Severance Pay Calculator for South Korea

Key Features and Benefits

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  Average Wage Computation — Enter your total compensation for the three months preceding your separation date — including base salary, overtime, regular bonuses, and fixed allowances. The calculator sums these amounts, divides by the total calendar days in the three-month period (typically 89 to 92 days), and produces your daily average wage (일평균임금). This daily figure multiplied by 30 gives you the per-year severance amount. Getting the average wage right is the most critical step because every year of service multiplies this base figure.
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  Service Period Calculation — Enter your start date and end date, and the calculator computes your 근속연수 (continuous service period) in years and remaining days. Partial years are prorated. If you worked for 3 years and 7 months, the calculator computes severance for 3 full years plus 7/12 of a year. Korean courts have consistently ruled that the calculation must include partial periods — an employer cannot round down to the nearest full year. The calculator handles this proration automatically.
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  Severance Tax Estimation — 퇴직소득세 (retirement income tax) uses a special reduced tax formula that is more favorable than regular income tax. The taxable severance income is calculated by subtracting a 퇴직소득공제 (retirement income deduction) that grows with service length, then applying an annualization formula that spreads the income over the years of service before applying progressive tax rates. The calculator walks through each step of this multi-layered tax computation and shows you the after-tax severance amount alongside the gross figure.
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  DB vs DC Plan Comparison — If your employer offers a choice between DB and DC retirement pension plans, the calculator models both outcomes. The DB estimate uses the traditional 30-day average wage formula. The DC estimate projects the accumulated contributions plus assumed investment returns. In general, DB plans benefit workers whose wages rise significantly over their career, while DC plans can outperform if investment returns exceed wage growth. Seeing both numbers helps you make an informed election if your employer offers the choice.
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  Bonus Inclusion Analysis — Whether a bonus counts as part of average wage is a frequent source of disputes. The calculator includes a toggle for regular bonuses — those paid at fixed intervals based on predetermined criteria — and shows how including or excluding them changes the severance amount. For a worker earning 4 million won monthly base salary who receives 600 percent annual bonus (2 million won per month equivalent), including the bonus nearly doubles the severance payout. The stakes are high, which is why this distinction deserves careful analysis.
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  IRP Transfer Guidance — When you receive your 퇴직금, you can transfer it to an Individual Retirement Pension (IRP) account to defer taxation. If you transfer the full amount, no retirement income tax is withheld at the time of separation — the tax is deferred until you withdraw from the IRP, typically at retirement when your income and tax rate may be lower. The calculator shows the tax impact of immediate receipt versus IRP transfer, helping you decide which option preserves more of your severance.

How to Calculate Your Severance Pay

1. 1

   Determine Your Separation Date

   Your separation date is the last day of your employment — the day after which you no longer report to work. This date anchors the entire calculation. It determines the end of your service period and defines the three-month window used to compute average wage. If you are planning a voluntary resignation, you control this date. If you are being laid off, your employer sets it. In either case, confirm the exact date in writing. A difference of even a few days can change which months fall within the three-month window, potentially affecting the average wage if your pay varied across those months.

2. 2

   Gather Three Months of Wage Records

   Collect your payslips for the three complete calendar months immediately before your separation date. If you leave on March 15, the three-month period runs from December 1 to February 28 (or 29). Sum every form of compensation received during that period — base salary, overtime pay, regular bonuses, night shift premiums, holiday pay, and fixed allowances. Exclude reimbursements for actual expenses (실비변상적 급여) such as travel expense reimbursements, as these are not considered wages under the 근로기준법. If you received a quarterly bonus during one of those three months, include it in full. The calculator divides the total by the number of calendar days in the period to derive your daily average wage.

3. 3

   Calculate Your Daily Average Wage

   Divide the total three-month compensation by the total calendar days in the period. If the three months span December (31 days), January (31 days), and February (28 days), the divisor is 90. If your total compensation during those 90 days was 15 million won, your daily average wage is approximately 166,667 won. There is a floor — if the daily average wage computed this way is lower than the daily ordinary wage (통상임금 divided by working days), the higher of the two applies. Ordinary wage typically includes base salary and fixed allowances but excludes overtime and irregular bonuses. The calculator checks both figures and uses whichever is higher, as required by the 근로기준법.

4. 4

   Multiply by 30 Days and Service Years

   The statutory severance formula is: daily average wage multiplied by 30, multiplied by the number of years of continuous service. Using the example above — a daily average wage of 166,667 won and a service period of 5 years and 3 months (5.25 years) — the gross severance is 166,667 x 30 x 5.25 = 26,250,053 won. For each full year, you receive 30 days of average wage. For partial years, the fraction applies. This formula produces the minimum legal severance. Some employers offer more generous severance through collective bargaining agreements or company policy, but they cannot offer less.

5. 5

   Calculate Retirement Income Tax

   퇴직소득세 uses a special calculation under the 소득세법 that reduces the tax burden compared to taxing the full amount as regular income. First, a 퇴직소득공제 (retirement income deduction) is subtracted from the gross severance. This deduction increases with longer service periods — workers with more than 20 years of service receive the most generous deductions. The remaining amount is then divided by the service years to annualize it, and progressive tax rates are applied to the annualized figure. The resulting tax is multiplied back by the service years to produce the total retirement income tax. Local income tax at 10 percent of the retirement income tax is added. The calculator performs each step and displays the after-tax severance alongside the gross figure. For a 26.25-million-won severance after 5.25 years, the effective tax rate is often in the low single digits — far less than the marginal income tax rate would imply.

6. 6

   Decide on IRP Transfer or Direct Receipt

   Korean law allows you to transfer your severance directly into an IRP account. If you transfer the full amount, retirement income tax is deferred — you pay nothing at the time of separation. The tax becomes due when you eventually withdraw from the IRP, but if you withdraw after age 55 as retirement income, the tax rate is reduced by 30 to 40 percent compared to immediate taxation. If you need the cash immediately, you can receive it directly and pay the retirement income tax upfront. The calculator shows both scenarios — the after-tax amount for immediate receipt and the deferred tax benefit of an IRP transfer — so you can make a decision based on your current financial needs and long-term retirement plan.

Expert Tips for Maximizing Your Severance

Related Tools

Severance pay represents years of accumulated entitlement — the law's recognition that long-term employment deserves a financial safety net at separation. The Pension Calculator extends this view by projecting the national pension benefits you will draw in retirement, showing how your severance and pension work together as the two pillars of Korean retirement income. The Salary After Tax Calculator connects your current monthly take-home pay to the average wage figure that drives the severance formula, making it easier to verify calculations and anticipate the payout before your last day. And the Monthly Salary Calculator breaks down each payslip component — base salary, overtime, bonuses, allowances — so you know exactly which items count toward the average wage and which do not. Used together, these tools map your compensation from monthly earnings through career-end separation benefits, giving you a complete picture of the financial value your employment has built.