Can Workers at Small Businesses (Under 5 Employees) Receive Severance Pay? 2026 Complete Guide

Can Workers at Small Businesses (Under 5 Employees) Receive Severance Pay?

One of the most common questions from workers at small workplaces is: "Our company has fewer than 5 employees — can I still receive severance pay (퇴직금)?"

The short answer is: yes — severance pay has applied to every workplace since 1 December 2010, and in full since 1 January 2013.

The General Rule: Workplaces with Fewer Than 5 Employees Are Covered (since December 2010)

The Act on the Guarantee of Workers' Retirement Benefits (근로자퇴직급여 보장법) applies to workplaces with 1 or more ordinary employees. However, workplaces that ordinarily employ fewer than 5 workers are not subject to certain provisions of the Labor Standards Act (근로기준법) — such as restrictions on unfair dismissal (부당해고) and overtime premium pay — and the severance pay system was similarly restricted in the past. Workplaces that ordinarily employ 4 or fewer workers have been covered since 1 December 2010, and in full since 1 January 2013 (previously half until December 2012; Article 4(1) of the Act on the Guarantee of Workers' Retirement Benefits and Article 8 of the Addenda to Act No. 10967 / 근로자퇴직급여 보장법 제4조 제1항, 부칙 제10967호 제8조).

Currently, the Act on the Guarantee of Workers' Retirement Benefits applies in full to workplaces with 1 or more ordinary employees. As of 2026, any workplace with at least 1 ordinary employee is obligated to pay severance pay. However, disputes still arise in practice because eligibility can vary depending on how the "ordinary number of employees" is calculated. Note that your employment contract may specify terms that differ from this statutory minimum.

The Key Issue: When Headcount Fluctuates Above and Below 5

Severance pay calculations become complicated at workplaces where the number of employees fluctuates. Under the Ministry of Employment and Labor's administrative interpretation of 26 October 2001 and the 2010 amendment that extended severance pay to workplaces with four or fewer employees from 1 December 2010, the following rules now apply:

  1. Severance pay has applied to workplaces with four or fewer employees since 1 December 2010, and in full since 1 January 2013 (for the period up to 31 December 2012, at least 50% of the statutory level — Article 4(1) of the Act on the Guarantee of Workers' Retirement Benefits and Article 8(2) of the Addenda to Act No. 10967 / 근로자퇴직급여 보장법 제4조 제1항, 부칙 제10967호 제8조 제2항), so periods after that date when the headcount was below 5 also count toward severance pay.
  2. For periods from 1 December 2010, periods with 5 or more employees and periods with fewer than 5 are all added together to calculate the total length of service.
  3. Both the reference date for calculating average wages and the statute of limitations for the severance pay claim are based on the actual retirement date.

For example, if you worked for three years after 2013 and the workplace had 5 or more employees for only two of those years, all three years are added together and you are entitled to three years' worth of severance pay (average wage × 30 days × 3).

Can Daily or Part-Time Workers Also Receive Severance Pay?

Yes. The Supreme Court has held that even a daily laborer working fewer than 25 days per month is entitled to severance pay if a continuous and subordinate employment relationship is recognized (Supreme Court Decision 78다2089). The continuity of the actual employment relationship matters more than the form of work.

In addition, workers whose scheduled working hours average fewer than 15 per week over 4 weeks (ultra-short-hour workers) are excluded from severance pay coverage (Article 4(1) of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제4조 제1항), but part-time workers whose scheduled working hours average 15 or more per week over 4 weeks are entitled to severance pay.

Items Included in Average Wages for Severance Pay Calculation

Severance pay is calculated as average wage × 30 days × years of service. The average wage is the total wages paid during the 3 months before retirement divided by the total number of calendar days in that period.

The 2026 minimum wage is KRW 10,320 per hour (KRW 2,156,880 per month), so calculating severance pay using an average wage below this amount is unlawful.

Late-Payment Interest and How to File a Complaint for Unpaid Severance Pay

An employer must pay severance pay within 14 days of the retirement date (Article 9 of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제9조). Since 14 April 2022, severance pay must be paid by transfer into an Individual Retirement Pension (IRP) account designated by the worker rather than into an ordinary bank account, with exceptions such as retirement at age 55 or older or an amount of KRW 3,000,000 or less (Article 9(2) of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제9조 제2항, Article 3-2 of its Enforcement Decree, and Ministry of Employment and Labor Notice No. 2026-65). If the deadline is missed, delay interest of 20% per annum accrues on the unpaid amount (Article 17 of the Enforcement Decree of the Labor Standards Act / 근로기준법 시행령 제17조).

If you have not received your severance pay, you may file a complaint (진정) with the competent Regional Employment and Labor Office, or apply for relief with the Labor Relations Commission (노동위원회).

Calculate Your Severance Pay at Workbear

To calculate your expected severance pay directly, use the severance pay calculator at Workbear (workbear.kr). Enter your length of service and average wage to instantly see your estimated severance pay. If you suspect unpaid severance pay, you can also use the AI search feature or the complaint drafting assistant.

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

Frequently Asked Questions

I worked for 2 years at a workplace with fewer than 5 employees. Can I receive no severance pay at all?

No. Severance pay has applied to workplaces with four or fewer employees since 1 December 2010, and in full since 1 January 2013 for the period up to 31 December 2012, at least 50% of the statutory level — Article 4 1 of the Act on the Guarantee of Workers' Retirement Benefits and Article 8 2 of the Addenda to Act No. 10967 / 근로자퇴직급여 보장법 제4조 제1항, 부칙 제10967호 제8조 제2항 . If you worked for one year or more with scheduled working hours averaging 15 or more per week over 4 weeks Article 4 1 of the same Act , you can receive severance pay even after working two years at a workplace with fewer than 5 employees. The right to severance pay and the calculation of average wages are based on the actual date of resignation Ministry of Employment and Labor administrative interpretation of 26 October 2001 .

From what date is the statute of limitations for a severance pay claim calculated?

The statute of limitations for a severance pay claim 근로자퇴직급여 보장법 제10조, Article 10 of the Act on the Guarantee of Workers' Retirement Benefits runs from the actual date of retirement — not from the date the workplace headcount fell below 5 during employment. The limitation period is 3 years, so you must file your claim within 3 years of your retirement date.

What happens if severance pay is not paid within 14 days?

An employer must pay severance pay within 14 days of the employee's retirement date Article 9 of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제9조 . Since 14 April 2022, severance pay must be paid by transfer into an Individual Retirement Pension IRP account designated by the worker rather than into an ordinary bank account, with exceptions such as retirement at age 55 or older or an amount of KRW 3,000,000 or less Article 9 2 of the Act on the Guarantee of Workers' Retirement Benefits / 근로자퇴직급여 보장법 제9조 제2항, Article 3-2 of its Enforcement Decree, and Ministry of Employment and Labor Notice No. 2026-65 . If the deadline is missed, a delay interest rate of 20% per annum applies to the unpaid amount Article 17 of the Enforcement Decree of the Labor Standards Act / 근로기준법 시행령 제17조 . However, the payment deadline may be extended by agreement between the parties.

Are bonuses included in the severance pay calculation?

Regularly paid bonuses are recognized as wages and are included in the calculation of average wages 평균임금 . The Supreme Court has held that only the portion of bonuses paid during the 3-month period before retirement that corresponds to those 3 months should be included in the average wage calculation Supreme Court Decision 76다1497 .