Injoys
In principle, severance pay is compensation paid to an employee upon retirement. However, under South Korea’s current severance pay system, there is an exception that allows an employee to receive an advance settlement of severance pay already accrued prior to retirement, provided the employee meets the conditions specified by law and the employer consents.
Conclusion at a Glance
An interim settlement of severance pay is not an “advance payment that can be received at any time if needed.” The following three conditions must all be met.
| Check Items | Key Points |
|---|---|
| Eligibility | The employee must be covered by the severance pay system; generally, the requirements of at least one year of continuous service and an average of at least 15 hours of scheduled working hours per week over a four-week period are considered first. |
| Statutory Reasons | The request must fall under one of the reasons specified in the Enforcement Decree, such as purchasing a home, paying a jeonse (lump-sum rental deposit) or security deposit, long-term medical care expenses meeting certain criteria, bankruptcy or personal rehabilitation within the last five years, or participation in a wage peak or reduced working hours program. |
| Employer’s Approval | Even if an employee meets the requirements, the employer is not legally obligated to pay; the company may refuse to grant the request. |
What Is Severance Pay?
Severance pay is a form of retirement benefit paid by the employer when an employee retires. Under the “Employee Retirement Benefits Guarantee Act,” employers who have established a severance pay system must have a system in place to pay severance pay equivalent to at least 30 days’ worth of average wages for each year of continuous service.
Average wages are calculated by dividing the total wages paid to the employee during the three months preceding the date on which the grounds for calculation arose under the “Labor Standards Act” by the total number of days in that period. In practice, the following formula serves as the basic structure for calculating severance pay.
text Severance Pay = Average Daily Wage × 30 days × Number of Days of Continuous Service ÷ 365
However, there are exceptions to the calculation of average wages. In cases where the calculated average wage is lower than the regular wage, the regular wage must be used as the basis; therefore, when calculating the actual amount, it is necessary to verify both the wage components and any periods excluded from the calculation.
Meaning of Interim Settlement of Severance Pay
An interim settlement of severance pay refers to an employee receiving severance pay in advance for the period of continuous service already completed prior to retirement. Legally, the framework stipulates that an employer may, upon an employee’s request for reasons specified by Presidential Decree, settle and pay the severance pay corresponding to that employee’s period of continuous service in advance of retirement.
The key point is the phrase “may pay.” This establishes exceptional grounds under which an interim settlement is possible; it does not mean that payment is automatically made simply based on the employee’s request.
Statutory Grounds for Early Settlement of Severance Pay
As of July 5, 2026, the main grounds for early settlement under Article 3 of the “Enforcement Decree of the Act on the Guarantee of Retirement Benefits for Workers” can be summarized as follows.
| Category | Permissible Grounds | Key Requirements |
|---|---|---|
| Purchase of a Home | When an employee who does not own a home purchases a home in their own name | The employee must not own a home as of the application date, and the home must be purchased in their own name. |
| Jeonse or Security Deposit | When a worker who does not own a home pays a jeonse or security deposit for residential purposes | Limited to one instance during employment at a single business. |
| Long-Term Medical Expenses | When the employee, their spouse, or a dependent of the employee or spouse requires medical care for at least 6 months due to illness or injury | The medical expenses borne by the employee must exceed 125/1,000 of their total annual wages. |
| Bankruptcy | If the employee was declared bankrupt within five years prior to the application date | The court’s bankruptcy declaration serves as the basis. |
| Personal Rehabilitation | If the employee received a decision to commence personal rehabilitation proceedings within five years prior to the application date | The court’s decision to commence personal rehabilitation proceedings serves as the basis. |
| Wage Peak System, etc. | When a system is implemented under which wages are reduced based on certain age, length of service, or wage amount as a condition for extending or guaranteeing the retirement age | Verified through employment rules, collective bargaining agreements, employment contracts, payroll records, etc. |
| Reduction in Scheduled Working Hours | When the scheduled working hours are reduced by at least 1 hour per day or 5 hours per week by mutual agreement between the employer and the employee, and the employee agrees to continue working for at least 3 months based on the reduced hours | An agreement to reduce working hours and a plan to continue working for at least 3 months are required. |
| Reduction Related to the 52-Hour Workweek | Cases where severance pay is reduced due to a reduction in working hours resulting from amendments to the Labor Standards Act | The reduction in severance pay must result from a reduction in statutory working hours. |
| Disaster Damage | Cases where damage was sustained due to a disaster and the circumstances fall under the grounds specified and announced by the Minister of Employment and Labor | Examples include damage to residential facilities, missing family members, or injuries requiring hospitalization for 15 days or more. |
Criteria That Are Particularly Confusing by Reason
1. Home Purchase by a Non-Homeowner
Whether an employee is a non-homeowner is determined based on the employee themselves. This does not mean that all household members must be non-homeowners; what matters is whether the employee has a home registered in their own name as of the application date.
