Severance pay is a legitimate right that workers receive when leaving a company. According to Article 34 of the Labor Standards Act, all workers with at least one year of continuous service are entitled to receive severance pay, regardless of company size or employment status (regular or non-regular). Severance pay is compensation for the time and effort workers have contributed to the company and plays an important role in preparing for a new start after retirement.
Calculating severance pay is simpler than you might think. The basic formula is 'average wage × length of service × 30/365'. Here, average wage refers to the average of wages earned over the three months preceding retirement. For example, if your monthly salary is 3 million won and your length of service is 5 years, your severance pay would be 3 million won × 5 years × 30/365 days ≈ 12.32 million won.
There are important points to note when calculating. The average wage must include not only the base salary but also bonuses, allowances, and various forms of income. Some items such as meal expenses, commuting allowances, and insurance premiums are excluded, but the criteria may vary by company, so it's good to confirm this when you join. Additionally, length of service is calculated from the date of hire to the date of retirement, and every single day counts.
Length of service refers to the 'period of continuous employment'. It's not simply the duration of working at a company but the actual period during which you provided labor. Unpaid leave or suspension periods due to disciplinary action may be excluded. However, paid leave, maternity leave, and sick leave are included, so it's important to clarify this with your company.
Many people are curious about cases where they've changed jobs. Training periods at vocational training institutes are included in length of service, but this is only recognized when agreed upon by both the company and worker. If the company refuses to recognize your previous employer's length of service, this is unfair treatment, and you can inquire with the labor office.
Unfortunately, some workers fail to receive their severance pay. In such cases, the first step is to make a written request to the company. Send a registered mail or email stating 'I request payment of severance pay' along with the calculation basis. Keeping evidence will help in case of future legal disputes.
If the company doesn't comply, you can file a report with the competent Regional Employment and Labor Office. As of 2026, workers can file reports directly, and necessary documents include a certificate of retirement, wage ledger, and a copy of the severance pay calculation. The labor office will conduct an investigation and instruct the company to pay unpaid wages. If the company still refuses to pay, you can file a civil lawsuit, and legal consultation is available free of charge during this process.
Remember that severance pay may be subject to taxation. Retirement income tax is applied depending on length of service, and the tax rate increases as the amount received at one time increases. Based on 2026 standards, there is a retirement income deduction, so consulting with a tax accountant or your company's HR department in advance can help with tax savings.
You can reduce your tax burden by receiving severance pay through a retirement pension product in installments. This is called 'retirement income tax deferral,' and the tax rate is likely to be lower than when receiving a lump sum. However, fees vary by financial product, so you should choose carefully.
There are cases where you need living expenses before receiving your severance pay. In such situations, you can apply for unemployment benefits and receive approximately 60% of your monthly salary for a certain period. Additionally, through the Emergency Welfare Support System, you can receive about 1.5 million won per month in living expenses (based on a family of four). Contact your local welfare office for more information.
There are matters to confirm beyond severance pay. Unused vacation days should be paid as vacation compensation, and this is calculated separately from severance pay. Additionally, the company must issue a certificate of retirement, which is a required document for joining a new job or applying for unemployment benefits. Finally, you must report the termination of health insurance and national pension coverage to prevent overpayment of insurance premiums.
This article provides information analyzed and organized by AI based on various sources. For more accurate information, please contact the Employment and Labor Office (1350) or the Korean Legal Aid Corporation.
