# Korean Severance Pay Calculator

> Calculate severance pay based on work period and average wages.

## What is this calculator?

The Korean Severance Pay Calculator estimates the severance pay you are legally entitled to receive under Korean labor law when you leave your job. Severance pay is one of the most important worker protections in South Korea, established under Article 34 of the Labor Standards Act. Any employee who has worked continuously for one year or more at a company — regardless of the reason for separation, whether resignation, termination, or retirement — is entitled to receive severance pay. This applies to all businesses with one or more employees, including part-time workers who meet the threshold of working 15 hours or more per week on average. The severance pay system was introduced to provide financial security during the transition period between jobs and has been a cornerstone of Korean labor policy for decades. Since 2012, the system has been partially integrated with the retirement pension system (DC and DB plans), but traditional severance pay remains the default for companies that have not adopted a pension plan. This calculator takes into account your base salary, regular bonuses, and unused annual leave allowance to compute the legally mandated minimum severance payment.

## How to use

Step 1: Select your employment start date. This is the first day you began working at the company. If you had a probationary period, include it — probation counts toward your employment duration for severance purposes.

Step 2: Select your employment end date. This is your last working day or the date your employment officially ends.

Step 3: Enter your monthly base pay before tax. This should be your regular monthly salary excluding irregular bonuses. Include fixed allowances that are paid every month (such as position allowance, technical allowance, etc.) as these are considered part of regular wages.

Step 4: Enter your total annual bonus amount. Include only bonuses that are paid regularly and uniformly to all employees (e.g., quarterly bonuses, holiday bonuses that are contractually guaranteed). Performance-based discretionary bonuses that vary by individual may not be included in the legal severance calculation.

Step 5: Enter your annual leave allowance amount. This is the monetary value of unused annual leave days that would be paid out upon separation. If your company pays out unused leave, include the total value here.

Step 6: Click Calculate to see your total work period, average daily wage, and estimated severance pay. The calculator will show the detailed breakdown of how the average daily wage was computed.

## How it's calculated

Severance pay is calculated according to Article 34 of the Korean Labor Standards Act using the following formula:

Severance Pay = Average Daily Wage x 30 days x (Total Calendar Days of Employment / 365)

The average daily wage is the critical component and is calculated based on total wages earned during the last 3 months before the date of separation:

3-Month Base Pay = Monthly Base Pay x 3
Prorated Bonus = Annual Bonus x (3/12)
Prorated Leave Allowance = Annual Leave Allowance x (3/12)
Total 3-Month Wages = 3-Month Base Pay + Prorated Bonus + Prorated Leave Allowance

Average Daily Wage = Total 3-Month Wages / Number of Calendar Days in the Last 3 Months (approximately 89-92 days depending on the months)

Important rules regarding the average daily wage:
- If the calculated average daily wage is less than the ordinary wage, the ordinary wage must be used instead, as per the Labor Standards Act
- The 3-month period is counted backward from the day before the separation date
- Calendar days (not working days) are used as the denominator

Example Calculation:
- Employment: January 1, 2023 to December 31, 2025 (3 years = 1,095 days)
- Monthly Base Pay: 3,000,000 KRW
- Annual Bonus: 6,000,000 KRW
- Annual Leave Allowance: 1,200,000 KRW

3-Month Total = (3,000,000 x 3) + (6,000,000 x 3/12) + (1,200,000 x 3/12) = 9,000,000 + 1,500,000 + 300,000 = 10,800,000 KRW
Average Daily Wage = 10,800,000 / 92 = 117,391 KRW
Severance Pay = 117,391 x 30 x (1,095/365) = 117,391 x 30 x 3 = 10,565,190 KRW

## Useful tips

Payment Deadline and Penalties: Your employer must pay severance within 14 days of your separation date. If payment is delayed beyond this period, the employer is liable for a penalty interest rate of 20% per annum on the unpaid amount. If you encounter payment delays, you can file a complaint with the local Labor Office.

