South Korea is a dynamic and tech-savvy country in East Asia, known for its strong economy and skilled workers.
If you are looking to set up a business in South Korea, one of the essential things to understand is the nation’s payroll system. Payroll is the process of calculating and distributing salaries to employees.
Because of its distinct rules, laws, and cultural differences, managing payroll in South Korea needs specific know-how and skills.
If you are establishing a company in South Korea and want to get familiar with the country’s payroll, this guide will help you.
Let’s get started!
Understanding the Components of Payroll in South Korea
In South Korea, labor regulations are governed by the Labor Standards Act 5309 of 1997. This act outlines essential employment provisions covering contracts, leaves, termination, working hours, and more.
For international employers looking to hire and compensate employees in South Korea, certain factors are critical to consider:
In South Korea, the rules for workers are in the Labor Standards Act of 1997. This law covers important things like contracts, time off, ending a job, and how many hours people work.
If a company from another country wants to hire and pay workers in South Korea, they need to remember a few things:
Minimum Wage:
The minimum wage has been revised in South Korea from 01 January 2024. The minimum wage has been increased from ₩9,620.00 to ₩9,860.00 per hour.
Extra Work:
Workers can agree to work up to 12 extra hours each week, getting paid 50% more for those hours.
Work Hours:
Most people work eight hours a day or 40 hours a week. Working between 11:00 p.m. and 6:00 a.m. is considered night work.
Social Security:
Social security contributions are divided between employers and employees based on a percentage of monthly wages:
Employer Contributions:
· National insurance: 50% to 9%.
· National health insurance: 50% of 6.86%.
· Long-term care insurance: 50% of the 11.52% health insurance premium.
· Industry-specific assurance of industrial accident compensation: 0.6%–18.5%.
· Assurance of industrial accident compensation on incidents while commuting: 0.13– 0.1%.
· Unemployment insurance: 50% of 1.6%.
· Job security and vocational capacity insurance: 0.25 to 0.85%.
These components play a crucial role in ensuring compliance and effective payroll management for international employers operating in South Korea. Understanding and following these regulations is important for successful payroll practices in the country.
The Leave Policies in South Korea
Paid Leaves:
In South Korea, paid leave is a crucial benefit outlined in employment contracts. Employees start with a minimum of 11 days per year, alongside public holidays, kicking in after one year of service. This entitlement grows to 15 days in the second and third years and can reach up to 25 days after every third year of service, with the potential for additional days. Employers have the discretion to allow carryover allowances.
Public Holidays:
Public holidays are accommodated even if they fall on weekends, with alternative holidays now mandated as paid days off for small to medium-sized private businesses.
Sick Days:
Though not legally mandated, sick days are often provided by employers.
Maternity Leave:
Maternity leave is generous, offering 90 days of paid leave, extendable to 120 days for complex births. Maternity pay is covered by a combination of employer payments, government subsidies, and social security contributions.
Paternity Leave:
Fathers are entitled to at least 10 days of paid paternity leave, with both employers and social security/government contributing.
Parental Leave:
Parents can request up to one year of childcare leave for children under eight, with financial assistance provided by social security or the government. Starting January 1, 2022, both parents receive full monthly income during parental leave, replacing the previous arrangement where one parent received full pay and the other received 80%.
Payroll Taxes
Payroll tax refers to the portion of an employee's salary withheld and sent to the government to support the welfare of the general population. These taxes are mandatory and are collected from both the employer and the employee. Employers also make additional mandatory contributions to support their employees' short-term and long-term benefits.
In South Korea, payroll taxes are calculated progressively based on a percentage of employment income. Here's how they are evaluated:
· 6%: Applied to incomes ranging from zero to KRW 12 million.
· 15% (plus KRW 0.72 million): Applied to incomes from KRW 12 million to KRW 46 million.
· 24% (plus KRW 5.82 million): Applied to incomes from KRW 46 million to KRW 88 million.
35% (plus KRW 15.90 million): Applied to incomes from KRW 88 million to KRW 150 million.
· 38% (plus KRW 37.60 million): Applied to incomes from KRW 150 million to KRW 300 million.
· 40% (plus KRW 94.60 million): Applied to incomes from KRW 300 million to KRW 500 million.
· 42% (plus KRW 174.60 million): Applied to incomes from KRW 500 million to KRW 1 billion.
· 45% (plus KRW 384.60 million): Applied to incomes of KRW 1 billion and above.
These progressive tax rates ensure that higher-income earners contribute a larger percentage of their income toward government revenue, thereby promoting fairness in taxation.
The Termination Process
Termination Process:
In South Korea, the termination process typically revolves around two main reasons, which must be legally justifiable under the Korean Labor Standards Act. Employers must demonstrate a valid reason for termination, along with proving an urgent managerial necessity if laying off an employee.
Notice Period:
While there is no mandatory notice period specified by general labor law in South Korea, it's customary to provide one month's notice unless otherwise stated in the employment contract or company manual.
Severance Pay:
Employers are required to implement a retirement benefit system, typically the statutory severance pay system. Under this system, employees who have worked for at least one year are entitled to receive severance pay equivalent to 30 days' average wages for each year of continuous service, regardless of the reason for termination.
Probation Period:
Probation periods for permanent employees in South Korea are optional and usually last between one and three months. Employers rarely terminate contracts once the probation or training period is completed, as they would be liable to pay unemployment benefits.
Outsource Your Payroll to J&J Korea to Focus on Your Core Business Responsibilities
Are you tired of spending valuable time and resources on managing your company's payroll? Let J&J Korea handle it for you, so you can focus on what truly matters – growing your business.
Outsourcing your payroll to us means you can trust our expertise and experience in navigating South Korea's complex payroll landscape. We understand the intricacies of payroll regulations, ensuring compliance and accuracy every step of the way.
By entrusting your payroll to J&J Korea, you'll enjoy peace of mind knowing that your employees are paid correctly and on time, while you concentrate on driving your business forward. Let us streamline your payroll processes, reduce administrative burdens, and free up your time to focus on your core business responsibilities.
Contact us today to learn more about how outsourcing your payroll to J&J Korea can benefit your business.