Payroll in Korea

Once a company is registered with the tax office and a minimum of 1 employee is hired, registration with social security is mandatory. It should be reported to 3 offices: 

1. National pension
2. National health insurance
3. COMWEL that manages Employment insurance and Workers' compensation insurance.

After the registration report to social security, the exact insurance rate for employment insurance and workers' compensation insurance will be determined.

In order to manage social insurance efficiently, an e-certificate (or digital certificate) is commonly issued by many Korean companies. It allows us to track the status of reports (registration, deregistration, etc.), receive monthly bills in the fastest way, and get detailed information about social insurance.

Employees hired with the condition of working more than 15 hours a week and for more than 1 month shall be registered for social security. If the worker is over 60 years of age, he/she does not have to be registered for the National pension. If the worker is a foreigner, eligibility for each social security may vary depending on the agreement between his/her country and Korea.

A Company may decide to grant some allowances such as car allowance, meal allowance, childcare allowance, etc. Some of these allowances may not be taxable for the employee, upon meeting certain conditions.

To hire a foreigner, the following should be considered:

• Visa type/period
• Whether to apply a flat tax rate: Foreigners can apply for a flat tax rate (19%). In this case, all non-taxable allowances should be considered as taxable, and the application should be submitted by the employee.
• Eligibility for each social security: it can vary depending on the agreement between countries.

It is a public pension system directly operated by the Korean government. The premiums paid by workers during income-earning activities are paid back as a pension when income-earning activities are interrupted due to old age, sudden accident, or death. Every July, the premium and monthly base are updated with no annual settlement.

• 9.5%

  rate

• 4.75%

  employer's contribution

• 4.75%

  employee's contribution

This always goes with long-term care insurance. Every April, the premium and monthly base are updated with the annual settlement. Since the billed amount is calculated based on the average monthly salary of the previous year, the difference between the withheld amount and actual premium (based on actual income) should be paid/refunded in April of the following year.

• 7.19%

  rate

• 3.595%

  employer's contribution

• 3.595%

  employee's contribution

*Long-term care: health insurance X 13.14%  (=0.9448% of salary)

It can be divided into two parts: 1) Unemployment benefits and 2) Employment Security and Vocational Skills Development. Unemployment benefits are subsidies provided by the government when an employee is unavoidably dismissed, or a contract is terminated, while Employment security and vocational skills development are the government's support for free education to improve workers' vocational skills.

• 1.8%+0.25~0.85%

  rate

• 0.9%+0.25~0.85

  employer's contribution

• 0.9%

  employee's contribution

This is a system that subsidizes medical expenses and compensation for accidents or diseases that occur while workers are working. Unlike other insurances, it does not exclude anyone from coverage, so it applies to all workers, including foreigners and workers over 60 years of age. This is paid fully by the employer.  Similar to the Employment Security and Vocational Skills Development of employment insurance, the rate varies depending on the industry of the company.

• 0.56 ~ 18.56%*

  rate

• 0.56 ~ 18.56%

  employer's contribution

• 0%

  employee's contribution

*Varies by industry.

Employers are responsible for withholding both income taxes and social security contributions from employee wages at the time of payment. Monthly withholding taxes are calculated based on the simplified tax table provided by the National Tax Office, and the final tax will be settled through year-end tax settlement. Deductions for dependents and children between 8 and 20 years old can be available for monthly withholding tax.

10% of income tax should be withheld and paid to local tax offices as well.

Final tax for the year is to be settled in January of the following year. Employees apply for income/tax deductions such as dependent, credit card usage, house loan, etc., and employees pay additional tax or get a refund after settlement. The result should be reported and paid to the National Tax Service by March 10th.

It should be paid by the employer to the local tax offices if the average total income paid to employees for the recent 12 months exceeds KRW 180 million.

In Korea, according to the Labor Standards Act, every employer shall grant any employee who has worked not less than 80 percent of one year a paid leave of 15 days. For any employee who has continuously worked for less than one year or who has worked less than 80 percent of one year, one paid-leave day for each month during which he or she has continuously worked.
One day of paid leave must be added for every two years from the 3^rd year, and this shall not exceed 25 days. If there remains unused annual leaves remain at the end of the year, or when an employee resigns, it should be compensated as unused annual leave allowance.

Employers are required to pay employees for sick leave in cases of occupational injury or illness. Employees may be asked to submit a medical certificate from a doctor.

It is prohibited for employers to give a disadvantage to employees for being absent from work due to military duties. Salary should be paid for the relevant period.

Employers should grant family care leave if an employee applies for it urgently in case of a family member’s illness, accident, old age, or childcare. 
Family care leave can be up to 10 days per year, and it does not have to be given as a paid leave.
If an employer does not grant family care leave despite the employee’s application, KRW 5 million will be imposed as a penalty.

Employers are required to grant a female worker one day of menstruation leave per month upon her request, but it does not have to be given as a paid leave.

For pregnant female workers, employers must provide 90 days of maternity leave before and after childbirth. 45 days must be secured after giving birth, and in the case of multiple foetuses, 60 days out of 120 days of maternity leave should be secured. If the date of birth is later than expected and 45 days of leave after childbirth cannot be secured, the employer must grant additional leave to ensure 45 days after childbirth.

If an employee requests leave of absence due to his spouse giving birth, 20 days of leave must be granted as paid leave. Additionally, in principle, leave is to be used after childbirth, but if the leave period includes the expected date of delivery, leave can be claimed and used even before the date of childbirth. Paternity leave must be applied for within 120 days of the date of childbirth and can be used in instalments up to three times.

Where a pregnant female employee or an employee applies for a leave of absence in order to enjoy maternity protection or to raise his or her children (including adopted children) aged eight years or younger or in the second grade or lower of elementary school, respectively, the employer shall grant its permission. The period of childcare leave shall not exceed one year. The period of childcare leave shall be included in the period of his or her continuous service.

Severance pay is paid at the average wage for at least 30 days for one year of continuous employment.

The average wage is the total wage for the three months before the termination date divided by the total number of days in that period. It must be paid within 14 days of the termination date.

Severance pay = (average daily wage * 30 days * total continuous working days) / 365 days

Under the DC retirement pension, the employer each year reserves over 1/12 of an employee’s annual total wage in that employee’s retirement pension account; then, the employee invests the reserve and, when retiring from the company, receives the sum of the company’s contribution and his investment results, as a lump sum or a pension.

Under DB retirement pension, employees’ retirement benefits are defined in advance (same method as severance pay), and the company reserves the fund for paying retirement benefits in a bank. Employees can receive their retirement benefits as a lump-sum allowance or a pension after retirement. The company is responsible for the management of the reserve, and its contribution amount differs according to its management of the reserve.