Severance pay — 퇴직금 in Korean — is money an employer pays a departing employee based on how long they worked and how much they earned. It applies whether you resign, are let go, or retire, and for many people it is one of the largest single payments they will receive from a job. Understanding roughly how it is calculated helps you sanity- check the figure you are offered.
This is a general explainer, not legal or tax advice. Rules and tax treatment change over time, so confirm specifics with your employer, the Ministry of Employment and Labor, or a qualified professional before relying on a number.
Who qualifies
In broad terms, an employee is entitled to severance if they have worked for the same employer continuously for at least one year and average 15 or more working hours per week. Very short-term or minimal-hours arrangements may fall outside the requirement. Entitlement generally does not depend on the reason you leave — resignation and dismissal are both covered.
The standard estimate
The statutory minimum is built around a simple idea: about 30 days of your average wage for each year of service. The two inputs that matter are therefore your average wage and your length of service.
Average wage (평균임금)
Average wage is usually calculated from the total wages you earned in the three months before you left, divided by the number of calendar days in that period. Crucially, this includes more than base salary — regular allowances and a proportional share of your annual bonus and unused-leave pay are typically folded in. That is why severance is often larger than people expect: it is based on total compensation, not just base pay.
Years of service
Length of service counts your full continuous employment, including partial years on a pro-rated basis. Someone who worked three years and six months is credited for the full period, not rounded down to three.
Severance ≈ Average daily wage × 30 days × total years of service
Lump sum vs. retirement pension (퇴직연금)
Historically severance was paid as a single lump sum when you left. Many employers now use a retirement pension system instead, which sets money aside during your employment. There are two common types:
- Defined Benefit (DB) — your payout is tied to your salary near the end of employment, similar in spirit to the classic lump-sum formula.
- Defined Contribution (DC) — your employer contributes a set amount regularly, and the final value depends on how those contributions are invested over time.
Which system you are in affects both the final amount and when and how you can receive it, so it is worth checking with your HR team.
How severance is taxed
Severance is treated as retirement income, which is taxed separately from your regular salary and generally more favorably, especially for long service. The calculation applies deductions that grow with your years of service, so the effective tax rate on severance is often lower than on an equivalent amount of ordinary income. The exact method is set by tax law and updated periodically.
Estimating your own figure
Because average wage pulls in bonuses and allowances, a back-of-the- envelope calculation using only your base salary will usually understate your severance. If you want a realistic estimate, use a tool that lets you enter your recent total pay and your start and end dates. CalKit's severance calculator does exactly that and returns an estimate you can use as a starting point for discussion with your employer.