Introduction
After decades of rapid economic growth, South Korea has emerged as a high-tech, industrialized economy with a GDP of $2 trillion, powered by industries such as electronics, telecommunications, automobile manufacturing, chemicals, shipbuilding, and steel. The capital, Seoul, is home to over 25 million people, accounting for approximately 50% of the nation’s population. The country’s legal system is based on the Constitution of the Republic of Korea and follows a civil law system.
Geography
South Korea occupies the southern half of the Korean Peninsula, with a land area of about 99,720 square kilometers, bordered by the East Sea and the Yellow Sea.
Climate
The climate in South Korea is temperate with four distinct seasons. Winters are cold, dry, and long, while the typical summer is short, hot, humid, and comes with significant rainfall.
Culture
Situated in the heart of Northeast Asia, South Korea’s culture reflects the essence of Asia, blending exotic elements of a multicultural society where people live together in peace and harmony. Koreans are known for their warm and friendly nature, and they are generally welcoming to foreigners entering their social circles.
Religion
Approximately 46% of the population identifies as having no religious affiliation, 23% are Buddhists, and 29% are Christians.
Language
The official language of South Korea is Korean.
Overview of South Korean Human Resources
Employment Law
The Labor Standards Act (LSA) is the principal legislation regulating employment relations and providing minimum standards for employment. South Korea’s labor environment is employee-friendly with stringent employment protection laws.
Employment Contracts
Employers must provide employees with written terms relating to wages, working hours, paid annual leave, and weekly holidays. Once an employment contract is signed, the employer must provide these written terms to the employee. Employers are required to retain a copy of the contract for at least three years after its termination. Verbal or implied agreements are enforceable if an employee-employer relationship can be established. Contracts are not necessarily required to be in Korean.
Terms of Employment
Certain regulations, mainly the LSA, limit the terms of employment contracts. Other conditions under the Rules of Employment (ROE) or a Collective Bargaining Agreement (CBA) can supersede contract terms.
Employees can be employed for an indefinite period or on a fixed-term basis, usually limited to two years.
The minimum retirement age is 60.
Work Rules
Companies with 10 or more employees must prepare ROE documents managing the calculation of wages, payment schedules, payment methods, working hours, paid leave, training, maternity care, workplace health, workplace safety, disciplinary procedures, and other working conditions. Employers need to submit the ROE to the Ministry of Employment and Labor (Article 93 of the LSA) and make the rules known to the workers. The ROE must be readily accessible.
Probation Period
The probation period is discretionary and has no fixed minimum in South Korea. A three-month period is common, and it can be extended.
Overtime
Any work beyond 40 hours per week or 8 hours per day is considered overtime. Employees’ working hours, including overtime, cannot exceed 52 hours per week.
The reduction of overtime hours to 52 has been gradually applied to businesses of different sizes as follows:
Workplaces with 300 or more employees: The 52-hour overtime cap became effective on July 1, 2018.
Workplaces with 50 to 299 employees: The cap became effective on January 1, 2020.
Workplaces with 5 to 49 employees: The cap became effective on July 1, 2021.
Under labor-management agreements, workplaces with fewer than 30 employees can work an additional 8 hours of overtime. This means they can have employees work 60 hours a week instead of 52. This exception was temporarily allowed for small companies from July 1, 2021, to December 31, 2022.
Additionally, employers should pay 50% or more of the normal wages for overtime, night shifts (from 10 PM to 6 AM), or holiday work.
Bonuses
There are no restrictions or guidelines for bonuses. In South Korea, bonuses (extra wages for overtime and professional achievements, etc.) are not added to the normal monthly wages. Instead, they are included in the severance pay employees receive at the end of their contract. The method of calculating bonuses is to divide the total amount of bonuses due in a year by 12, representing the months in a year. This amount, which is a month’s bonus, is then added to a year’s severance pay. The total amount, which includes severance pay and bonuses, is then multiplied by the number of years the employee has worked at the company.
