Severance Pay Mid-Settlement in Korea: Eligible Reasons, Calculation & Key Cautions for Foreign Workers

What Is Severance Pay Mid-Settlement?

Severance pay (퇴직금) is in principle paid when a worker retires. However, Article 8, Paragraph 2 of the Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법 제8조 제2항) exceptionally allows workers to receive accrued severance pay in advance while still employed. This is called a "severance pay mid-settlement" (퇴직금 중간정산). Workers enrolled in a Defined Contribution (DC) retirement pension plan use the same scheme under the name "mid-term withdrawal" (중도인출).

A mid-settlement cannot be requested at any time. It is only available when the reason meets the criteria set out in statutes and Ministry of Employment and Labor (고용노동부) notices.

Note for foreign workers: Your employment contract may specify conditions for mid-settlement, but those conditions cannot fall below the statutory minimums described below.

Main Eligible Reasons for Mid-Settlement

According to the Ministry of Employment and Labor Notice "Reasons and Requirements for Providing Retirement Pension Rights as Collateral and for Severance Pay Mid-Settlement" (퇴직연금제도 수급권의 담보제공 및 퇴직금 중간정산의 사유와 요건), the principal permitted reasons are as follows:

• Home purchase by a person without a home: Where the worker purchases a home for the first time in their own name
• Lease deposit burden: Where a person without a home bears a lease deposit (전세금) or security deposit (보증금) for residential purposes
• Medical treatment for 6 months or more: Where the worker or a dependent family member requires medical treatment for an illness or injury for 6 months or more
• Bankruptcy or individual rehabilitation: Where the worker has received a declaration of bankruptcy or a decision to commence individual rehabilitation proceedings
• Wage reduction: Where wages have decreased by 30% or more due to a disaster or calamity

The Determination Date for "Person Without a Home" Is the Contract Date

A point of frequent confusion when applying for mid-settlement on the grounds of home purchase: according to the Ministry of Employment and Labor administrative interpretation dated 30 July 2026, whether the worker qualifies as a person without a home is determined as of the date the home purchase contract is signed. The application window runs from the date the purchase contract is signed until one month after the ownership-transfer registration is completed. Even if the worker acquires another home after signing the contract but before paying the final installment, the requirement is met if the worker had no home as of the contract date.

Key Points When Calculating Average Wage

The mid-settlement severance pay is calculated based on the average wage (평균임금) for the 3 months preceding the date the mid-settlement reason arose, pursuant to Article 2 of the Labor Standards Act (근로기준법 제2조). In practice, disputes frequently arise over which items to include in the average wage.

In its ruling 2022da215784, the Supreme Court held that payments whose entitlement had not yet been confirmed at the time of mid-settlement cannot be included in the average wage. For example, unused annual leave allowance (연차휴가미사용수당) arises only when unused annual leave days are confirmed at the end of the relevant year; if that has not yet been confirmed at the time of mid-settlement, it cannot be included in the average wage calculation.

In addition, a practice of including an amount labeled as severance pay within the monthly salary is not recognized as a valid mid-settlement. In case 2006na12992, the Supreme Court held that amounts paid in this manner are treated as part of wages and are therefore actually included in the average wage when calculating severance pay. For a mid-settlement to be valid, there must be an explicit request by the worker.

How Much Interest Applies for Late Payment?

If severance pay is not paid within 14 days of the retirement date, annual interest of 20% applies (Article 17 of the Enforcement Decree of the Labor Standards Act / 근로기준법 시행령 제17조). However, this provision does not apply when mid-settlement severance pay is paid late. In its ruling 2025da214123, the Supreme Court held that mid-settlement is not subject to the 14-day settlement obligation, so in the event of delay the general civil statutory interest rate (연 5%) applies instead.

On the other hand, if the employer pays only part of the mid-settlement severance pay and the worker retires while the remainder is still unpaid, that unpaid portion is included in the severance pay that must be paid within 14 days of the retirement date (Ministry of Employment and Labor administrative interpretation, March 2022). In that case, the 20% annual late-payment interest may apply.

Calculating Severance Pay After Mid-Settlement

Once a mid-settlement is received, the period of continuous service restarts from that point. Upon final retirement, the worker receives severance pay only for the period after the mid-settlement. The severance pay for the period before the mid-settlement is treated as already having been received.

Calculating Without Mistakes

Calculating mid-settlement severance pay involves many factors to consider, including the scope of average wage calculation, items to include, and the settlement period. Using the Severance Pay Calculator at Workbear (workbear.kr), you can quickly check your estimated severance pay simply by entering the relevant figures. If the calculated result differs from the actual amount paid, you can use the AI search function to look up related administrative interpretations, or use the complaint drafting function to prepare for a rights-remedy procedure.

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