Ordinary wages, severance pay and minimum wage: Korea's 2026 rules

This guide is for employers and payroll or HR staff in Korea, including foreign-owned companies. It covers four building blocks of pay: ordinary wages, average wages and severance pay, the minimum wage, and tax-free allowances. Figures are for 2026, with 2027 minimum wage figures that are already fixed.

Ordinary wages after the December 2024 ruling

Ordinary wages (통상임금) are the base for overtime, night and holiday premiums and for pay in lieu of dismissal notice. Article 6 of the Enforcement Decree of the Labor Standards Act (근로기준법 시행령) defines them as pay set in advance to be paid regularly and uniformly for contractual work.

On December 19, 2024, the full bench of the Supreme Court (대법원, 2020다247190) dropped the old "fixedness" (고정성) requirement:

• Pay given only to staff employed on a set date can be ordinary wages.
• Pay that requires a minimum number of working days counts if the condition is within the contractual working days. A condition above them does not count.
• Pure performance pay based on evaluation is not ordinary wages, but a guaranteed minimum amount is.
• Overtime pay, and amounts paid temporarily or variably regardless of contractual work, stay outside.

The definition is mandatory, so a contract or work rules cannot narrow it. The new test applies to ordinary wages calculated from December 19, 2024. Premiums for overtime worked up to December 18, 2024 follow the old test, except in that case and in cases already pending in court.

Average wages and severance pay

Average wages (평균임금) are the wages paid in the 3 months before the event, such as retirement, divided by the number of calendar days in that period. Wages paid temporarily and pay in kind are left out. Some periods and the pay for them are also left out, including the first 3 months of probation, shutdowns caused by the employer, maternity leave, work-injury leave, parental leave and approved leave for non-work illness. If the average wage is lower than the ordinary wage, the ordinary wage is used.

Severance pay (퇴직금) applies to every workplace with employees, whatever its size. An employee with 1 year or more of continuous service who works 15 hours a week or more on average over 4 weeks receives at least 30 days of average wages for each year of service. Pay it within 14 days of retirement unless both sides agree to extend. From September 18, 2026, failure to pay can be punished by up to 5 years in prison or a fine of up to ₩50 million. Under a defined contribution (DC) pension plan the employer pays in at least 1/12 of annual wages.

Overtime, night and holiday pay

In workplaces with 5 or more regular employees:

• Overtime is limited to 12 hours a week on top of 40 hours, so 52 hours in total. The limit is weekly, not monthly.
• Overtime and night work (10 p.m. to 6 a.m.) carry a premium of at least 50% of ordinary wages.
• Holiday work carries 50% for the first 8 hours and 100% beyond 8 hours.
• Premiums add up: overtime at night is paid at least 200% of the ordinary hourly wage.
• Annual leave pay uses ordinary wages or average wages, as the work rules set.

Minimum wage in 2026 and 2027

The 209 hours are 40 hours a week plus the paid weekly holiday. The 90% probation rate is allowed only in the first 3 months, for workers on a contract of 1 year or more, and never for simple manual jobs listed by the Ministry of Employment and Labor (고용노동부). Paying less than the minimum wage can be punished by up to 3 years in prison or a fine of up to ₩20 million, or both.

In 2026 employees pay about 9.72% of taxable pay in social insurance (pension 4.75%, health 3.595%, long-term care 0.4724%, employment 0.9%) plus income tax, about ₩209,590 on the monthly minimum. The employer pays the same pension, health and care shares, 1.15%~1.75% for employment insurance, an industrial accident premium set by industry (1.47% on average) and, in effect, about 1/12 of pay for severance. At 1.15% and 1.47%, a ₩2,156,880 employee costs about ₩2,583,310 a month. See also 2027 minimum wage ₩10,700: notify workers by December 31, 2026.

Workplaces with fewer than five employees

The Labor Standards Act (근로기준법) applies in full to workplaces with 5 or more regular employees. The headcount is the total of workers used each day in the month before the event, divided by the days the business operated. It counts full-time, fixed-term and part-time staff, but not dispatched workers or the owner. If the average is under 5 but days with fewer than 5 workers are less than half of operating days, the workplace is covered, and the reverse also applies. For annual leave (other than the 1 day a month for staff with under 1 year of service), the test is whether 5 or more workers were used continuously in the past year, counted month by month.

Below 5 employees, these do not apply: the just-cause rule for dismissal, working-hour limits, overtime, night and holiday premiums, annual paid leave and the workplace harassment rules. These still apply: a written employment contract, payslips and the wage ledger, dismissal notice, paid weekly holidays, maternity leave, parental leave, severance pay and social insurance.

Splitting one business into several companies does not always work. On October 25, 2024 (2023두57876), the Supreme Court said separate companies are normally separate workplaces, but can be one workplace when run as a single economic unit: the same kind of work and place, hiring and labor management by the same management, and closely linked staff, assets and finances.

Tax-free allowances

Ordinary commuting and transport allowances are taxable wages. Holiday gifts are not on the list of tax-free items. Tax-free items are also left out of the social insurance base.

Checklist

• Recheck which bonuses and allowances are ordinary wages under the 2024 ruling, and recalculate premium rates.
• Pay at least ₩10,320 an hour in 2026 and ₩10,700 from January 1, 2027.
• Keep overtime within 12 hours a week.
• Calculate severance pay on average wages, with ordinary wages as the floor, and pay within 14 days.
• Count heads every month, and treat related companies as one workplace if they are run as one.
• Keep tax-free allowances within their limits and conditions.