Severance Pay in Korea: What the 2025 Ordinary Wage Ruling Changes

If you work in South Korea, understanding severance pay (퇴직금, toejikgeum) is essential. Under the Employee Retirement Benefit Security Act (근로자퇴직급여보장법), every employee who has worked continuously for one year or more and averaged 15+ hours per week is legally entitled to severance pay. The 2025 Supreme Court ruling on ordinary wages (통상임금) has significantly expanded what counts toward severance calculations.

Who Qualifies for Severance Pay?

All employees meeting these criteria are entitled to severance pay:

• Continuous employment of 1+ year
• Working 15+ hours per week (averaged over 4 weeks)
• Applies to full-time, contract, and part-time workers

Even part-time workers and contract employees qualify if they meet these thresholds — a fact many workers in Korea are unaware of.

The Severance Pay Formula

The basic calculation is straightforward:

Severance = Average Daily Wage × 30 days × Years of Service

Calculating Average Daily Wage

The average daily wage is determined by dividing total wages earned in the 3 months before resignation by the total calendar days in that period.

Component	Calculation
Total wages (last 3 months)	Base salary + allowances + prorated bonuses
Total calendar days	Usually 89–92 days
Average daily wage	Total wages ÷ total days

Example Calculation

• Monthly base salary: ₩3,000,000
• Regular bonus: ₩6,000,000/year (₩500,000/month prorated)
• Meal/transport allowance: ₩200,000/month
• Years of service: 5

Total wages (3 months) = (3,000,000 + 500,000 + 200,000) × 3 = ₩11,100,000
Average daily wage = 11,100,000 ÷ 91 ≒ ₩121,978
Severance = 121,978 × 30 × 5 = ₩18,296,700

The 2025 Supreme Court Ordinary Wage Ruling

The 2025 Supreme Court en banc decision dramatically expanded the definition of ordinary wages (통상임금), which directly affects severance pay calculations.

Before vs. After the Ruling

Category	Before	After
Regular bonuses	Conditionally included	Included by default
Fixed allowances	Some excluded	Most included
Welfare benefits	Mostly excluded	Included if regular

The ruling's core principle: any payment made regularly and consistently is part of ordinary wages. Since severance pay is calculated from average wages (which include ordinary wages), this ruling can increase severance amounts by 20–30% or more for employees at companies that previously excluded bonuses from calculations.

Payment Deadline

• Severance must be paid within 14 days of the last working day
• Extension possible only by mutual agreement
• Late payment incurs 20% annual penalty interest

If your employer fails to pay within 14 days, you can file a complaint with the Ministry of Employment and Labor (call 1350 in Korea).

Mid-Career Withdrawal (중간정산)

Unlike some countries, Korea allows early withdrawal of severance only under specific legally defined circumstances:

1. Purchasing a home (for non-homeowners)
2. Medical treatment lasting 6+ months for employee, spouse, or dependents
3. Bankruptcy or personal rehabilitation within the past 5 years
4. Natural disasters
5. Salary peak system application

You cannot withdraw severance for general living expenses or investment purposes.

Retirement Income Tax

Severance pay is subject to retirement income tax (퇴직소득세), but service-year deductions reduce the burden:

Years of Service	Deduction
Up to 5 years	₩300,000 × years
6–10 years	₩1,500,000 + ₩500,000 × (years − 5)
11–20 years	₩4,000,000 + ₩800,000 × (years − 10)
20+ years	₩12,000,000 + ₩1,200,000 × (years − 20)

Ministry of Employment Calculator

The Ministry of Employment and Labor provides a free online severance calculator. Enter your start date, end date, and average monthly wage to get an instant estimate.

Sharing Employment Records Securely

During the severance settlement process, you often need to share sensitive employment documents — pay stubs, employment contracts, severance calculation worksheets — with labor attorneys or advisors. Sending these via iMessage or email leaves permanent records that could be compromised.

LOCK.PUB lets you create password-protected links for sharing these sensitive documents. Set an expiration period so access is automatically revoked after a specified time, adding an extra layer of security.

Pre-Resignation Checklist

1. Review all wage components in your employment contract
2. Verify whether regular bonuses are included in ordinary wage calculations
3. Use the Ministry of Employment calculator for an estimate
4. Confirm the 14-day payment deadline with HR
5. Estimate your retirement income tax
6. Store and share employment documents securely using LOCK.PUB

Conclusion

Severance pay is not a courtesy — it's a legally guaranteed right for workers in Korea. The 2025 ordinary wage ruling means many employees are entitled to significantly more than they might expect. Calculate your severance accurately, know your rights, and use secure tools like LOCK.PUB to protect your employment records throughout the process.