of days in that period. Bonuses and unused leave pay are also included in the average wage calculation, so enter those amounts for accurate results.
Interim severance settlement is generally restricted, but is allowed for specific legal reasons such as purchasing a home without existing property, paying jeonse (lease) deposits, or long-term medical care (6 months or more) for the worker or a family member. If interim settlement is received, severance pay is recalculated from that point forward rather than the entire employment period. The process may differ for workers enrolled in a DC-type retirement pension.
Severance pay is subject to severance income tax, which decreases as tenure increases. The tax is withheld at the time of payment and calculated using tenure deductions and converted-wage deductions. The larger the severance pay and the shorter the tenure, the higher the effective tax burden — consulting a tax professional before separation is recommended.
The severance pay system requires employers to pay eligible workers a lump sum proportional to their length of continuous service upon separation, under the Korean Employee Retirement Benefit Guarantee Act. It applies to all workers with one year or more of continuous service and must be paid within 14 days of separation. More companies are now switching to the corporate retirement pension system (DB or DC type).
Average wage is calculated by dividing the total wages paid during the 3 months before separation by the total number of days in that period. In addition to base pay, various allowances, bonuses (3/12 of annual total), and unused leave pay (3/12 of annual unused amount) are included. If the average wage falls below the ordinary wage, severance pay is calculated based on the ordinary wage.
Severance income tax is assessed separately from other income and calculated independently. It benefits from tenure deductions (KRW 300,000–1,500,000 per year of service) and converted-wage deductions that reduce the actual tax burden. Receiving severance pay into an IRP (Individual Retirement Pension) account allows tax payment to be deferred to the time of pension withdrawal, providing a tax-saving benefit.