Payroll outsourcing and management services in South Korea.

South Korean employers must fund four statutory insurance schemes alongside employees. Contribution rates effective from 1 January 2026 are:

• National Pension (NPS): 9.5% of standard monthly salary split equally at 4.75% each, rising by 0.5 percentage points annually to reach 13% by 2033 under the revised National Pension Act
• National Health Insurance (NHI): 7.19% split equally between employer and employee
• Employment Insurance: 1.8% split between employer and employee with an additional employer-only levy based on company size
• Workers’ Compensation Insurance: fully employer-funded at a variable rate set by industry

Employers should budget for NPS cost increases each January as the rate steps up annually through 2033.

Employers must withhold income tax each month using simplified withholding tables published by the National Tax Service (NTS) based on salary and number of dependants. Korea applies progressive rates from 6% on income up to KRW 14 million to 45% above KRW 1 billion, plus a local income tax surcharge of 10% of the national liability.

The monthly withholding is a provisional estimate based on annualised salary rather than a final calculation. Each year employers must run an annual tax settlement (연말정산) reconciling actual tax owed against amounts withheld during the year, with any difference refunded to or collected from employees in the following payroll cycle. For a full overview of income tax rates and obligations, see the taxation guide.

Any employee who completes at least one year of continuous service is entitled to severance pay regardless of the reason for departure. This includes voluntary resignation, which surprises many foreign employers accustomed to severance being tied to dismissal only.

The entitlement equals 30 days of average wages for each full year of service, calculated on total earnings over the final three months including bonuses. Severance must be settled within 14 days of termination. Employers with five or more employees are required to fund this liability through a qualified retirement pension scheme under the Employee Retirement Benefit Security Act. For a full overview of termination obligations and employment protections, see the employment and labour law guide.

Foreign employees working in South Korea face distinct payroll obligations depending on residency status and tax election. Foreign nationals who start work in Korea no later than 31 December 2026 may elect a flat income tax rate of 19%, equivalent to 20.9% including the local surcharge, rather than the progressive rates. This election is available for up to 20 years and is generally beneficial for employees earning above approximately KRW 70 million to 80 million per year. Under the flat rate, most standard deductions cannot be claimed.

Foreign employees are generally required to participate in all four social insurance schemes on the same basis as Korean nationals, unless a bilateral social security agreement exempts them from specific schemes. South Korea has totalisation agreements with a number of countries including the United States, Germany and the United Kingdom. Employers must verify applicable treaty coverage before registering foreign hires with the relevant insurance agencies. For further context on employment obligations for foreign nationals, see the employment and labour law guide.

Employees in South Korea accrue paid leave based on tenure and attendance, and the entitlements create direct payroll cost obligations that must be budgeted from the point of hire. Key entitlements include:

• Employees with at least one year of service and 80% attendance receive 15 days of paid annual leave
• Each additional two years of service adds one day up to a maximum of 25 days
• Employees with less than one year of tenure earn one day of paid leave per full month worked
• South Korea recognises 15 public holidays annually with substitute days applied when holidays fall on weekends

Unused leave that employers fail to actively encourage employees to take must generally be compensated in cash, creating a contingent liability if leave management is not monitored throughout the year.

South Korea’s payroll compliance calendar involves recurring monthly obligations and one annual settlement. Withheld income tax must be remitted to the National Tax Service (NTS) by the 10th of the following month. Social insurance contributions to the National Pension, National Health Insurance and Employment Insurance agencies share the same 10th-of-month deadline. Workers’ Compensation Insurance is administered separately through the Korea Workers’ Compensation and Welfare Service, with premiums calculated and settled annually.

Employers with fewer than 20 employees may apply to the NTS to remit withheld income tax on a semi-annual basis rather than monthly. The annual year-end tax settlement (연말정산) reconciles each employee’s actual tax liability against amounts withheld during the year, with the final settlement receipt filed with the NTS by 10 March. Late payments attract surcharges and penalties under the Framework Act on National Taxes. For a full overview of monthly and annual compliance deadlines across tax, accounting and HR, download the South Korea Compliance Calendar 2026.