The home must be purchased in the worker’s own name. In principle, purchasing a home held solely in the spouse’s name does not qualify under this ground; however, purchasing a home held jointly by the couple may be considered a valid reason.
In practice, the application period is generally defined as within one month after the date of the real estate purchase contract and the completion of the title transfer registration. The company typically verifies documents such as a certified copy of the resident registration, an extract from the building registry or building management ledger, a certificate of property tax assessment or exemption, and the purchase or pre-sale contract.
2. Burden of Jeonse or Rental Deposit
Not only jeonse deposits but also monthly rent deposits under residential lease agreements may be included in the rental deposit. If a new contract is signed at the same location due to an increase in the deposit, this may qualify as grounds for an interim settlement; however, if the contract is merely extended without an increase in the deposit, it is difficult to consider this as grounds for an interim settlement.
This reason is limited to one occurrence during employment at a single company. Therefore, you must verify whether you have previously received an interim settlement from the same company for the same reason.
3. Medical Treatment Lasting 6 Months or Longer and Medical Expenses
The mere fact that “treatment is required for 6 months or longer” is not sufficient. The current enforcement decree requires that the employee, their spouse, or a dependent of the employee or spouse require medical care for 6 months or longer due to illness or injury, and that the employee bears medical expenses exceeding 125/1,000 of their total annual wages.
Medical care does not refer solely to inpatient treatment. If a certain level of treatment is required due to an illness or injury, periods of outpatient treatment and medication may also be included in determining the duration of medical care. Total annual wages are generally determined based on the total wages of the worker who applied for the interim settlement for the immediately preceding year.
4. Bankruptcy and Personal Rehabilitation
Both a bankruptcy declaration and a decision to commence personal rehabilitation proceedings must have occurred within the five years prior to the application date. For bankruptcy, the key criterion is whether the event occurred within five years of the bankruptcy declaration date, regardless of whether a discharge or restoration of rights has been granted.
For personal rehabilitation, the court’s decision to initiate personal rehabilitation proceedings serves as the benchmark. Personal workout or pre-workout programs administered by the Credit Recovery Committee differ from a court’s decision to initiate personal rehabilitation proceedings and therefore cannot be considered the same grounds.
5. Wage Reductions and Shortened Working Hours
The wage peak system, reduction of standard working hours, and implementation of the 52-hour workweek are factors that take into account situations where the basis for calculating future severance pay may be lowered, potentially placing employees at a disadvantage. In such cases, it is necessary to verify which specific systems are actually being implemented, how wages or working hours are being reduced, and whether this results in a reduction in severance pay.
Is the Company Required to Provide an Interim Settlement?
No. While an employee “may request” an interim settlement if they meet the statutory grounds, it cannot be assumed that the employer is required to grant the request. Both the Living Law Information website and the Ministry of Employment and Labor explain that even if an application for an interim settlement is possible, the employer may refuse to approve it and therefore not make the payment; thus, you should confirm in advance whether payment will be made.
Therefore, in practice, the following steps are recommended:
- First, confirm whether you meet the statutory grounds.
- Review the company’s application form for an interim severance pay settlement and its internal procedures.
- Prepare supporting documents for your specific reason.
- After the company reviews your reason and supporting documents, it will determine whether to pay and when the payment will be made.
How Is Severance Pay Calculated After an Interim Settlement?
