We’ve been frequently asked about the severance payment under Korean labor law. Basically, the severance payment is being regulated by the Guarantee of Workers’ Retirement Benefits Act(“GWRBA”), not by Labor Standard Act(“LSA”). (Some Korean law related sites refer to LSA as it regulates the severance payment matters, but it is not correct). GWRBA provides for the minimum amount of severance payment which the employer shall be required to pay to a retiring or resigning employee.
With that said, then what is the statutory severance payment under GWRBA? Under GWRBA, an employee is entitled to receive a severance payment at the rate of 30 days’ “average wage” for each “continuous year of service.” Of course, this is the statutory minimum amount of the severance pay.
In calculation of the “average wage”, a base salary and other payments such as overtime payment, position allowance, incentive allowance paid to all employees to promote efficiency shall be included. With respect to the bonus payment, if it was paid irregularly and one-time out of company’s profit, it shall not be included.
Under the established court precedents, the “continuous year of service” means the period from the time of execution of an employment contract to the time of employment termination”. If an employee, however, was absent from work for a certain period of time during the “continuous years of service”, such as taking a personal leave for study or serving in military, those non-employment periods shall be excluded from the “continuous years of service”.
We hope this brief introduction to be of assistance to you. If you have more questions on severance payment or any other Korean labor law related issues, please send an email by simply clicking here or visit Legal Consultation page. Our Korean licensed lawyers, not a U.S. lawyer residing in Korea, will answer your inquiry.
Also you can find a stack of legal information and articles on Korean labor law, written by a Korean licensed lawyer, by clicking here.
© Wonil Chung, Korean Licensed Lawyer, Chung & Partners, Korean Full Service Law Firm. All rights reserved.
Because of the generality of this update, the information provided herein, which may or may not reflect the most current legal development, may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.