Key Payroll Obligations Foreign Companies Must Know Before Hiring in Korea

Are you looking to hire in South Korea? 

Of course, it is an exciting opportunity for global growth. However, the strict, employee-centric legal framework is something you cannot afford to overlook. Also, keep in mind that navigating payroll obligations is more than just maintaining administrative accuracy. Rather, it is a matter of strict legal compliance with the Labor Standards Act (LSA) and the Ministry of Employment and Labor (MOEL). 

Are you aware of the role of the “Four Major Insurance” in payroll? Do you know about the 52-workweek? Getting familiar with such terms can be overwhelming. This guide has outlined the key obligations every foreign employer should know to operate in compliance with the nation. 

Understanding the "Four Major Insurances"

The cornerstone of Korean payroll laws is the mandatory social insurance system. All companies with one or more employees must register their staff for these four schemes. In most cases, the costs are split between the employer and the employee.

National Pension (NP)

As of 2025, the contribution rate remains 9% of the employee's monthly salary, capped at a monthly income of KRW 6,370,000 (valid through June 2026).

• Employer Share: 4.5%

• Employee Share: 4.5%

Note: From January 1, 2026, this rate is scheduled to begin a phased increase to reach 13% by 2033.

National Health Insurance (NHI) & Long-Term Care

This provides universal healthcare. For 2025, the rate is 7.09%.

• Employer Share: 3.545%

• Employee Share: 3.545%

• Long-Term Care: An additional premium is added to the NHI bill. Long-Term Care Insurance is calculated as an additional percentage of the National Health Insurance contribution.

Employment Insurance (EI)

These funds are for unemployment benefits and job training.

• Employer Share: 1.15% to 1.75% (depends on company size/industry).

• Employee Share: 0.9%

Industrial Accident Compensation Insurance (IACI)

This is 100% employer-funded. Rates vary significantly by industry risk, ranging from 0.7% to 18.6%. However, a standard office-based foreign branch is eligible for the lower rates. 

Statutory Wage Requirements: Minimums and Overtime

It is important to be wary of the work hours set for your employees in South Korea. Korea has a mandatory 52-hour maximum workweek (40 standard hours + 12 overtime hours) in place to protect workers from overwork. 

2025 Minimum Wage

Effective from January 1, 2025, the minimum wage in South Korea will be KRW 10,030 (Korean Won) per hour. Therefore, the monthly salary for a full-time employee working a typical of 209 hours per month (converted into weekly work days) will be KRW 2,096,270. If the employee's pay does not meet this minimum pay requirement, the employer can be subject to criminal penalties.

Overtime and Premiums

Under South Korea's Labor Standards Act, an employer is required to compensate employees for work outside of the normal working hours (overtime pay). When calculating overtime pay and premium pay, an employer will be able to determine how much an employee's "Ordinary Wage" will be.

• Overtime Pay (i.e., if employees work more than 8 hours in a day, or work more than 40 hours in a week): an additional 50% (1.5 times the total ordinary wage)

• Night Work (i.e., work performed between 10 PM and 6 AM): additional 50% premium pay

• Holiday Work (i.e., work performed on a holiday): 50% premium for the first 8 hours worked, 100% premium for every hour over 8 hours worked on that day.

If an employee works overtime at night, the premiums are cumulative. For example, overtime performed at 11 PM would require a 200% payment (Base 100% + OT 50% + Night 50%).

The "Retirement Allowance" (Severance Pay)

One of the most distinct payroll obligations in Korea is the statutory severance pay, known as Taejikgeum. This is not an optional "bonus"—it is a legal right for any employee who has worked for more than one year and averages more than 15 hours per week.

How it is calculated

The minimum pay that the employer has to make is 30 days of average wage per year of continuous service.

Average Wage: This is the sum of all payments (base salary, fixed allowances, and bonuses) made within the last three months of termination.

Timeline: The payment should be made within 14 days from the employee’s date of terminatio.

Generally, foreign companies often opt for the Defined Contribution (DC) pension plan. In this plan, the company makes monthly contributions of 1/12th of the annual salary to an external account. This will avoid the so-called accrual shock that happens when an employee who has been employed long-term leaves with a much higher final salary than when they joined.

Income Tax Withholding and Year-End Tax Settlement

Foreign employers act as "withholding agents" for the National Tax Service (NTS).

Monthly Withholding

Employers must deduct progressive income tax (6% to 45%) and a 10% local income tax from monthly wages. These funds must be remitted to the tax office by the 10th of the following month.

The Year-End Tax Settlement (Yeon-mal-jeong-san)

The taxation in Korea is the responsibility of the employer, unlike in many Western countries, where the person does their own taxation. In February, businesses are required to collect expense receipts (medical, education, use of credit card) of employees to determine final tax liabilities of the last year. Although this is an automated process through the NTC “Hometax portal”, it requires diligent internal coordination. 

Compulsory Paid Leaves and Vacations.

Payroll calculations should include paid time off. Under Korean payroll laws:

Annual Leave: 

Full-time employees who have worked for one year with at least 80% attendance have the right to 15 days of paid leave. Every two years of service, one additional day, with a limit of 25 days.

Weekly Rest Day: 

Employees are allowed to have at least one day off every 40 hours of work (typically on Sunday). This Weekly Holiday Pay is already factored into the regular monthly payment of full-timers.

Public Holidays: 

Since 2022, every private company that has 5 or more employees will have to offer paid leave on red-letter days (Chuseok, Lunar New Year, etc.).

Detailed Payslips: A Legal Requirement.

As of 2021, it is unlawful to simply transfer a net amount to the bank account of an employee. Employers are required to provide an itemized, detailed payslip which contains:

• Components breakdown: Base salary, different allowances (meal, transportation).

• Calculation procedures: Detailed hours and multipliers of overtime or night work.

• Deduction: The four amounts of the insurance and income tax.

The inability to issue these payslips may lead to a fine of up to KRW 5 million each time.

Summary of Key Payroll Obligations

Obligation	Responsibility	Frequency
Minimum Wage	KRW 10,030 / hour (2025)	Monthly
Social Insurances	~9-11% Employer contribution	Monthly (by the 10th)
Income Tax	Withholding at source	Monthly (by the 10th)
Severance Pay	30 days of avg. wage per year	Upon termination (within 14 days)
Annual Settlement	Reconciling tax for all staff	Annually (February)
Payslips	Detailed itemization	Monthly

Conclusion

South Korea has a transparent and employee-friendly payroll law. Any new foreign company entering South Korea can find such guidelines overwhelming to comply with. 

To successfully navigate these Korean payroll laws, it takes more than a spreadsheet; it takes localized experience or a strong payroll partner to make sure that your entry into the Korean market is compliant, smooth, and sustainable. If you are looking for the one, we at J&J Korea can help you navigate all payroll obligations in the country. Get in touch now!