If you receive an interim settlement of your severance pay, the continuous service period used to calculate future severance pay is, in principle, recalculated from the date of the settlement. For example, if you receive an interim settlement for five years of service and continue working, your severance pay for the period after the interim settlement will be recalculated when you eventually retire.
However, even if you work for less than one year after the interim settlement and then retire, as long as your total continuous service period is already one year or more, the months or days worked after the interim settlement may be included in the severance pay calculation on a pro-rata basis.
Documents to Be Prepared by the Company and the Employee
While the required documents vary depending on the reason, the following materials are commonly requested.
| Purpose | Example Documents |
|---|---|
| Confirmation of Intent to Apply | Application for Interim Severance Pay Settlement, application date, period subject to settlement, reason for application |
| Verification of Identity and Family Relationships | Resident Registration Transcript, Family Relationship Certificate |
| Verification of Homeownership Status | Building Register Extract, Building Management Register, Property Tax Assessment or Exemption Certificate |
| Confirmation of Home Purchase | Sales Contract, Pre-sale Contract, Building Permit, Documents Related to Successful Bid |
| Confirmation of Lease Deposit | Jeonse or Lease Agreement, Receipt for Final Payment |
| Verification of Long-Term Care and Medical Expenses | Medical Certificate, Medical Opinion, Long-Term Care Confirmation, Medical Expense Receipt, Detailed Medical Expense Statement |
| Verification of Total Wages | Withholding Tax Receipt, Pay stub, Total Compensation Report |
| Verification of Bankruptcy or Personal Rehabilitation | Court Order of Bankruptcy, Order to Commence Personal Rehabilitation Proceedings, Certificate of Final Approval of Repayment Plan |
| Verification of Wage Peak or Reduced Working Hours | Employment Rules, Collective Bargaining Agreement, Employment Contract, Annual Salary Agreement, Pay Stubs, Agreement on Reduced Working Hours |
If an employer has settled and paid severance pay in advance based on grounds for interim settlement, the employer must retain the relevant supporting documents until the date five years after the employee’s resignation.
Common Misunderstandings
- The mere fact that an employee “needs living expenses” does not constitute grounds for interim settlement of severance pay.
- For the reason of purchasing a home by a non-homeowner, whether the employee is a non-homeowner is determined based on the employee personally, not the entire household.
- The reason of paying a jeonse (lump-sum rental deposit) or lease deposit is limited to one time per business.
- For the reason of long-term care, the requirement for the need for care lasting six months or longer must be met, along with the requirement regarding the burden of medical expenses.
- Since the company may refuse to approve an interim settlement, it is safest to confirm the company’s ability to pay before signing a contract or setting a balance payment schedule.
- Once you receive an interim settlement, the severance pay for that period is considered settled; therefore, in principle, it is not appropriate to claim the same period again upon final retirement.
Practical Checklist
If you are considering an interim settlement of your severance pay, it is advisable to answer all of the questions below.
| Question | Points to Check |
|---|---|
| Am I eligible for the severance pay system? | Check your continuous service period, scheduled weekly working hours, and the type of severance pay system. |
| What exactly is the statutory reason? | Determine which category applies: home purchase, security deposit, medical expenses, bankruptcy, personal rehabilitation, wage reduction, or natural disaster. |
| Is the timing of the application correct? | Check the applicable timeframes for each reason, such as one month after housing registration, one month after payment of the balance of the security deposit, or one month after the end of medical treatment. |
| Do I have sufficient supporting documents? | You need objective evidence that allows the company to verify the statutory grounds and requirements. |
| Has the company approved the request? | Even if the reason qualifies, you must confirm the company’s approval and the payment schedule. |
| Do you understand how this will affect your severance pay after settlement? | Confirm that the period for calculating severance pay will be recalculated from the date of settlement. |
Summary
An interim settlement of severance pay can only be considered when there are exceptional reasons specified by law, such as the purchase of a home, jeonse (lump-sum lease) or security deposits, long-term medical care expenses meeting certain requirements, bankruptcy or personal rehabilitation within the last five years, participation in a wage peak system or reduced working hours, or damage from a natural disaster. However, even if a reason falls under the statutory exceptions, the company is not necessarily required to pay; therefore, you must verify the reason, timing, supporting documentation, and whether the company has approved the request before applying.