Dismissal
Dismissal in South Korea is quite difficult and must be carried out for just cause. Employers should issue a written notice of dismissal to the worker.
Employees who are dismissed are generally entitled to various statutory severance pay for different types of dismissals.
Severance Pay
Under the Employee Retirement Benefit Security Act (Retirement Benefit Act), the employer must do one of the following:
Pay severance at the end of the employment relationship
Establish a pension scheme with the consent of the employees.
Severance pay due to employees who have worked for at least one year is equivalent to 30 days’ average wages for each year of continuous service. The average wage is calculated using the wages of the three months before termination. Severance pay applies to voluntary retirement as well as terminations for cause.
If an employer does not decide on a mandatory retirement scheme after establishing a company, the pension scheme is automatically adopted. Some Koreans use the term “severance pay,” which has the same meaning as a pension.
Under the Employee Retirement Benefit Security Act, labor and management can choose a pension scheme instead of a pension.
The employer must obtain the consent of the majority union or, if there is no majority union, the consent of the majority of the workers to decide on the retirement benefit scheme. They can choose a pension or a pension.
There are two types of pensions: Defined Contribution (DC) and Defined Benefit (DB).
Notice Period
Employers must give 30 days’ notice of termination or 30 days’ pay in lieu of notice. However, notice may not be required if the employee’s probation period does not exceed three months.
Taxes and Social Insurance
Personal Income Tax (PIT)
Everyone who pays taxes in South Korea must report their income to the National Tax Service (NTS).
Residents:
Korean residents are subject to income tax on all income from within and outside Korea. Foreign residents who have stayed in Korea for more than 5 years in the past 10 years will be taxed on their global income. However, foreign residents who have stayed in Korea for 5 years or less in the past 10 years are taxed on income from sources in Korea. Foreign source income is only required to be reported if the foreign source income is paid or transferred to Korea by a Korean entity.
Non-residents:
Non-residents are only taxed on income from within Korea. Non-residents with Korean-source income and no domestic place of business must comply with most of the tax rates and reporting procedures applicable to residents when filing through an annual tax return. However, non-residents are not entitled to claim any personal exemptions, income deductions, and tax credits for their dependents (other than themselves) when calculating taxable income and tax amount.
Resident surcharge:
In addition to the above PIT, there is a local income tax levied at 10% of the PIT rate.
PIT is paid to the NTS.
Local income tax is paid to the city or province of the taxpayer’s residence.
Non-taxable items and deductions
The following items are considered non-taxable reimbursements or tax-exempt income:
Meal allowances of up to 100,000 won per month
Vehicle operating expenses of up to 200,000 won per month when employees use their own vehicles for business purposes
Allowances of up to 100,000 won per month for childbirth or care of children aged 6 and under
Costs of uniforms provided to persons required by law to wear uniforms
Costs of work clothes worn exclusively in the workplace by employees in certain industries
Reimbursement of social membership and entertainment expenses incurred for business purposes
Qualified employee education expenses paid by the employer
Housing expenses for foreign employees, paid directly by the employer on behalf of the employee, with the employer signing a lease with the landlord
All taxpayers’ deductions may include the following items, with conditions applicable to each taxpayer:
Car allowance
Meal allowance
Insurance premiums paid by the employer on behalf of the employee
Medical expenses (employees must submit receipts)
Payments made by credit card or designated cash receipts (providing rebates)
Charitable donation deductions (applicable to Korean charities and some foreign organizations)
Education expenses (for family members from kindergarten to university and college; graduate studies)
If allowed for each individual: taxpayers, spouses, and dependents (related to age)
PIT: Employer requirements
Employers must submit tax settlement documents on behalf of their employees by March 10. Employers usually request documents and materials from employees in January. This is when foreign employees should indicate whether they want to pay a flat tax rate of 19% or use the progressive tax rate based on their income. Typically, if taxes are underpaid, employers may deduct additional charges from February’s salary. Employers usually submit the relevant tax forms. If not, it is up to the employee. This includes foreign employees.
