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.
