Ⅰ. Concept


The Employees' Retirement Benefit Guarantee Act Chapter 2. Severance Pay System Article 8 (Establishment of a Severance Pay System)
① An employer who intends to set up a severance pay system shall set it up in a way that it can pay workers who retire 30 days or more of average wages for each year of their consecutive service as severance pay.
② Notwithstanding the provisions of paragraph (1), an employer may, in cases where a worker demands, pay the worker the amount of severance pay corresponding to his/her consecutive service period earlier than his/her retirement. In this case, the consecutive service period to be used for the calculation of the amount of severance pay accumulated thereafter shall be reckoned anew from the time when balances were settled.

Chapter 3. Establishment of a Retirement Pension Plan Article 2 (Definition)
7. Defined benefit retirement pension plan refers to a retirement pension plan under which the level of benefits a worker will receive is determined in advance.
8. Defined contribution retirement pension plan refers to a retirement pension plan under which the level of contributions an employer shall make to pay benefits is determined in advance.


Retirement benefit plans consist of the Severance Pay Plan, Defined Benefit Retirement Pension Plan, and Defined Contribution Retirement Pension Plan. The three plans are equivalent in value. Companies established since December 2005 are required to carry one or more of the three plans.
As there is no provision on qualifying causes of retirement for entitlement to severance pay, an employer shall give severance pay in all cases of termination of the employment relationship due to the employee’s resignation or death, the company’s disorganization, completion of the work, the employee reaches the retirement age, or the employee is dismissed for disciplinary reasons.

Ⅱ. Severance Pay System

1. Requirements of severance pay

(1) Those eligible for severance pay shall be employees under the Labor Standards Act.

1) Whether to pay severance pay to an employee who was appointed as a company director
In cases where an employee was appointed as company director without terminating employment, the matters related to severance pay shall be evaluated as follows: ① In cases where the director fulfills his duties with the authority of a representative director or executive director commissioned by the company by means of the Commercial Act and the Civil Act and receives a service fee, the director cannot be deemed an employee under the Labor Standards Act. Therefore, his severance pay occurs from the time when he was appointed as director(on the terminated date of employment according to the LSA). The negative prescription is also calculated from the same date. ② In cases where, despite the director’s title, he maintains subordinate relations to the employer and is actually in an employee position, the severance pay occurs from the time when the director resigns from the company. The negative prescription is also calculated from the same date.

2) Calculating severance pay for a person assigned to a regular position from that of a daily worker
The consecutive years of employment to calculate severance pay for an employee who worked for the company as a daily worker but was reemployed as a regular employee shall be considered collectively based on the concrete facts as follows: If a temporary employee quit his temporary position, the employer accepted it, and he followed employment procedures by applying for a regular position, his previous labor contract was terminated effectively regardless of the new employment. However, if the temporary employee was rehired to a regular position while maintaining temporary employment, this is only a transfer to a regular position from an irregular position and his employment cannot be deemed effectively terminated.

3) If a retired employee is rehired by the same company, the employer cannot make a special contract that excuses the employer from severance pay obligations, as this violates law. The agreement is null and void.
When rehiring a retired employee, the company shall pay severance pay to the employee whose service period has become at least one year after the re-employment. Even if both parties agreed there would be no severance pay, this agreement violates law and becomes null and void.

4) Whether a full-time lecturer at an entrance exam institute is entitled to severance pay
If a full-time lecturer registered as an individual service provider provided labor service to the employer under substantial employment relations, he/she can receive severance pay. Whether or not a person is an employee under the Labor Standards Act shall be determined by whether the employee provides labor service to the employer under subordinate relations for the purpose of wages in a business or workplace regardless of the contract type. Full-time lecturers at the institute worked every day(6 days per week), which was distinct from other part-time lecturers, received a fixed amount of wages, and observed service regulations and personnel regulations such as starting time and finishing time. They are therefore employees who provide labor service under subordinate relations.

5) If a person has continuously maintained daily employment formally as a daily employee, the Labor Standards Act shall apply to them and the employer shall pay severance pay to the daily employee who has served at least one year.
If a person has been a daily worker formally but maintained daily employment without cessation, he/she shall be considered a regular employee. It is not true that the continuity of employment shall be estimated by the employee providing an average of 25 days or more of work per month, but also if the employee provided 4 to 15 days on average every month. As daily employees have provided labor service for 4 or 5 days every month without exception, they shall be considered continuously employed and the Labor Standards Act shall be applied to them.

