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Korean Severance Pay Calculator

Korea Severance Pay (퇴직금)

3-Month Average Wage (KRW)
Године стажа
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We're working on a comprehensive educational guide for the Korean Severance Pay Calculator in your language. The content below is shown in English.

What is Korean Severance Pay Calculator?

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The Korea Severance Pay (퇴직금) calculator helps employees and employers compute the mandatory lump-sum severance payment owed to qualifying employees upon separation. Korea's severance pay system — governed by the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여보장법) — entitles every worker who has been employed for at least one year and worked at least 15 hours per week to a severance payment upon leaving employment, regardless of the reason for departure (including resignation, dismissal, or contract expiry). The payment is calculated as 30 days of average wage per year of continuous service. Average wage is determined using the total wages (including basic salary, allowances, overtime pay, and 1/12 of annual bonuses and vacation pay) divided by 90 days (three calendar months immediately before the departure date). Continuous service means uninterrupted employment — workers who had breaks in service must separately calculate each continuous period. The severance pay is subject to significant tax deductions at source: the retirement income special deduction (퇴직소득공제) based on years of service reduces the taxable amount substantially, and only 50% of the remaining amount above the deduction is taxable — the same retirement income rules as Japan. Severance pay must be paid within 14 days of departure. Employers who subscribe to a retirement pension plan (DB or DC) satisfy their severance obligation through the pension system.

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Формула

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f(x)Average Wage = (3-month total wages including 1/12 bonuses and vacation pay) / 90 days; Severance Pay = Average Daily Wage × 30 × Years of Service; Taxable = max(0, Severance - Service Deduction) × 50%; Service Deduction = KRW 300K × min(years,5) + KRW 500K × min(years>5,5) + KRW 1,000K × years>10

Variable Legend

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SymbolImeЈединицаОпис
ServiceDeductionKRW 300K ×—KRW 300K × min(years,5) + KRW 500K × max(0,min(years,10)-5) + KRW 1M × max(0,years-10)
TaxableAmountmax—The initial principal amount or present value at the beginning of the calculation period, denominated in the applicable currency unit
RetirementTaxProgressive rate on—The annual interest rate or rate of return expressed as a decimal or percentage, representing the cost of borrowing or yield on investment over one year

How to Korean Severance Pay Calculator

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  1. 1Calculate the average daily wage: total wages paid in the last 3 months (including 1/12 of annual bonuses and vacation allowance) divided by 90.
  2. 2Multiply average daily wage by 30 to get one month's average wage.
  3. 3Multiply one month's average wage by years of continuous service to compute gross severance.
  4. 4For tax: apply the retirement income special deduction based on service years.
  5. 5Calculate taxable amount: (Gross Severance - Deduction) × 50%.
  6. 6Apply income tax and local tax on the taxable amount at progressive rates.
  7. 7Net severance = Gross Severance - Income Tax - Local Tax; must be paid within 14 days.

Worked Examples

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Example 1Employee with 5 years service, KRW 3M monthly
Given:5 years service, average monthly wage KRW 3,000,000
Резултат:Gross severance: KRW 3M × 5 = KRW 15,000,000; Service deduction: KRW 300K × 5 = KRW 1,500,000; Taxable: (KRW 15M - KRW 1.5M) × 50% = KRW 6,750,000; Tax: ~KRW 405,000; Net: ~KRW 14,595,000

5-year deduction and 50% inclusion make effective rate low

On KRW 15M severance after 5 years, the effective tax is only KRW 405K — an effective tax rate of 2.7%. The retirement income rules provide enormous tax efficiency.

Example 2Long-service employee, 20 years at KRW 5M
Given:20 years service, average monthly wage KRW 5,000,000
Резултат:Gross: KRW 5M × 20 = KRW 100M; Deduction: KRW 300K × 5 + KRW 500K × 5 + KRW 1,000K × 10 = KRW 14M; Taxable: (KRW 100M - KRW 14M) × 50% = KRW 43M; Tax at ~24% band: ~KRW 7M; Net: ~KRW 93M

Very large severance with relatively modest tax

KRW 100M severance for 20 years results in only KRW 7M in tax — a 7% effective rate. The retirement income system heavily rewards long-service employees.

Example 3Short service — exactly 1 year threshold
Given:1 year and 1 day service, average wage KRW 2,500,000
Резултат:Gross: KRW 2,500,000 × 1 = KRW 2,500,000; Deduction: KRW 300,000; Taxable: KRW 1,100,000; Tax: minimal; Net: ~KRW 2,400,000

Minimum 1 year required; any longer triggers proportional calculation

At exactly 1 year (365 days), the employee qualifies for the full 1-year severance. Service of less than 1 year entitles workers to no severance — a sharp cliff that makes just-under-1-year tenure very common in dismissal disputes.

Example 4IRP transfer for tax deferral
Given:Severance KRW 50M, employee under 55, transfers to IRP
Резултат:Tax deferred; severance invested tax-free in IRP until retirement; taxed at 3.3–5.5% pension rate when withdrawn

IRP transfer defers retirement tax to lower pension rate

Rolling severance into IRP defers the retirement income tax until actual pension withdrawal. At 45, deferring to age 60+ means 15+ years of tax-deferred compounding plus eventual taxation at 3.3–5.5% vs potentially higher lump-sum rates.

Real-World Applications

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Professionals in finance and lending use Korea Severance Pay as part of their standard analytical workflow to verify calculations, reduce arithmetic errors, and produce consistent results that can be documented, audited, and shared with colleagues, clients, or regulatory bodies for compliance purposes.