Employers must submit a wage and salary income tax withholding receipt table each year in February.
Monthly reporting: Employers must report each employee’s income and withholding for the previous month on the 10th of each month. For example, employers will report January’s income and withholding taxes on February 10.
Annual reconciliation is done in January for the previous tax year. These reports must be submitted by February 10.
Resident tax: Resident tax is due when the monthly average total wage of employees at the workplace for the past year exceeds 150 million won (3 million won times 50), regardless of the number of employees. This additional employment cost is calculated at 0.5% of the total wages minus non-taxable income.
Social Security
The law mandates four compulsory social insurance programs:
National Pension Insurance:
Employers must enroll employees, including company representative directors, in the National Pension Scheme. Foreign employees can apply for a refund of contributions from the National Pension Administration when they leave Korea. Certain requirements must be met. Employers and employees share the cost burden of pension contributions equally, totaling 9% of monthly employment income. Employers and employees must each contribute 4.5% of monthly employment income, up to a maximum of 5.24 million won.
National Health Insurance:
Employers must enroll all employees, including company representative directors, in the National Health Insurance. Temporary workers or temporary employees exempted by relevant laws are exceptions. However, foreign employees can apply for an exemption from compulsory coverage if they receive medical insurance benefits under their employer-sponsored global medical insurance or the national health insurance scheme provided in their country of residence. Contributions are calculated at 6.99% of monthly employment income plus 12.27% of long-term care insurance contributions. Employers and employees split the due contributions equally.
Employment Insurance:
Employers must include all employees, except representative directors, in the Employment Insurance Scheme. Both employers and employees have the same responsibility to pay insurance premiums, with unemployment benefits contributions set at 0.8% of monthly employment income. Employers need to pay an additional contribution of 0.25% to 0.85% of monthly employment income for employment stability and vocational competency development (totaling 1.05-1.65%). There is no income cap for this insurance.
Industrial Accident Compensation Insurance:
Employers are solely responsible for paying insurance premiums on behalf of their employees. The contribution rate is determined by the employer’s industry. For example, the contribution rate for manufacturing businesses is 0.73% to 2.53%, while the rate for wholesale or retail businesses is 0.9%. The premium rate for financial insurance businesses is 0.73%. There is no income cap for this insurance.
Significance and Benefits of the Korean Social Security System
Health Insurance
Improves public health and promotes social security by providing insurance benefits for the prevention, diagnosis, treatment, and rehabilitation of diseases or injuries.
Service benefits: Medical benefits and health check-ups.
Cash benefits: Nursing fees, copayment ceiling system, excess copayment compensation, disabled assistive device fees, prenatal examination fees, etc.
National Pension
Contributes to stabilizing people’s lives and promoting welfare by providing public old-age pensions for old age or death.
Pension benefits: Old-age pension, disability pension, and survivor’s pension.
Lump-sum benefits: Pension refund and bereavement allowance.
Industrial Accident Compensation Insurance
Compensates workers for industrial accidents quickly and fairly.
Installs insurance facilities necessary for workers’ rehabilitation and return to society.
Helps protect workers by operating disaster prevention businesses and promoting worker safety.
Nursing benefits, temporary loss of earning capacity benefits, disability benefits, nursing benefits, survivor’s benefits, funeral expenses, injury and disease compensation pensions.
Employment Insurance
Prevents unemployment and promotes employment.
Enhances workers’ vocational competency development.
Strengthens career guidance and introduction.
Promotes stability in workers’ lives and employment activities, implementing welfare necessary for the lives of unemployed workers.
Employment business stability.
Vocational competency development business.
Unemployment benefits.
Pension Plans
All employers (except employers employing cohabiting relatives) must establish a Defined Benefit (DB) plan, Defined Contribution (DC) plan, or severance scheme. However, the employer’s obligation does not apply to employees who serve less than a year or temporary workers who work an average of less than 15 hours a week over the last four weeks.
