Late Mid-Service Severance Pay in Korea: No 20% Delay Interest Applies [2026 Supreme Court Ruling]

Did Your Mid-Service Severance Pay Arrive Late? The 20% Annual Delay Interest Does Not Apply [2026 Supreme Court Ruling]

If you have ever been paid late, you may have heard of the "20% annual delay interest" rule. But does this high rate also apply to mid-service severance pay settlements (퇴직금 중간정산) received while still employed? On 12 March 2026, the Supreme Court issued a clear answer in its ruling (2025다214123).

Where Does the 20% Annual Delay Interest Come From?

Article 37(1) of the Labor Standards Act and Article 17 of the Enforcement Decree of the Labor Standards Act (근로기준법 제37조 제1항 · 근로기준법 시행령 제17조) require employers to pay annual delay interest of 20% when wages or severance pay (퇴직금, paid as a lump sum) are not paid by the due date. This provision exists to deter wage arrears and to provide strong protection for workers. Note that wages not paid on the regular payday during employment also carry 20% annual delay interest (Article 37(1)2 of the Labor Standards Act, 근로기준법 제37조 제1항 제2호; under Addendum Article 2 of the amending Act, this applies to wages whose regular payday falls on or after 23 October 2025), but that rule covers regular wages under Article 43 (같은 법 제43조) and is separate from the Supreme Court's ruling on late mid-service severance settlements (5% per annum).

For severance pay specifically, Article 9 of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제9조) requires employers to pay severance pay within 14 days of the worker's retirement date. If that deadline is missed, the 20% annual delay interest under Article 17 of the Enforcement Decree applies.

Note for foreign workers: Your employment contract may specify different payment terms, but the statutory minimums above cannot be waived to your disadvantage.

The Supreme Court's Decision: The Rule Does Not Apply to Mid-Service Settlements

In this case, a worker requested a mid-service severance pay settlement while still employed, but the employer paid late. The worker then claimed the 20% annual delay interest.

The Supreme Court (2025다214123) rejected that claim. The key reasoning was as follows:

• A mid-service settlement is not a retirement. Because the settlement occurs while the worker remains employed, it falls outside the scope of Article 9 of the Act on the Guarantee of Workers' Retirement Benefits, which imposes the 14-day payment obligation upon retirement.
• No statutory deadline means no 20% interest. The high delay interest rate under Article 17 of the Enforcement Decree of the Labor Standards Act presupposes a legally fixed payment deadline. Since no such deadline exists for mid-service settlements, the delay interest provision does not apply.
• The civil statutory interest rate of 5% per annum applies instead. Where a mid-service severance settlement is paid late, only ordinary delay damages at the civil statutory rate of 5% per annum may be claimed.

Two Practical Points You Must Know

First, always verify that a qualifying reason exists for the mid-service settlement.
Article 8(2) of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제8조 제2항) permits mid-service settlements only when a legally specified reason is present — such as purchasing a home, long-term medical treatment, or bankruptcy/personal rehabilitation proceedings. Agreements that repeatedly allow mid-service settlements without a qualifying reason may be invalid.

Second, agreements to include severance pay in the monthly salary are void.
Some workplaces pay severance pay as part of the monthly wage.

Summary Table

Whether you have already received a mid-service severance settlement or are planning to apply for one, it is important to carefully check the payment timing and the qualifying-reason requirements.

If you want to calculate your expected severance pay in advance, try the severance pay calculator at Workbear (workbear.kr). Simply enter your start date, end date, and average wage to get an instant estimate.

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