Types of Payroll Taxes in South Korea

Navigating payroll taxes in South Korea is essential for employers, HR teams, and international businesses. Whether you're expanding operations, hiring locally, or managing employees through a third party, understanding the types of payroll taxes is not only a legal requirement but a critical part of smooth business operations.

This guide breaks down South Korea’s payroll tax system, including mandatory contributions, employer-employee responsibilities, and best practices for compliance. Whether you're managing Korea payroll in-house or through Payroll outsourcing Korea, staying informed is key to reducing financial and legal risks.

Understanding the Types of Payroll Taxes in South Korea

South Korea has a structured and comprehensive payroll system that includes two primary tax components:

1. Income Tax Withholding

2. Social Security Contributions

   
   

These taxes fall under different payroll tax categories, each funding vital public services like healthcare, pensions, and unemployment benefits. Both employers and employees share responsibility for contributions, with employers taking the lead on collection, reporting, and remittance.

Let’s explore these types of payroll taxes in more detail.

1. Income Tax Withholding

Progressive Income Tax System

Employers in South Korea must deduct income tax from employee salaries each month and remit it to the National Tax Service (NTS). South Korea uses a progressive tax system, where tax rates increase with income levels.

2025 National Income Tax Rates (Excluding Local Surtax):

• Up to KRW 12 million: 6%

• KRW 12 million – KRW 46 million: 15%

• KRW 46 million – KRW 88 million: 24%

• KRW 88 million – KRW 150 million: 35%

• KRW 150 million – KRW 300 million: 38%

• KRW 300 million – KRW 500 million: 40%

• KRW 500 million – KRW 1 billion: 42%

• Over KRW 1 billion: 45%

Local Income Tax (Resident Tax)

In addition to national income tax, a local income tax is also applied. This is generally 10% of the national income tax and is also withheld by the employer.

2. Social Security Contributions (Mandatory Payroll Taxes)

Social security contributions are mandatory payroll taxes covering four major insurance programs. These taxes are typically split between the employer and employee and fall under the broader payroll tax categories recognized by the South Korean government.

a. National Pension (NP)

• Total Rate: 9% of monthly salary

  • Employer: 4.5%

  • Employee: 4.5%

• Salary Cap (2025): KRW 6,170,000/month

• Tax Deductibility: Employee contributions are deductible

The National Pension supports retirement income for all workers and is one of the largest social programs in Korea.

b. National Health Insurance (NHI)

• Base Rate: 7.09% of salary

  • Employer: ~3.545%

  • Employee: ~3.545%

• Long-Term Care (LTC): 12.95% of the NHI premium is added

• Contribution Cap: KRW 9,008,340/month (2025)

This program includes medical coverage and long-term care benefits for chronic illnesses or disability.

c. Employment Insurance (EI)

• Employee Contribution: 0.9%

• Employer Contribution: 1.15% to 1.75%

  • Varies by company type and industry

• Foreign Workers: May be exempt if a bilateral treaty is in place

This insurance supports job seekers and includes job training, unemployment benefits, and employment stability services.

d. Workers’ Compensation Insurance (WCI)

• Employer-only Contribution: 0.7% – 18.6%

• The rate varies by industry and occupational risk level

This insurance provides compensation for workplace injuries, occupational diseases, and commuting accidents.

Payroll Responsibilities: Employer vs. Employee

Employer Responsibilities

Employers in South Korea have the primary responsibility to manage payroll taxes correctly. These include:

• Tax Withholding & Remittance: Deduct and submit income tax and social insurance

• Reporting: Monthly and annual reports to tax authorities

• Deadline Compliance:

  • Income and local taxes: by the 10th of the following month

  • Social insurance: by the 15th of the following month

• Recordkeeping:

  • Payroll and tax records: Keep for 5 years

  • Health insurance documents: Retain for 3 years

• Other Employer Obligations:

  • Pay at least the minimum wage (KRW 10,030/hour in 2025)

  • Comply with overtime laws (150% for extra hours, 200% after 10 PM)

  • Severance Pay: Required after 1 year of service, unless a pension alternative is in place

  
  

Employee Responsibilities

Employees also have tax responsibilities, primarily through payroll deductions:

• Paying Social Insurance Contributions: Automatically deducted by the employer

• Year-End Tax Settlement: An annual adjustment to ensure correct taxation

• Tax Deductions & Credits:

  • Pension contributions are deductible

  • Other deductions: Medical expenses, education, life insurance, and dependents

Payroll Tax Considerations for Foreign Companies and Expats

For Foreign Businesses

Foreign companies operating in Korea must choose how to handle payroll:

• Set up a Local Entity: Open a Korean branch or subsidiary

• Use Payroll Outsourcing Korea: Partner with an Employer of Record (EOR) or payroll firm

Using a Payroll outsourcing Korea provider helps foreign firms stay compliant with local tax rules while minimizing overhead.

For Expatriates

Expats working in South Korea should consider the following:

• Visa Requirements: Work permits like E-7 or D-8 are necessary

• Tax Residency:

  • Residents are taxed on global income

  • Non-residents are taxed on Korea-sourced income only

• Bilateral Social Security Agreements: May exempt expats from double pension contributions

Working with a local payroll expert or outsourcing firm helps expatriates and their employers understand which payroll tax categories apply to them.

The Role of Payroll Outsourcing in Korea

For many companies, especially those without a local HR department, Payroll outsourcing Korea is the most effective way to manage tax and compliance obligations. These service providers handle:

• Salary calculations

• Payroll tax filing

• Benefit deductions

• Legal compliance and reporting

Outsourcing payroll allows businesses to focus on operations while ensuring timely and accurate tax handling.

Common Compliance Mistakes to Avoid

Failing to understand the types of payroll taxes can result in:

• Hefty fines

• Interest on late payments

• Government audits

• Employee dissatisfaction

Even unintentional misreporting can cause significant legal and financial repercussions. That’s why many international companies choose to work with Korea payroll specialists or professional service firms.

Stay Informed, Stay Compliant

Understanding the different types of payroll taxes, their corresponding payroll tax categories, and your responsibilities as an employer or employee in South Korea is crucial. These mandatory payroll taxes support the country's well-developed social welfare system and are strictly regulated.

Whether you're managing payroll internally or working with a Payroll outsourcing Korea provider, staying up to date on tax rates, contribution limits, and filing deadlines is key. This not only ensures legal compliance but also builds trust with employees and regulators alike.

Investing in the right Korea payroll solution—whether through in-house systems or outsourcing—will save you time, reduce errors, and allow your business to grow confidently in South Korea’s competitive landscape.