Guide to Hiring in South Korea

Labour Law – Basics

What are the basic requirements for employers in South Korea?

• Labour Legislations

South Korea has approximately 40-50 legislative tools that make up labour/employment law in the country, such as:

• • The Labour Standards Act (LSA)
  • The Framework Act on Employment Policy
  • The Employment Security Act (ESA)
  • Act on Equal Employment
  • Industrial Accident Compensation Insurance Act
  • Labour Adjustment Act (LAA)

For the full list of labour law related legislation, please refer to the Relevant Links section below.

The primary piece of labour legislation is the Labour Standards Act which stipulates mandatory employee benefits, working hours, wages, and other key employer obligations.

It is important to note that the Labour Standards Act covers employees who are deemed workers per their written employment contracts. These employees must be working on a permanent/temporary and full-time/part-time basis. The Labour Standards Act also extends to dispatch workers, however, independent contractors are not covered.

In the event an employee’s employment contract contains terms that are less favourable than the minimum standards prescribed in the Labour Standards Act, the Act will prevail over the contract.

• Employer Contributions

In South Korea, the total amount of mandatory statutory contributions by the employer can range from 10.3491% or 28.8491% of the employee’s salary. A breakdown of contributions is as follows:

• • National Pension: 4.5%
  • National Health Insurance: 3.545% (Long-Term Care Insurance: NHI*0.9082%/7.09%=0.4541%)
  • Employment Insurance: 1.15% to 1.75%
  • Industrial Accident Compensation Insurance: 0.7% to 18.6%

What to note for existing employees?

• Individual Income Tax – The income tax that South Korean employees pay ranges from 6% – 45%, depending on their income bracket. The percentage of tax contributions as of 28 February 2023 are as follows:

Source: Ministry of Economy of Finance

It is important to note that these tax rates apply to both resident and non-residents   in South Korea. However, non-residents can now opt to be taxed at a flat rate of 19% instead of following the progressive rates, provided they are employed in South Korea no later than 31 December 2023. Non-residents will only be taxed on Korean-sourced income.

• Social Insurance

Korean employees pay national health insurance, national pension insurance, and employment insurance, excluding industrial accident insurance, among the 4 major social insurance policies.

• • National Pension: 4.5%
  • National Health Insurance: 3.545% (Long-Term Care Insurance: NHI*0.9082%/7.09%)
  • Employment Insurance: 0.9%

• Non-compete Agreements

Employers who want employees to enter non-compete agreements must ensure the agreements are reasonable and limited in scope. Typically, these agreements should not exceed 12 months and should contain a clause for compensation in lieu of the execution of the agreement.

What to remember when hiring new employees?

There is no requirement for the employment contract to be written per the Labour Standards Act unless the contract is for a part-time employee. If a contract is written, there is no requirement for it to be in Korean. However, this is highly recommended – especially if the contract involves local employees.

There is also no rule on paying bonuses of 13^th month salaries, however, it is common practice for these to be paid to employees across South Korea. Due to there being no regulations on the 13^th month salary, employers can make this payment at various periods throughout the year. However, most employers chose to pay it at the end of the year, typically December, aligning with the holiday season.

For information on other employer/employer obligations, refer to the ‘What are the basic requirements for employers in South Korea?’ and ‘What to note for existing employees?’ sections above.

What are the different discrimination laws in South Korea?

South Korea has several laws to protect against discrimination in the workplace, namely:

• The Constitution of South Korea
• The Labour Standards Act
• The Equal Employment Opportunity and Work-Family Balance Assistance Act (Equal Employment Act)

These laws may be read together to issues in the workplace such as racial/gender/religious discrimination, sexual harassment and profiling.

What are the working hours in South Korea?

At present, South Korean employees can work a maximum of 40 hours a week with 12 hours of overtime – a total of 52 hours.

Typically, overtime is paid at 150% of the standard salary rate or 200% for night work (after 10 pm).

In early 2023, the government announced plans to increase the limit to 69 hours per week – capping overtime at 29 hours. However, due to concerns raised regarding the limit being too high, there has been no update on whether this will actually be implemented, and the 52-hour workweek still stands for now.

READ MORE: Labour Law Insider- APAC 2023 Q2 Legislation Update

What is the legal probation period in South Korea?

There is no specific legislation on probation periods in South Korea – however the standard amount is usually 3 months. Since there is no legislation for it, employers are not prevented from extending an employee’s probation period.

