Severance Pay is a payment which the employer is required to pay an “employee” for a retiring, terminated or resigning employees that works for a company in Korea for, at least, one year. The reason for termination, retirement or resignation does not effect the applicability of the severance requirement. Even an employee who is fired due to fault can claim severance pay under Korean law.
Severance pay is a statutory liability of the employer. It doesn’t matter whether an employment contract provides the severance pay clause or not, because severance pay is a statutory right. The place of incorporation of the employer, also, doesn’t matter, so long as the employee provides services “habitually” within Korea.
Who Is Entitled to Severance under Korean Law?
EMPLOYEE MUST HAVE AT LEAST ONE YEAR OF CONTINUOUS SERVICE
Under Korean law, every retiring, terminated or resigning employee is entitled to severance pay, except an employee whose continuous service period is less than one year and an employee whose average weekly working hours over a four-week period is less than 15 hours. All other “employees” working in Korea are entitled to severance.
“EMPLOYEE” UNDER THE KOREAN LABOR STANDARDS ACT
Only “employees” are entitled to severance pay under Korean law. The term employee is defined by the Korean Labor Standards Act and court precedent. In short, an “employee” is anyone who provides labor pursuant to the employer’s instructions or directions in exchange for wages. This does not rely on how the contract describes the title of the person. Even if the contract defines the party as an independent contractor or agent, the person can be classified as an employee when the content of service and how the worker works fall within the character of an employment relationship. This area of law is a complex area and the specific facts matter. We have numerous detailed explanation of an “employee” that can be found via a search of this blog.
The important factors for classifying someone as an employee are, among other things, (i) whether the person receives instructions or directions from an employer, so there exists a superior/subordinate relationship and (ii) whether the wages the person receives are of a nature that compensates for the labor he or she provided.
CALCULATION OF KOREAN SEVERANCE PAY
The amount of severance pay is determined based on the employee’s “average” monthly wages and the total duration of their employment with the company. Thus, if one resigns, is terminated for cause or retires the employee should receive one month’s wages as severance for each year (after serving one year with the company) of service to the company (pro rata after first year of service).
If you would like to learn more about Korean Labor or Employment Law, you may schedule a No-Charge Initial Consultation with an attorney in Korea at: Please Schedule a Call with a Korean Attorney
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