Korea Severance Pay (퇴직금)
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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.
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
- 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.
- 2Multiply average daily wage by 30 to get one month's average wage.
- 3Multiply one month's average wage by years of continuous service to compute gross severance.
- 4For tax: apply the retirement income special deduction based on service years.
- 5Calculate taxable amount: (Gross Severance - Deduction) × 50%.
- 6Apply income tax and local tax on the taxable amount at progressive rates.
- 7Net severance = Gross Severance - Income Tax - Local Tax; must be paid within 14 days.
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.
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.
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.
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.
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.
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.
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.
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.
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.
| Years of Service | Annual Deduction Amount | Cumulative Deduction Example |
|---|---|---|
| Year 1–5 | KRW 300,000 per year | 5 years: KRW 1,500,000 |
| Year 6–10 | KRW 500,000 per year | 10 years: KRW 4,000,000 |
| Year 11+ | KRW 1,000,000 per year | 20 years: KRW 14,000,000 |
| 30 years example | 1.5M + 2.5M + 20M | KRW 24,000,000 |
Is severance pay mandatory in Korea?
In the context of Korea Severance Pay, this depends on the specific inputs, assumptions, and goals of the user. The underlying formula provides a deterministic relationship between inputs and output, but real-world application requires interpreting the result within the broader context of finance and lending practice. Professionals typically cross-reference calculator output with industry benchmarks, historical data, and regulatory requirements. For the most reliable results, ensure inputs are sourced from verified data, understand which assumptions the formula makes, and consider running multiple scenarios to bracket the range of likely outcomes.
What is included in average wage calculation?
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.
Can an employer substitute retirement pension for severance?
In the context of Korea Severance Pay, this depends on the specific inputs, assumptions, and goals of the user. The underlying formula provides a deterministic relationship between inputs and output, but real-world application requires interpreting the result within the broader context of finance and lending practice. Professionals typically cross-reference calculator output with industry benchmarks, historical data, and regulatory requirements. For the most reliable results, ensure inputs are sourced from verified data, understand which assumptions the formula makes, and consider running multiple scenarios to bracket the range of likely outcomes.
What happens if severance is not paid within 14 days?
In the context of Korea Severance Pay, this depends on the specific inputs, assumptions, and goals of the user. The underlying formula provides a deterministic relationship between inputs and output, but real-world application requires interpreting the result within the broader context of finance and lending practice. Professionals typically cross-reference calculator output with industry benchmarks, historical data, and regulatory requirements. For the most reliable results, ensure inputs are sourced from verified data, understand which assumptions the formula makes, and consider running multiple scenarios to bracket the range of likely outcomes.
Is severance taxable?
In the context of Korea Severance Pay, this depends on the specific inputs, assumptions, and goals of the user. The underlying formula provides a deterministic relationship between inputs and output, but real-world application requires interpreting the result within the broader context of finance and lending practice. Professionals typically cross-reference calculator output with industry benchmarks, historical data, and regulatory requirements. For the most reliable results, ensure inputs are sourced from verified data, understand which assumptions the formula makes, and consider running multiple scenarios to bracket the range of likely outcomes.
Can I receive severance if I resign voluntarily?
In the context of Korea Severance Pay, this depends on the specific inputs, assumptions, and goals of the user. The underlying formula provides a deterministic relationship between inputs and output, but real-world application requires interpreting the result within the broader context of finance and lending practice. Professionals typically cross-reference calculator output with industry benchmarks, historical data, and regulatory requirements. For the most reliable results, ensure inputs are sourced from verified data, understand which assumptions the formula makes, and consider running multiple scenarios to bracket the range of likely outcomes.
What is the difference between severance and redundancy pay?
In the context of Korea Severance Pay, this depends on the specific inputs, assumptions, and goals of the user. The underlying formula provides a deterministic relationship between inputs and output, but real-world application requires interpreting the result within the broader context of finance and lending practice. Professionals typically cross-reference calculator output with industry benchmarks, historical data, and regulatory requirements. For the most reliable results, ensure inputs are sourced from verified data, understand which assumptions the formula makes, and consider running multiple scenarios to bracket the range of likely outcomes.
How does severance interact with retirement pension?
In the context of Korea Severance Pay, this depends on the specific inputs, assumptions, and goals of the user. The underlying formula provides a deterministic relationship between inputs and output, but real-world application requires interpreting the result within the broader context of finance and lending practice. Professionals typically cross-reference calculator output with industry benchmarks, historical data, and regulatory requirements. For the most reliable results, ensure inputs are sourced from verified data, understand which assumptions the formula makes, and consider running multiple scenarios to bracket the range of likely outcomes.
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.
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.
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