How to Calculate Korean Severance Pay: Step-by-Step Guide

Master Your Korean Severance Pay (퇴직금) Calculation

Moving on to a new professional adventure is exciting! If you have been working in South Korea, one of the most important financial cushions you are entitled to is Severance Pay (퇴직금 - Toejikgeum). Under the Korean Labor Standards Act, employers must provide severance pay to departing employees who meet certain criteria.

While online calculators are incredibly convenient, learning how to calculate this by hand empowers you to double-check your employer's math and ensure you receive every single Won you deserve. Let's walk through this calculation together, step-by-step, with friendly explanations and real-world numbers!

Prerequisites: Who is Eligible?

Before we dive into the math, let's make sure you qualify. Under Korean labor law, you are eligible for severance pay if you meet both of these conditions:

1. Continuous Service: You have worked for the same employer for at least one full year (365 days).
2. Weekly Hours: You worked an average of 15 hours or more per week over any 4-week period.

If you meet these two rules, you are legally entitled to severance pay—regardless of your nationality, visa type, or whether you resigned or were dismissed.

The Core Severance Pay Formula

The fundamental formula for calculating Korean severance pay is:

�KBLK0�

At first glance, this might look complicated, but it is actually quite elegant! It essentially guarantees you roughly one month's worth of average salary for every full year you worked.

To solve this equation, we need to find two key variables: your Total Days of Service and your Average Daily Wage.

Step-by-Step Worked Example

Let's calculate the severance pay for a fictional employee, Sarah.

• Sarah's Start Date: March 1, 2022
• Sarah's End Date (Last Day of Work): February 29, 2024
• Sarah's Monthly Base Salary: 3,500,000 KRW
• Annual Bonus Received in the Last Year: 2,400,000 KRW

Step 1: Calculate Total Days of Service

First, count the exact number of calendar days from Sarah's start date to her last day of work.

• From March 1, 2022, to February 29, 2024, is exactly 730 days (2 full years, including the leap day in 2024).

Step 2: Determine the Last 3 Calendar Months

Your Average Daily Wage is calculated using only the wages earned in the last 3 full calendar months before your departure. Since Sarah's last day was February 29, her last three calendar months are:

• December (31 days)
• January (31 days)
• February (29 days)
• Total days in this period: �KINL5�

Step 3: Calculate the Total Wages for the Last 3 Months

We must sum Sarah's base salary for these 3 months and add a pro-rated portion of her annual bonus.

• Base Salary (3 months): �KINL6�
• Pro-rated Bonus: Annual bonuses must be divided by 12 and multiplied by 3 to reflect a 3-month portion. �KBLK1�
• Total Wages for the Period: �KINL7�

Step 4: Calculate the Average Daily Wage

Now, divide her total wages by the total calendar days in those 3 months: �KBLK2�

Step 5: Apply the Final Severance Formula

Now, we plug our numbers into the main formula: �KBLK3� �KBLK4�

Sarah's estimated pre-tax severance pay is 7,318,681 KRW!

Common Mistakes to Avoid

• Using a flat 90 days for the 3-month period: Always use the actual calendar days (which could be 89, 90, 91, or 92 days depending on the months involved).
• Forgetting bonuses and unused annual leave: Regular bonuses and payouts for unused annual leave days from the past year must be pro-rated and added to your 3-month wage total.
• Assuming Severance is Tax-Free: Severance pay is subject to a specific Retirement Income Tax (퇴직소득세), which is usually withheld by your employer before they deposit the money into your account.

When to Use an Online Calculator

While doing this by hand is a fantastic way to understand the mechanics of your pay, using a dedicated Korean Severance Pay Calculator is highly recommended for the final run. Calculators instantly handle leap years, precise calendar day counts, and complex pro-rated bonus distributions without any risk of manual math errors!