6) The Labor Standards Act applies to illegal migrant employees, and they are entitled to severance pay.
The term employee used in Article 2 of the Labor Standards Act means a person, regardless of occupation, who offers work to a business or workplace for the purpose of earning wages. In Article 6 of the Act, an employer shall not take discriminatory action in relation to the working conditions on the grounds of nationality. The Labor Standards Act is applicable to foreign migrant employees, unless there are special reasons otherwise. Accordingly, the rules of severance pay stipulated in the Labor Standards Act apply to illegal migrant employees.

(2) Consecutive years of employment: The employee shall serve continuously for at least one year.

Years of continuous employment refer to the period from the time when the employee began working for the company to the time when the employee resigned from the company.

1) The period of disciplinary suspension from work due to an employee’s own reasons shall be included in the period of continuous employment, which is the basic data for calculating severance pay, if a person maintains subsidiary employment relations with his employer.
According to Article 8(1) of the Employee Retirement Benefit Security Act, an employer shall pay severance pay equivalent to the average wage for thirty days or more for each one year of continuous employment. The period of continuous employment in this Act means the period from establishment of the labor contract to its termination. The period in which the employee did not provide labor service, but was in subordinate employment relations with an employer, shall be included into the period of continuous employment for calculating severance pay. Accordingly, the period of disciplinary suspension from work due to the employee’s own reasons shall be included in the period of continuous employment as the basic data for calculating severance pay, so long as an employee has maintained subsidiary employment relations with his employer.

2) The consecutive years of employment to calculate severance pay shall include the total period of employment, excluding the period of time when the employer ordinarily hired fewer than five employees(includes all employees after December 2010)
The severance pay in Article 4 and 8 of the Employee Retirement Benefit Security Act applies to all businesses or workplaces in which no fewer than five employees are ordinarily employed. In cases where the company has maintained five or more in the ordinary number of employees for a long period of time, but the number of employees were reduced to fewer than five employees for a certain period of time, the consecutive years of employment to calculate severance pay shall include the total period of employment, excluding the period of time when the employer ordinarily hired fewer than five employees.

2. Calculation of severance pay

Severance pay shall be 30 days or more of average wage for each year of consecutive service. The period for continuous employment shall include suspension from work, service as a full-time labor officer of a labor union, labor service as a daily employee, detention periods from a criminal case, probationary periods, periods of strike, periods of absence, periods of suspension of service, suspension from work owing to personal illness, etc. However, military service period shall not be included in continuous employment.

1) Suspension period from work due to the employee’s personal reasons shall be included in the period for calculating average wages.
Average wage to calculate severance pay in Article 2 of the Labor Standards Act means the amount calculated by dividing the total wages paid to a relevant employee during the three calendar months immediately before the day on which a cause for calculating his average wages occurred by the total number of calendar days during those three months. If the amount calculated in this way is lower than the ordinary wage of the employee concerned, the ordinary wage shall be deemed his average wage. In cases where the average wage calculating period includes a period of time falling under any points in Subparagraphs 1 to 8 of Article 2(1) of the Enforcement Decree to the LSA, the period and wages paid for that period shall be deducted respectively from a basis period for the calculation of average wages and the total amount of average wage. However, the period in which the employee did not provide labor service due to his own reasons, such as absence, shall not be excluded from the basis period for the calculation of average wages. Accordingly, in cases where the employee did not provide labor service during the basis period to calculate severance pay due to his personal reason like absence, the identical period shall be included into a basis period of average wage and calculated for severance pay.

2) Including bonuses paid through one year into the amount subject to calculation of average wage.
There are no regulations stipulated in labor law about matters concerning payment of bonuses, but bonuses shall be deemed wages as remuneration for work when they are stipulated in the rules of employment for payment conditions, amount, and payment period, or when they have been paid so habitually to all employees that the employee may have natural expectations to receive a bonus as a matter of course. On the other hand, in cases where the payment rate of bonuses was established per year-unit and paid for the period exceeding one month, the total amount of bonus paid for a certain month shall not be included into calculation of average wage. The bonuses shall be calculated by dividing the total amount of bonuses paid to a relevant employee during the twelve calendar months before the day on which a cause for calculating his average wage occurred by the total number of calendar months, which is 3/12 times the total amount of bonuses paid per year.
3) In cases where the severance pay regulation has been revised justifiably in the middle of the consecutive work period, the calculation of severance pay shall apply to the severance pay regulation effective at the time of retirement. The calculation shall not be applied differently for the period before and after revision of the severance pay regulation.

