Understanding what happens financially when you leave a job in Korea is especially important for foreign employees. Korea offers strong statutory protections around severance pay, and in certain cases, an additional system called Departure Guarantee Insurance (출국만기보험) may also apply.
I. Statutory Severance Pay in Korea (퇴직금)
1. Severance pay is a legal right, not a benefit.
Under Korean law, any employee—including foreign employees—who has worked for one year or more is entitled to statutory severance pay. The basic formula is approximately one month’s average wage for each completed year of service. This entitlement applies regardless of how or why the employment ends, meaning resignation, contract expiration, redundancy, or even termination for misconduct do not affect the right to receive severance.
2. The rule applies equally to foreign employees.
A common misconception among foreign workers is that severance pay is limited to Korean nationals or permanent residents. In reality, statutory severance is a mandatory entitlement under Korean labor law and applies equally to foreign employees who meet the minimum service requirement. Visa type or nationality does not change this basic rule.
3. Employers can pay severance directly or through a pension system.
Companies may comply with severance obligations in one of two ways. The first is paying severance directly at the end of employment based on the statutory formula. The second is adopting a retirement pension plan, in which case severance is paid according to the pension plan instead of a lump-sum calculation at termination.
4. Understanding DB and DC retirement pension plans matters.
If your employer uses a retirement pension system, it is crucial to confirm which type applies.
A Defined Benefit (DB) plan guarantees a severance amount calculated based on salary and years of service, with the employer bearing investment risk.
A Defined Contribution (DC) plan, on the other hand, involves regular employer contributions to an individual account, where the final payout depends on investment performance. Foreign employees should always check which system their company uses and manage DC accounts carefully, as investment choices directly affect the final severance amount.
5. Practical takeaway for foreign employees.
Always confirm your company’s severance or pension structure when joining a Korean company. Regardless of the reason for leaving, severance pay is not discretionary—it is legally protected. Knowing how it will be paid allows you to plan tax, remittance, and departure timing more effectively.
II. Departure Guarantee Insurance (출국만기보험) for Foreign Workers
1. What is departure guarantee insurance?
Departure guarantee insurance is a system designed specifically to ensure that foreign workers receive their severance pay when leaving Korea. Instead of paying severance directly at termination, the employer purchases an insurance policy for the foreign employee, which pays out when the employee departs Korea after employment ends.
2. Who is required to enroll in this insurance?
This insurance primarily applies to employers hiring non-professional foreign workers under the Employment Permit System (EPS). Employers must enroll eligible foreign employees in the insurance within 15 days from the effective date of the employment contract, naming the foreign employee as the insured or beneficiary. The obligation applies where the foreign worker has one year or more remaining in their permitted employment period.
3. Expansion of coverage to small workplaces.
Previously, severance-related obligations were limited mainly to workplaces with five or more employees. However, since 2010, the retirement benefit system—including mechanisms like departure guarantee insurance—has been expanded to cover workplaces with fewer than five employees, significantly strengthening protection for foreign workers in small businesses.
4. How the insurance works in practice.
The employer pays insurance premiums during the employment period, and when the foreign employee leaves Korea after employment ends, the insurance pays out an amount corresponding to statutory severance. This system reduces the risk of unpaid severance due to employer insolvency or disputes at the time of departure.
5. Enrollment and administration process.
Employers can enroll in departure guarantee insurance through employment training institutions, designated insurance providers, insurance company call centers, or regional customer support centers. From the employee’s perspective, it is important to confirm early on whether this insurance has been properly set up, as it directly affects how severance will be received later.
6. Why this matters for foreign employees.
For foreign workers planning to leave Korea after their contract ends, departure guarantee insurance offers an added layer of security. Instead of negotiating severance at the final stage of employment, the payout is structured in advance, reducing uncertainty and administrative stress during departure.
Final Thought for Foreign Employees in Korea
Korea’s system is distinctive in that statutory severance pay is guaranteed regardless of nationality, and additional mechanisms like departure guarantee insurance further protect foreign workers. By understanding both systems—standard severance rules and insurance-based protection—you can better safeguard your earnings and make informed decisions about employment, contract renewals, and your eventual departure from Korea.
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