South Korea Payroll and Benefits Guide

What global businesses need to know about payroll in South Korea

If you’re looking for a forward-thinking, high-tech marketplace in Asia, then look no further than South Korea. Companies like Samsung, LG, Hyundai and KIA are now global leaders, thanks in no small part to extensive long-term investment into education and upskilling. South Korea now boasts the 13th-largest economy in the world by GDP, a top-quality and youthful workforce, and excellent trade links with all the big players around the world.

However, as is the case in many Asian economies, there are some cultural characteristics that can pose challenges to incoming businesses, not least from a payroll and employment perspective. This guide covers all the basics, so that you can start your South Korean expansion on the front foot.

Getting Started

To start up a business in South Korea, the individuals involved require visas (this will generally be one of the D-8 series of visas if you’re a foreign investor). The next step is to set up a business structure, and by far the most common in South Korea is a ‘chusik hoesa’, which is a joint-stock company with limited liability. It’s also worth noting that foreign companies are not allowed to use the word ‘hoesa’ in their names so that they are not mistaken for domestic organizations. 

Establishing a commercial entity in South Korea requires a minimum start-up capital of 100 million won (approximately £60,000, $77,000, €71,000).

Most business start-up functions can be carried out online at Start Biz, the South Korean government’s business portal. This covers various parts of the incorporation process, including the National Tax Information System, the Internet Registry Office, local tax payments and more. It also facilitates the checking of available web domains, trade name registrations, getting a tax ID number, opening bank accounts and registering for relevant insurances.

Companies must have an in-country bank account in place to make payments to employees and tax authorities. Banks are generally open from 9 am – 4 pm daily. 

Employment Considerations

Upon the hiring of a new employee, whether in-country or expat, companies operating in South Korea need to have that employee registered by mid-month of the first payroll period. Information on the employee should include:

  • the employment contract between company and employee
  • the employee’s start date, resident registration number and other details
  • the company’s payroll policy, including severance pay and payroll calculation

On top of this, expat workers will have to provide the South Korean social insurance authorities with:

  • A legal alien registration check
  • Health insurance and local medical expense information
  • National pension certificate
  • Employment insurance, depending on employee status

South Korea has historically had a culture of employees working long hours, but legislation has been introduced in recent years to clamp down on this. There is now a standard working week of 40 hours, and a hard limit of 52 hours when overtime is included.

How overtime is managed is up to the employer, who can choose to apply limits per week, month, quarter, or six-month or 12-month periods. Ultimately, employees cannot work more than 140 hours of overtime per quarter, 250 hours per six months, or 440 hours per year. Overtime should be paid at a 50% premium on top of the normal rate.

Probation periods are optional in law, but are usually provided by employers at a length of one to three months.

Compensation and Severance

South Korea’s national minimum wage has consistently risen in recent years. For 2024, it will rise to 9,860 won per hour (approx. £6.00, $7.60, €7.00). The minimum wage has risen every year since the 1990s, so be prepared for further changes in the future.

In general, salaries in South Korea are based on years of service rather than previous experience or skill sets, and so salaries tend to ramp up year by year. Depending on the industry, choice of profession and length of service, most professionals’ monthly salaries range from 2 million won (approx. £1200, $1550, €1400) to 10 million won (approx. £6100, $7700, €7100).

Termination notice is not mandatory, but a one-month notice period defined in employment contracts is customary. Severance pay is normally 30 days’ salary per year of service, including in cases where employees have resigned or retired.

Tax and Social Security Considerations

Companies have to register their employees for payroll in South Korea by the 15th day of the first month of operations. In doing so, the company can then begin to pay monthly withholding tax during the following month. Companies are also liable for tax registration in the first 20 days of operation to ensure they are complying with all of the Korean tax laws. Companies should allow about 4-6 weeks for this process to be finalized.

Employers withhold income tax from their employees when making payments to them. Income tax is levied progressively across eight bands: the lowest of 6% applies to the first 14 million won of annual earnings (approx. £8500; $10,800; €9900), and the highest of 45% applies to all earnings in excess of 1 billion won (approx. £610,000; $770,000; €710,000). On top of this, there is also a local income tax: the bands and thresholds are the same as for the main income tax, but at 10% of the rates (so between 0.6% and 4.5%).

Social security contributions in South Korea are as follows:

  • National Pension: 4.5% employer, 4.5% employee
  • National Health Insurance: 3.545% employer, 3.545% employee
  • Employment Insurance: 1.15%-1.75% employer (depending on industry), 0.9% employee
  • Long-Term Care: 0.455% employer, 0.455% employee
  • Worker Accident Compensation: 0.644%-18.6% employer (depending on industry and level of risk)
  • Resident Tax: 0.5% employer

Holiday and Leave Considerations

Paid holiday entitlement in South Korea increases based on length of service. Employees in their first year get one day per month worked. From the second year onwards, employees receive 15 days per year, increasing by one day of annual entitlement every two years. The maximum ceiling of 25 days per year is therefore reached at the 22nd year of service.

South Korea has 15 days of official public holidays every year, plus others that are occasionally added temporarily or to allow for elections. Due to recent changes to labor legislation, all businesses with at least five employees must now pay their staff paid leave for public holidays.

Maternity leave entitlement is 90 days, 45 either side of the birth (this is increased to a total of 120 days in the case of twins). Sixty of these are fully paid by the employer, and the remaining 30 are paid through state benefits at a lower percentage rate of salary. Provision for paid paternity leave has recently been extended to ten days, which fathers can divide into two separate breaks if they so wish. Half the paternity leave pay is covered by employers, and the other half is picked up by employment insurance.

Additionally, employees can take one year of childcare leave to look after children under the age of eight. Reforms that took effect at the start of 2022 mean that both parents can receive full salary (paid by state benefits) for any parental leave taken within 12 months of the child’s birth. This leave should be requested by the parents in writing at least 30 days in advance.

There is no statutory right to sick pay in South Korea, although a provision for it is usually included in employment contracts. Any absences caused by a work-related injury entitle the employee to 70% of their salary for a maximum of three months.

In Summary

South Korea is a top destination for international business in Asia, but it’s also a very different place culturally from what you might be used to. The marketplace is very competitive, and being organized and efficient is an absolute must. It’s easy to be concerned that staying on the right side of employment law while trying to grow your business in South Korea might be too much to handle. If that’s the case, working with a global payroll service provider, combining a technology-driven outlook with local expertise, can work wonders in both the short and long term.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

Scroll to Top