3. Prohibition against discriminating system for severance pay

1) Discriminating in severance pay between full-time and part-time employees violates the prohibition against different application.
Article 34(2) of the Labor Standards Act prohibits establishment of different severance pay systems according to job classification, title, business classification, etc. in one workplace and requires one severance pay system. If a company differentiates its application of severance pay for full-time employees than it does for part-time employees, it violates the prohibition against discrimination. Even though the company hires full-time employees and part-time employees differently and applies different hiring procedures, job characteristics, promotion/transfer, etc., discrimination of severance pay shall not be justified without reasonable cause.

2) That the company included the amount equivalent to severance pay into the monthly wage for foreign pilots amounted to different application between foreign employees and native employees.
If a company agrees to include an amount equivalent to severance pay into the monthly wage for foreign pilots, this means that the company will not pay severance pay at the time of retirement for foreign pilots. This is a different system of severance pay, prohibited by Article 28(2) of the previous Labor Standards Act, than for the native pilots who receive severance pay when quitting their jobs. Therefore, foreign pilots can apply for severance pay by the rules of employment applying to the majority of employees.

3) If there are two different applications of severance pay, such as the rules of employment regulating a cumulative severance pay system for native employees and individual employment contracts regulating a singular severance pay system for foreign workers, this violates the regulation that prohibits different application of severance pay.

4. Paying severance pay

Interim severance pay is implemented only in cases where an employee requests it, but the employer is not obligated to agree to the employee’s request. Even if there are relevant regulations regarding the interim severance pay system in the rules of employment or the collective agreement, individual employees must request it concretely and then it can be handled as interim severance pay.

1) In cases where reason to reduce severance pay occurs after payment of interim severance pay, such as abolition of a cumulative severance pay system, the reduced severance pay system applies to that company. The reduced severance pay system calculates both the previously paid interim severance pay and final severance pay, and the company may pay severance pay after deducting the amount already paid.
According to Article 34(1) of the Labor Standards Act, the liability of an employer to pay severance pay occurs when employment is terminated. However, according to Article 34(3) of the LSA, an employer may, upon the request of an employee, even before his/her retirement, pay severance pay calculated on the basis of consecutive years of employment. Interim severance pay does not differ in characteristics from normal severance pay. In cases where reason to reduce severance pay occurs after payment of interim severance pay, the reduced severance pay system shall apply to that company. The company will calculate the previously paid interim severance pay and the final severance pay, and then the company shall pay severance pay(or expect a refund if overpaid) after deducting the amount it already paid as interim severance pay.

2) Is it possible to pay interim severance pay to all employees with the consent of the majority of employees?
According to Article 34(3) of the Labor Standards Act, an employer may, upon request of an employee, even before his retirement, pay severance pay calculated on the basis of consecutive years of employment. In this case, the number of consecutive years of employment for the calculation of severance pay after such advance payment shall be reckoned anew from the moment of the latest adjustment of balances. Although this interim severance pay was established previously for the relevant regulation or criteria of the interim severance pay in the collective agreement or rules of employment, it shall require concrete requests from an individual employee before implementation. Accordingly, even the consent of more than 50% of all employees does not satisfy the requirements for interim severance pay to all the employees.

3) Even though the company pays some amount as severance pay in the wages paid every month, this does not amount to payment of severance pay.
The severance pay stipulated in Article 34(1) of the Labor Standards Act occurs on the condition of termination of employment relations, and, in principle, will not occur during the middle of the labor contract. Even if the employer agrees with an employee to pay a certain amount of money as severance pay inside wages paid every month, this cannot be valid as payment of severance pay stipulated in Article 34(1) of the Labor Standards Act.

4) A contract giving up the right to request severance pay or to launch a civil suit is a violation of the Labor Standards Act, and shall be null and void even if an employee signs it.
Severance pay is remuneration characteristic of deferred wages to be paid in return for continuous employment to an employee who retires after serving a certain period of time. The concrete right to request severance pay occurs on condition of the fact of termination of continuous employment. A contract giving up the right to request severance pay or to launch a civil suit is a violation of the Labor Standards Act, and shall be null and void due to violation of the Labor Standards Act even if an employee signs it.