Tax Treatment: Severance pay is classified as retirement income and taxed separately from regular income. The retirement income tax formula provides generous deductions based on years of service — the longer you worked, the lower your effective tax rate on severance. For example, someone who worked 10 years may pay an effective tax rate of only 2-5% on their severance pay, compared to much higher marginal rates on regular salary.

Interim Severance Settlement: Before July 2012, employees could request interim (mid-employment) severance settlements freely. Since the 2012 revision, interim settlements are only allowed under specific qualifying circumstances: purchasing a home, paying for medical expenses exceeding 1 year of wages, bankruptcy of the employer, or natural disaster damage. If you received an interim settlement, your severance is recalculated from the settlement date forward.

Retirement Pension vs. Severance: Many companies now offer retirement pension plans (DB or DC type) as an alternative to traditional severance. Under a DB (Defined Benefit) plan, the calculation is similar to traditional severance. Under a DC (Defined Contribution) plan, the employer contributes at least 1/12 of annual wages to your pension account each year, and the accumulated balance (including investment returns) becomes your severance. Compare carefully when your company offers a choice.

Part-time and Contract Workers: Part-time employees who work 15 or more hours per week on average are entitled to severance pay proportional to their working hours. Fixed-term contract workers who work continuously for one year or more are also entitled. Do not let employers claim otherwise.

## Frequently Asked Questions

### Q. When does severance pay become applicable?

Under Korean labor law (Article 34 of the Labor Standards Act), severance pay is owed to any employee who has worked continuously for one year or more at the same employer. The one-year threshold refers to the actual duration of the employment relationship, measured in calendar days, not working days. Importantly, probationary periods are included in this calculation, as are periods of approved leave (sick leave, maternity leave). Even if you are terminated for cause, you are still entitled to severance pay as long as you completed at least one year of continuous service. Part-time workers who average 15 or more hours per week also qualify.

### Q. Are bonuses and leave allowance included in severance?

Yes, bonuses that are paid regularly and uniformly to all employees are included in the average wage calculation for severance pay. This includes contractually guaranteed bonuses such as quarterly bonuses, holiday bonuses, and year-end bonuses that are fixed amounts. However, discretionary performance bonuses that vary by individual assessment and are not guaranteed may be excluded. Similarly, the monetary value of unused annual leave (annual leave allowance) is included in the calculation. The bonus and leave amounts are prorated to a 3-month period by multiplying by 3/12.

### Q. What happens if I received interim severance?

If you received an interim (mid-employment) severance settlement, your employment period for severance calculation effectively resets from the date of that settlement. When you eventually leave the company, your severance pay will be calculated based only on the period after the most recent interim settlement, using the wages during the final 3 months of employment. Note that since July 2012, interim severance settlements have been legally restricted to specific qualifying circumstances: purchasing a home that you will live in, paying for long-term medical treatment, experiencing bankruptcy or court-ordered restructuring of the employer, or recovering from natural disaster damage. Requesting interim settlement outside these conditions is not legally valid.

### Q. Can I receive severance pay if I resign voluntarily?

Absolutely yes. Severance pay in Korea is a statutory right that does not depend on the reason for separation. Whether you resign voluntarily, are laid off due to company restructuring, are terminated for cause, or retire at the end of your career, you are entitled to the full severance amount as long as you worked continuously for at least one year. The only scenario where severance may not apply is if you worked less than one year or averaged fewer than 15 hours per week. Your employer cannot withhold severance or reduce the amount based on the circumstances of your departure.

### Q. How is severance pay taxed?

Severance pay is classified as retirement income under Korean tax law and receives favorable tax treatment compared to regular salary income. The tax calculation involves several deductions: first, a retirement income deduction based on your years of service (longer service = larger deduction), then a further deduction based on the net retirement income amount. The resulting taxable retirement income is then taxed using a formula that averages the income over your years of service to prevent bracket creep. In practice, for someone who worked 5-10 years, the effective tax rate on severance is typically between 2% and 6%, significantly lower than marginal income tax rates. Your employer will withhold the tax before paying the severance.