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University professors and instructors incorporate Korea Severance Pay into course materials, homework assignments, and exam preparation resources, allowing students to check manual calculations, build intuition about input-output relationships, and focus on conceptual understanding rather than arithmetic.

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Consultants and advisors use Korea Severance Pay to quickly model different scenarios during client meetings, enabling real-time exploration of what-if questions that would otherwise require returning to the office for detailed spreadsheet-based analysis and reporting.

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Individual users rely on Korea Severance Pay for personal planning decisions — comparing options, verifying quotes received from service providers, checking third-party calculations, and building confidence that the numbers behind an important decision have been computed correctly and consistently.

Special Cases

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Extreme input values

In practice, this edge case requires careful consideration because standard assumptions may not hold. When encountering this scenario in korea severance pay calculations, practitioners should verify boundary conditions, check for division-by-zero risks, and consider whether the model's assumptions remain valid under these extreme conditions.

Assumption violations

In practice, this edge case requires careful consideration because standard assumptions may not hold. When encountering this scenario in korea severance pay calculations, practitioners should verify boundary conditions, check for division-by-zero risks, and consider whether the model's assumptions remain valid under these extreme conditions.

Rounding and precision effects

In practice, this edge case requires careful consideration because standard assumptions may not hold. When encountering this scenario in korea severance pay calculations, practitioners should verify boundary conditions, check for division-by-zero risks, and consider whether the model's assumptions remain valid under these extreme conditions.

Korea Severance Pay Service Deduction Table

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Years of ServiceAnnual Deduction AmountCumulative Deduction Example
Year 1–5KRW 300,000 per year5 years: KRW 1,500,000
Year 6–10KRW 500,000 per year10 years: KRW 4,000,000
Year 11+KRW 1,000,000 per year20 years: KRW 14,000,000
30 years example1.5M + 2.5M + 20MKRW 24,000,000

Frequently Asked Questions

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Q

What is included in average wage calculation?

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Korea Severance Pay is a specialized calculation tool designed to help users compute and analyze key metrics in the finance and lending domain. It takes specific numeric inputs — typically drawn from real-world data such as measurements, rates, or quantities — and applies a validated mathematical formula to produce actionable results. The tool is valuable because it eliminates manual calculation errors, provides instant feedback when exploring different scenarios, and serves as both a decision-support instrument for professionals and a learning aid for students studying the underlying principles.

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How is the severance pay calculated in Korea?

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The severance pay in Korea is calculated based on the employee's average monthly wage and the number of years of service. The formula is: severance pay = average monthly wage * number of years of service * 30 days. For example, if an employee's average monthly wage is 3,000,000 KRW and they have worked for 5 years, their severance pay would be: 3,000,000 KRW * 5 * 30 days = 450,000,000 KRW.

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What is the minimum and maximum amount of severance pay in Korea?

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The minimum amount of severance pay in Korea is 30 days' worth of the employee's average monthly wage, and the maximum amount is 60 days' worth of the employee's average monthly wage for each year of service. However, the total severance pay cannot exceed 6 months' worth of the employee's average monthly wage for employees who have worked for less than 5 years, and 9 months' worth for employees who have worked for 5 years or more.

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Can an employer deduct any amount from the severance pay in Korea?

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Yes, an employer can deduct certain amounts from the severance pay in Korea, such as unpaid debts or damages caused by the employee. However, the deduction cannot exceed the amount of the severance pay, and the employer must obtain the employee's consent or a court order to make the deduction. The employer must also provide the employee with a detailed statement of the deduction and the reason for it.

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How does the severance pay system in Korea apply to foreign employees?

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The severance pay system in Korea applies to all employees who have worked in Korea for at least one year, regardless of their nationality. However, foreign employees may be subject to different tax rules and regulations, and may need to provide additional documentation to receive their severance pay. Foreign employees should consult with their employer or a tax professional to understand their specific situation and ensure they receive their severance pay correctly.

Common Mistakes to Avoid

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  • !Excluding annual bonuses from the average wage calculation — they must be included at 1/12 per month.
  • !Calculating service years in full years only — partial year service above the minimum rounds proportionally.
  • !Not paying within 14 days, unknowingly triggering the 20% delayed interest obligation.
  • !Confusing severance eligibility (all departures, 1 year minimum) with unemployment benefit eligibility (involuntary only).
  • !Not advising employees about IRP transfer option, leading to immediate higher taxation vs deferred lower pension rates.
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Pro Tip

Advise departing employees of the IRP rollover option for their severance. Employees who receive severance directly as cash pay retirement income tax immediately. Those who roll it into an IRP defer taxation until pension withdrawal — with rates as low as 3.3% at age 70+. For large severance payments, the IRP rollover can save hundreds of thousands to millions of KRW in tax.

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Did you know?

Korea's mandatory severance pay system is one of the oldest and most universal in Asia, dating from the 1953 Labour Standards Act. Unlike most countries where severance is reserved for involuntary redundancy, Korean law requires severance on all departures including voluntary resignation. This universal applicability was designed to ensure workers accumulated portable retirement savings regardless of how their employment ended — predating formal retirement pension systems by over 50 years.

📖Difficulty:Intermediate
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For informational purposes only. This tool does not constitute financial advice. Consult a qualified financial adviser before making investment or financial decisions.
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Reviewed August 2026
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