Severance Pay Calculator Complete Guide: Formula, Rules & Key Cautions for Foreign Workers in Korea

How Much Severance Pay Can You Receive?

Severance pay (퇴직금) is a statutory benefit paid to workers who have been continuously employed for one year or more when they leave their job. Under Article 8 of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제8조), an employer must pay severance pay of at least 30 days' average wage for each year of continuous service (계속근로연수). The obligation to pay arises regardless of the reason for leaving — whether voluntary resignation or dismissal (the Supreme Court established this principle in ruling 71Da1033).

Severance Pay Calculation Formula

Severance Pay = Average Wage × 30 days × (Years of Continuous Service)

Average wage (평균임금) is the total wages paid during the three months immediately before retirement divided by the total number of calendar days in that period, as defined in Article 2(1)(6) of the Labor Standards Act (근로기준법 제2조 제1항 제6호). It includes not only base salary but also bonuses and allowances paid on a regular and continuous basis. The Supreme Court has ruled that items not actually paid within the three months before retirement — such as a diligence allowance paid once a year — must still be included in the average wage as a pro-rated three-month portion of the annual amount (ruling 81Da472).

Continuous service period runs from the date of hire to the date of retirement. Even if a worker was converted from a daily worker to a regular employee, both periods are combined (rulings 81DaKa137 and 82Na334). However, if a separate severance settlement was made due to a change in job type, only the period after that settlement is counted.

Payment Deadline and Late-Payment Interest

Severance pay must be paid within 14 days of the retirement date under Article 36 of the Labor Standards Act (근로기준법 제36조). The deadline may be extended by mutual agreement between the parties, but if it is missed without such agreement, late-payment interest of 20% per annum accrues under Article 17 of the Enforcement Decree of the Labor Standards Act (근로기준법 시행령 제17조). Because interest is calculated on a daily basis from the day after the deadline to the actual date of payment, even a short delay can result in a significant additional amount.

Note for foreign workers: Your employment contract may specify different payment arrangements, but the statutory minimum — payment within 14 days and 20% annual late-payment interest — cannot be waived to your disadvantage.

Monthly Installment Agreements Are Invalid

Some workplaces include severance pay in the monthly salary and pay it in installments. This practice violates the Labor Standards Act and is invalid. In ruling 2008Na21324, the Suwon District Court held that an agreement to pre-settle and pay severance pay on a monthly basis for a future period of employment has no legal effect, and that amounts paid in this way constitute ordinary wages (통상임금) rather than severance pay — meaning the employer must still pay severance pay separately upon retirement. Workers must be aware of this point.

Mid-Term Severance Settlement: No Resignation Letter Required

Article 8(2) of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제8조 제2항) permits mid-term severance settlement (퇴직금중간정산) when there are statutory grounds such as purchasing a home or long-term medical care. According to the Ministry of Employment and Labor's administrative interpretation from 1997, there is no need to submit a resignation letter or go through a retirement-and-rehire procedure for a mid-term settlement. The existing employment relationship is maintained, and only the severance pay is settled upon request.

Calculate Your Severance Pay Yourself

Calculating average wage involves many variables — whether bonuses and allowances are included, changes in employment type, and prior mid-term settlement history — making it difficult to do manually. Using the severance pay calculator at Workbear (workbear.kr), you can quickly estimate your expected severance pay simply by entering your hire date, retirement date, and wage items. If you suspect unpaid wages, you can also use the AI search and complaint-drafting features on the same platform.

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