Under the severance scheme, unlike the pension plan, the employer is not required to contribute in cash from outside. Therefore, the authorities strongly encourage employers to adopt one of the pension plans. In this regard, accrued severance liabilities on the income statement are not tax-deductible since 2016.
The government plans to phase out the severance scheme gradually and promote retirement pension plans for all employers.
Types of Pension Plans:
Defined Benefit (DB) plan: The ERBSA stipulates that an employee’s retirement entitlement upon termination of employment should be equal to or exceed the value of 30 days of average wages for each year of service. In addition, the employer must contribute to the DB plan, and the contribution should be equal to or exceed a specified percentage of the employee’s statutory retirement benefit entitlement (e.g., 80% for 2016 to 2017).
Defined Contribution (DC) plan: Employers adopting a DC plan must make regular contributions to the DC plan, which should be equivalent to one-twelfth of an employee’s annual salary. Notably, 100% contributions to the DC plan can be tax-exempt for the employer. Unlike the DB plan, employees under the DC plan can choose to make additional contributions to their retirement pension plan.
Individual Retirement Pension (IRP) plan: Employees can set up an IRP to manage retirement benefits paid by the employer. Therefore, employers cannot establish an IRP for their employees. However, existing employees’ retirement benefits must be transferred to the employee’s IRP within a specified due date after termination of employment. For reference, in addition to the retirement benefits paid by the employer, employees can contribute up to 18 million won annually to their individual-type IRP.
Employees
Wage Payment
In South Korea, wages are usually paid monthly, transferred to the employee’s bank account.
Pay Slips
Employers must issue pay slips when paying wages to workers. Workers should be able to access pay slips via websites, PDF, or hard copies. Pay slips should include the employee’s name, employee number, pay date, number of working days, total wages, total working hours, number of overtime hours, amounts for each wage item, calculation methods for each wage item, deduction items, and the final effective amount.
Annual Leave
Companies must provide at least 15 days of paid leave per year.
Employees who work 80% of the total working days in the first year are entitled to 11 days of annual leave in the first year.
For employees with an attendance rate below 80%, the next year’s leave days are based on one leave day per full working month in the previous year.
Leave days increase by one every two years, from the fourth year up to a maximum of 25 days.
If employees do not use up their annual leave in a year, the remaining unused annual leave days cannot be carried over to the next year. They will expire. However, employers should pay employees for the unused leave days. If an employer notifies the employee in writing to use up all the remaining annual leave by the end of the year, and the employee does not comply, the employer is not obligated to compensate for the unused annual leave. Use of leave.
Some foreign companies in Korea allow annual leave to be carried over. This is allowed because, as a minimum standard, the LSA does not prohibit employers from adopting working conditions more favorable than those stipulated by law.
Sick Leave
Employees are not legally entitled to sick leave for non-work-related illnesses or injuries.
However, many companies provide sick leave as a special benefit to employees. This allowance is usually several months of unpaid leave or several weeks of paid leave (if needed due to illness or injury).
For work-related illnesses or injuries, industrial accident compensation insurance covers some paid leave and pays for treatment and any additional compensation for long-term disabilities.
Pregnancy
Pregnant female employees at risk of miscarriage or stillbirth are allowed to use parental leave during pregnancy. They are entitled to change the start and end times of work while maintaining the prescribed working hours. Employers can only refuse the request for reasons prescribed by law (e.g., working hours will disrupt the normal operation of the business).
Maternity and Parental Leave
Employers must allow 90 days of maternity leave (120 days for twins). The first 60 days (75 days for twins) of maternity leave are paid by the employer, with the government providing a subsidy of up to 2,000,000 won per month.
The government pays for the remaining 30 days (or 45 days for twins), with a monthly cap of 2,000,000 won.
At least 45 days (60 days for twins) of leave must be taken after birth.
