Korean Severance Pay Calculator

For global enterprises and local business owners operating in South Korea, managing human resource liabilities requires a precise understanding of the statutory severance pay system, known locally as Teojikgeum (퇴직금). Regulated under the Act on the Guarantee of Workers' Retirement Benefits, this mandate requires employers to provide a lump-sum retirement payment to departing workers who have completed at least one year of continuous service with a weekly schedule of 15 hours or more. Unlike many Western jurisdictions where severance is triggered primarily by involuntary layoffs, South Korea enforces this benefit for all departures—including voluntary resignations, retirement, or contract expirations. This creates a continuous, compounding balance sheet liability that finance departments must accurately project and fund. The financial exposure is directly tied to the employee's average wage (Pyeonggyun Imgeum) during their final 90 days of employment, multiplied by their total years of service. This average wage calculation is highly comprehensive, encompassing not only the base salary but also overtime, performance bonuses, and unused annual leave payouts. Consequently, a sudden increase in production hours or year-end bonus distributions immediately prior to an employee's departure can disproportionately escalate the company's cash payout obligation. For CFOs and financial analysts, tracking these accruals is critical to preventing sudden cash flow shocks and maintaining accurate quarterly balance sheet provisions. From a tax compliance perspective, the Korean National Tax Service (NTS) subjects retirement income to a distinct tax regime separate from standard global income tax. The system applies progressive tax-deductible allowances based on the worker's tenure (Service Deduction) and includes a 50% flat deduction on the remaining balance, designed to minimize the tax burden on long-term workers. Employers act as withholding agents, meaning payroll teams must accurately calculate, withhold, and report these taxes within 14 days of termination. Utilizing Calkulon's calculator enables corporate finance teams to instantly run scenario analyses, reconcile payroll audits, and advise departing executives on tax-optimized structured exits, such as rolling funds into an Individual Retirement Pension (IRP) account.

Calkulon makes complex calculations simple — built for students and everyday problem-solvers.

1. 1Determine the total compensation paid during the 3 calendar months immediately preceding the employee's departure date, ensuring the inclusion of prorated annual bonuses (1/12 of annual total) and unused vacation allowances.
2. 2Divide this total compensation by the exact number of calendar days in that 3-month period (typically 89 to 92 days) to establish the Average Daily Wage.
3. 3Multiply the Average Daily Wage by 30 to determine the statutory monthly equivalent wage base.
4. 4Calculate the gross severance obligation by multiplying this monthly equivalent base by the employee's exact years of continuous service (expressed as a decimal to account for partial years).
5. 5Determine the statutory Retirement Income Service Deduction based on the employee's tenure bracket to reduce the taxable base.
6. 6Apply the 50% retirement income tax reduction to the net taxable base (Gross Severance minus Service Deduction).
7. 7Calculate the final progressive retirement income tax and local income tax, deduct these from the gross amount, and disburse the net severance to the employee within the statutory 14-day window.

• !Omission of the prorated 1/12 share of annual bonuses and vacation payouts from the 3-month average wage baseline, leading to statutory underpayment and potential labor disputes.
• !Failing to accrue severance liabilities for part-time employees who average more than 15 hours per week, mistakenly assuming only full-time staff qualify.
• !Neglecting to process and disburse the final severance payment within the strict 14-day statutory window, incurring an automatic 20% annual interest penalty.
• !Unilaterally offsetting employee business debts or corporate card balances against the severance payout without obtaining explicit, legally binding written consent.
• !Using the standard average wage when it falls below the ordinary wage, violating the statutory floor guaranteed by the Labor Standards Act.