Korea

74
Country starter pack
Business practicalities in Korea
More employers have begun to introduce performancebased
pay and profit-sharing schemes in recent
years. Individual contracts for annual salaries linked to
performance are increasingly common. Share options
are also growing in popularity. Workers in Korea are
compensated with direct cash payments, as well as a
variety of subsidised services, allowances and bonuses.
Benefits typically include housing, health and life
insurance, cars and transport, recreation, children’s
education, meals and holidays. As part of labour reform,
both local and multinational firms are making progress in
consolidating the many itemised benefits into single cash
payments added to base pay.
Social insurance programs covering pension funds,
medical costs, workplace accident compensation, and
employment insurance must be contributed to by
employers. Employers must also set aside severance pay
for employees, which is equal to one month’s salary for
every year worked. Employees who have worked for at
least one year are entitled to severance pay.
Social insurance charges
(of total amount of wages and
salaries, April 2012)
Social
Insurance
Employer’s
charges
Employee’s
charges
Unemployment 0.55% 0.55%
National
4.5% 4.5%
pension
Health 3.09% 3.09%
Workers’
accident
compensation
0.005% N/A
The two most important welfare schemes are
employment insurance and national pensions. As set out
in the National Pension Act, employers and employees
each contribute 4.5 per cent of the employee’s monthly
salary to the national pension fund. Employment
insurance provides 50 per cent of previous wages for
up to eight months for unemployed workers up to the
age of 64, provided they had been employed for six
months or more. Irregular workers, such as part-timers
and day labourers, are covered as long as they have
been employed for at least six months in the year before
unemployment.
On holidays/annual leave, the Korean Standards Labour
Act states:
• An employer should grant 15 days paid leave to a
worker who has registered more than 80 per cent of
attendance during one year. After the first year of
service, an employer should grant one day paid leave
for each two years of consecutive service in addition
to the leave for the first year.
• An employer should grant one day paid leave per
month to a worker whose consecutive service period
is shorter than one year, if the worker has offered
work without absence throughout a month.
Australia-Korea social security agreement
Australians who are working or have worked in Korea
are able to receive a lump-sum refund of their social
security contributions or have access to a Korean oldage
pension. The agreement, which took effect in 2008,
mirrors Australia’s refunding of superannuation guarantee
contributions for non-residents who have worked
temporarily in Australia. The refunds benefit those who
have worked in Korea for just a few years, such as many
English language teachers, and who would not be eligible
for a Korean old-age pension. Lump-sum refunds will be
retrospective for those who worked in Korea before the
agreement took effect. The agreement also helps former
Australian residents of pension-age living in Korea, who
can claim a pension without having to return to Australia.
In addition, people who are sent to work temporarily in
Australia or Korea don’t have to contribute to two social
security systems.
Termination of employment
It is possible to dismiss an employee for a legitimate
reason and with 30 days advance written notice
or payment of a month’s wage. However, a Labour
Dispute Mediation Committee exists for the purpose
of conciliation, mediation and arbitration of labour
grievances. The Labour Committee is empowered to
examine whether an employee has been dismissed for
just cause and may also order that an unjustly dismissed
employee be reinstated. Foreign investors should
consult with a qualified legal counsel for more detailed
explanations of dismissal procedures and legalities.
If a worker continuously employed for one year or
more is terminated for any reason, severance pay of at
least one month, or pay equivalent to an average of 30
days, must be paid for every year of employment. For
this purpose, the average pay is computed on the basis
of compensation for the three months immediately
preceding the termination. For mass dismissals (often
referred to in Australia as redundancies) due to justifiable
managerial reasons (such as suspension of production,
closure of partial operation, or corporate restructuring
forced by financial distress), employers must deliver 50
days advance notice to a labour union or any individual
representing more than 50 per cent of the total number
of employees affected. They must also file notice of
the intended layoff with the Ministry of Employment
and Labour at least 30 days ahead of the intended plan.
The advance notification requirement applies to the
dismissal of 10 or more employees in a business place with
fewer than 100 employees, or 10 per cent of the total
employment in a business place with between 100 and
1,000 employees.