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 9(1) of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제9조 제1항; see also Article 36 of the Labor Standards Act / 근로기준법 제36조), your employer must pay within 14 days of your last working day — and since 14 April 2022 the default is to transfer the money into an Individual Retirement Pension (IRP, 개인형퇴직연금) account you designate (Article 9(2); exceptions such as retiring at age 55 or older or amounts of ₩3 million or less are set by Article 3-2 of the Enforcement Decree / 근로자퇴직급여 보장법 시행령 제3조의2 and a Ministry of Employment and Labor notice). If the deadline is missed, late-payment interest of 20% per year accrues from the next day (Article 37(1) of the Labor Standards Act and Article 17 of its Enforcement Decree / 근로기준법 제37조 제1항·근로기준법 시행령 제17조), and if you designate no account the money is transferred to an IRP account in your own name (Article 9(3) of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제9조 제3항).

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 (pension withdrawal requires applying after age 55 — Article 40-2 of the Enforcement Decree of the Income Tax Act / 소득세법 시행령 제40조의2). If deferred retirement income is drawn as a pension, only 70% of the retirement income tax is withheld (60% after the 10th year of pension withdrawal, 50% after the 20th — Article 129(1)5-3 of the Income Tax Act / 소득세법 제129조 제1항 제5호의3). If you give no investment instruction, DC and IRP assets are managed under the default option scheme (사전지정운용제도, in force since 12 July 2022 — Articles 21-2 and 24(4) of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제21조의2·제24조 제4항).

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 means the deferred retirement income tax becomes payable in full, and tax-credited contributions and investment gains are taxed as other income at 16.5% (including local income tax — Article 129(1)6 of the Income Tax Act / 소득세법 제129조 제1항 제6호)
- 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 deferred retirement income tax and the 16.5% other-income tax apply (a foreign worker who leaves Korea after retiring may receive the money directly without an IRP transfer — Article 3-2(1)4 of the Enforcement Decree / 근로자퇴직급여 보장법 시행령 제3조의2 제1항 제4호). 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 (진정) with the Ministry of Employment and Labor (고용노동부); the Labor Relations Commission (노동위원회) handles unfair-dismissal relief, not wage-arrears complaints.

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?

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.