Miscarriage and preterm birth are also eligible for paid maternity leave:
5 days to the 11th week of pregnancy,
10 days for those entering the 12th to 15th weeks of pregnancy,
30 days for those in the 16th to 21st weeks of pregnancy,
60 days for those entering the 22nd to 27th weeks of pregnancy, and
The full 90 days of leave for those pregnancies lasting at least 28 weeks.
Employers must grant at least ten days of paid paternity leave upon the employee’s request. The application for paternity leave must be made within 90 days of childbirth.
Women with infants under 1 year old are entitled to at least 30 minutes of breastfeeding time twice a day.
Parental Leave
Employers must provide up to one year of parental leave to employees with children (including adopted children) upon the employee’s request, provided that the employee is:
Eight years old or younger
Not exceeding the second grade of elementary school
Since parental leave is unpaid, the government pays the employee 80% of the regular salary for the first three months and 50% for the remaining period through the employment insurance fund. The maximum period is nine months. The monthly payment amount should be between 700,000 won and 1.5 million won.
Employees eligible for parental leave can choose to reduce working hours instead of taking parental leave. Weekly working hours should be reduced by 15 to 30 hours.
Family Care Leave
Employers should provide employees who wish to care for sick, injured, or elderly family members (including parents, spouses, children, and parents of spouses) with 30 to 90 days of family care leave per year.
Family care leave is unpaid but included in the continuous service period.
Other Leave
Female employees can also enjoy one day of unpaid leave per month as menstrual leave.
Employers granting leave for marriage, death of relatives, etc., is very common.
Statutory Holidays
Mandatory paid holidays are:
Weekly holiday (usually Sunday)
Labor Day (May 1)
Public holidays
Previously, employers were not required to provide paid leave on public holidays. However, according to amendments to the LSA effective from January 1, 2020, public holidays must be provided as leave days. From 2022, the new law will initially apply to companies with 5 to 300 employees.
Employees working on holidays must receive 50% additional wages.
Medical Examinations
Article 25, Clause 52 of the Enforcement Decree of the National Health Insurance Act stipulates that health examinations must be conducted at least once every two years. For employers not engaged in office work, health examinations must be conducted annually. The examination must be conducted at an institution designated under Article 14.
Benefits for South Korean Employees
Statutory Benefits
Pension
In South Korea, employer-sponsored retirement plans supplement the pay-as-you-go National Pension Scheme. This includes a basic social security (old age, survivor, and disability) safety net. Initially introduced in 1961, employer plans covered companies with 30 or more employees, providing a mandatory severance benefit that included a lump-sum benefit of at least one month’s average wages for each year of service. Coverage gradually expanded to include employers with five or more employees. In addition, under the Employee Retirement Benefit Security Act of 2005, employers are encouraged to adopt tax-favored Defined Benefit plans, also known as Defined Contribution plans, or convert existing mandatory severance schemes (with employee consent) into one of these pension plan designs. Alternatively, employers with fewer than 10 employees can choose to make tax-free contributions to an individual retirement account on behalf of their employees.
Visas and Foreign Employees
The following special income tax rules apply to foreigners.
Foreigners can choose one of the following methods to calculate their employment income tax:
Apply a flat tax rate of 19% to total employment income from Korea (no deductions or credits are allowed for this purpose)
Use the existing regular tax calculation method, where progressive tax rates (ranging from 6% to 42%) apply to the adjusted taxable income derived by deducting applicable deductions and exemptions from total income. The calculated tax amount is further reduced by applicable tax credits to reach the final tax payable under the regular method.
To choose the 19% flat tax rate, taxpayers should apply when making monthly salary withholding tax declarations, year-end salary tax reconciliations, or annual comprehensive income tax returns.
Monthly salary withholding tax declarations are due on the 10th of the following month. Year-end tax reconciliations and annual comprehensive income tax returns are due on March 10 and May 31 of the following year after the tax year, respectively.