In terms of termination during probation, the Labor Standards Act 1997 states that employers are not obliged to give employees notice before termination. However, if an employee wants to terminate the employment contract during probation, they will have to give the employer notice if the contract requires them to do so.

What are the minimum wage requirements in South Korea?

As of early 2023, South Korea’s minimum wage stands as per the following:

• 2,010,580 KRW per month (based on 209 working hours a month)
• 76,960 KRW per day (based on 8 working hours a day)
• 9,620 KRW an hour

South Korea’s hourly minimum wage increased by 460 KRW compared to 2022. The nation also has legislation – The Minimum Wage Act – to regulate wage increments.

Termination of Employment – Employment Insurance, Tax, Severance Payment & Long Service Payment

According to the Labour Standards Act, contract or regular employees may only be terminated due to a “justifiable reason attributable to the employee” or “urgent managerial necessity” after the completion of the employee’s probationary period. The Korean Supreme Court also insists that the reason must be “directly attributable to the employee”. In simpler terms, an employee can only be terminated for a strong reason such an issue that was directly caused by that employee or a managerial-level decision such as a layoff or bankruptcy.

If an employee is to be terminated, the employer must give a 30-day notice. Alternatively, the employer may offer monetary compensation in lieu of the notice.

Terminations must be properly communicated to the employee. Standards guidelines dictate the termination notices should:

• Be in writing.
• Include the reasons for termination.
• Include the date of termination.

However, it is not compulsory for termination notices to be issued in the following circumstances:

• It is impossible to provide such notice due to a natural disaster or other unavoidable reasons.
• The employee commits any intentional wrongful act or omission that has a serious adverse effect on the company’s business or operations. An example of this would be selling company data or breaching a non-compete agreement.
• The employee has worked for less than three months in the company.

Terminations that are done without following proper procedure may result in them being classified as ‘without just cause’, in which case, the employee may be able to ask for reinstatement to their job and a back pay.

In terms of payment during severance/termination, full-time employees are entitled to receive one month’s salary for each year of employment if they have worked for at least one year for more than 15 hours per week or more than 60 hours per month.

Employers are expected to make this payment within 2 weeks of termination.

What is the retirement age in South Korea?

At present, South Korea’s retirement age by law is 60 years old – for both males and females.

In mid-2022, there were plans to extend this age – however, there have been no updates since then.

Retirees in Korea are eligible to get a pension based on a progressive formula that totals both individual earnings and the average earnings of the insured as a whole. Pensions rates are typically reviewed every July. For July 2022 to June 2023, the pension contribution is capped at a monthly salary of 5,530,000 KRW, while the maximum monthly pension contribution to be paid by an employee is 248,850 KRW.

Employment dispute channels

Employees in South Korea can have their labour disputes heard through two main channels, namely the civil courts and the Regional Labour Relations Commission. Where a case can be heard depends on various factors such as the type of claim or value of the claim.

• Civil courts
  • Cases can be classified as either individual labour relations disputes or collective labour relations disputes.
  • Examples of individual labour relations disputes include contesting suspensions, transfers and disciplinary actions, payment of wages and retirement benefits or damages for injury caused by an employer’s acts.
  • Collective labour relations disputes would relate to damages caused by unlawful industrial actions of labour unions or the bargaining agreements.
  • For claims that exceed 500 million KRW or ones that cannot be valued, they will first be heard by a panel of judges in the district court. If the decision given by this court is appealed, it will then be heard by higher courts such as the High Court, and then the Supreme Court.
  • If a claim is valued at under 200 million KRW, it will only be heard by a single judge.
  • There may be a time limit for when a case can be brought to court. For instance, a claim related to wages has to be heard within 3 years, however, there is no time limitation for cases involving the invalidity of a dismissal.

• Regional Labour Relations Commission
  • The Regional Labour Relations Commission typically hears cases of unfair dismissals or unfair labour practices.
  • Claims must be filed within 3 months of the unfair dismissal of labour practice.
  • If a party disagrees with a decision made by the Regional Labour Relations Commission, they have 10 days to apply for a review by the National Labour Relations Commission.

Is employment insurance compulsory in South Korea?

Employers must mandatorily contribute to four types of insurance. Below are the types of insurances and contribution rates based on total taxable salary:

• National Pension: 4.5%
• National Health Insurance: 3.545% (Long-Term Care Insurance: NHI*0.9082%/7.09%)
• Employment Insurance: 1.15% to 1.75%
• Industrial Accident Compensation Insurance: 0.7% to 18.6%

All employees, regardless of the type of contract/working arrangement are eligible for social insurance coverage.