How to Receive Severance Pay in Korea: A Guide for Foreign Workers

If you are leaving a job in Korea, one of the most important financial questions you will face is: how do I receive my severance pay (퇴직금)? The method you choose can significantly affect your tax burden and long-term financial planning — so it is worth understanding your options before you decide.

What Is Severance Pay (퇴직금)?

Under the Employee Retirement Benefit Security Act (근로자퇴직급여 보장법), employees who have worked for at least one year with an average of 15 or more hours per week are legally entitled to severance pay. The statutory minimum is 30 days of average wages per year of service.

Note for foreign workers: If you work at an international school, embassy, or foreign-invested company, your contract may include a different severance or end-of-service structure. Always check your employment contract alongside Korean statutory rights.

Option 1: Lump-Sum Payment (일시금)

This is the most common method. You receive your entire severance pay in one payment upon leaving your job. Under Article 34 of the Labor Standards Act (근로기준법), your employer must pay within 14 days of your last working day.

Pros:
- Immediate access to a large sum
- Useful for relocation costs or investments
- No special application process required

Cons:
- Subject to retirement income tax (퇴직소득세), which is calculated based on your years of service and total amount
- Risk of spending without a plan, especially if you are leaving Korea

Practical tip: If you are leaving Korea permanently, confirm whether your severance pay will be transferred to a foreign bank account and ask your HR department about any withholding tax procedures.

Option 2: Retirement Pension (퇴직연금)

If your employer has enrolled you in a retirement pension scheme (퇴직연금제도) — either a Defined Benefit (DB형) or Defined Contribution (DC형) plan — you may have the option to receive your severance as a pension starting at age 55.

Pros:
- Lower pension income tax (연금소득세) compared to lump-sum retirement tax
- Stable income stream in retirement
- Tax deduction benefits on pension income

Cons:
- Early withdrawal before age 55 triggers a penalty tax of 16.5%
- Less flexible if you need funds immediately
- May be complicated for foreign workers who plan to leave Korea before retirement age

Important for foreign workers: If you are leaving Korea before age 55, you will likely need to withdraw your pension funds early, which means the penalty tax applies. Consult a certified labor attorney (노무사) or tax advisor before making this decision.

Option 3: Split Payment (분할 수령)

Some workers choose to receive part of their severance as a lump sum and roll the remainder into a pension account. This can help spread the tax burden and balance short-term and long-term financial needs.

What Happens If Your Employer Doesn't Pay?

If your employer fails to pay severance within 14 days, you can file a complaint with the Ministry of Employment and Labor (고용노동부) or the Labor Relations Commission (노동위원회). You can request interpreter support when filing your complaint — this service is available at regional labor offices.

If your company goes bankrupt, the Wage Claim Guarantee Fund (임금채권보장기금) may cover unpaid severance up to a legal limit.

Which Option Is Right for You?

Choose lump sum if you need funds immediately, are leaving Korea, or have a long service record that reduces your tax burden.
Choose pension if you plan to stay in Korea long-term, are approaching retirement age, and want stable income with tax benefits.

Always review your specific employment contract, as your contractual terms may differ from the statutory minimum.

*This article is for informational purposes only and does not constitute legal advice. For specific cases, consult a certified labor attorney (노무사) or lawyer.