Introduction to Payroll in South Korea

A leading industrial Asia-Pacific economy, South Korea is a hub for innovation, growth, and skilled workers.

However, the combination of complicated two-tiered labor regulations and inequalities between regular and non-regular workers makes South Korea a minefield for global employers to tread.

If you're an international employer planning payroll in South Korea, Skuad is your optimal go-to payroll solution to

• Customize compensation and benefits packages for regular and non-regular workers
• Manage employee payments using an automated, auto-pilot compliance offering
• Handle all your corporate and personal tax, social insurance, and withholdings in a matter of clicks
• Pay employees, native or foreign residents, in 100+ currencies at $0 onboarding fees

Talk to us at Skuad so you get the best expert legal help and payroll outsourcing in South Korea.

Payroll Process in South Korea

In South Korea, the payroll process is not much different than in many other jurisdictions. That is, basic procedures are fairly standard. The main phases of payroll are:

(i) Pre-payroll

(ii) Payroll calculation

(iii) Post-payroll

These can be broken down as follows:

Pre-payroll Phase

Here is where you set up your business and lay the essential groundwork required by local regulatory authorities to operate as a business in any given jurisdiction.

You cannot handle any payroll processes, let alone pay employees, unless you're a registered and licensed legal entity.

To do so, you need to follow some important steps including:  

Business Profile

As an employer, you need a registered number or code for your business, not only for basic regulatory requirements but also for future tax compliance and communication purposes.

Work Location

Equally essential, your business must have an official and formal business address (or addresses, in case you've several subsidiaries or locations) for regulatory and compliance purposes.

Leave Policy

In any business, a leave policy is not a matter of unessential formalities.

Instead, any business must have a leave policy not only to monitor employee performance but also to calculate payroll for future compliance and reporting purposes.

Attendance Policy

Similar to leave policy and just as important, an attendance policy is developed both to monitor employee performance and for later compliance and reporting requirements.

Statutory Components

The payroll process involves, among many things, basic statutory components every employer must comply with as a legal business operating in any given jurisdiction.

That means that you as an international employer must thoroughly understand and abide by any laws, regulations, or policies existing in your jurisdiction.

In South Korea, for example, you must fully understand labor standards laws to be compliant.  

Salary Components

Beyond basic statutory compensation mandated by law, you as an international employer need to develop a unique compensation structure that encompasses your internal business policies and also attracts additional skilled workers.

That means salary components should be flexible enough to accommodate both mandatory salary components (such as minimum wage and benefits) and additional components you could introduce to project a more favorable brand image of you as an international employer.

Pay Schedule

This is the single most important component that employees and independent contractors emphasize, more so under uncertain or hard economic conditions.

Beyond a fixed payment day, which is an established practice, you could introduce more flexible payment schedules to accommodate employee needs..  

Flexible payment schedules have, moreover, an additional benefit of attracting and retaining talent who, above so many employment criteria, appreciate flexibility most.

Employee Information

Managing payroll is a data-intensive process. Included in data collection activities during the pre-payroll phase is collecting employee information.

Beyond internal management control purposes (such as managing employee attendance, leaves, performance, etc.), employee information is crucial for later regulatory and compliance purposes.

Payroll Calculation Phase

Calculating payroll includes (but is not limited to) salaries or wages, social insurance contributions, withholdings, deductibles, etc.

The purpose of payroll calculation is not only to pay employees but also to perform different several accounting, auditing, compliance, and reporting activities in a later phase.  

Payroll calculation can be performed internally or, budget permitting, by using payroll services in South Korea.

Post-payroll Phase

Here is where you combine science and art to close out the payroll process by performing additional, final but crucial steps including:  

Salary Payments

As an initial step to finalizing the payroll process, employees must be paid according to stated in-country laws and regulations and based on mutual contractual agreements.

Companies globally pay employees and independent contractors on a monthly, weekly, or hourly basis.

Moreover, a corporate bank account is usually used to make salary or wage deposits, a standard and conventional practice, or a company might automate salary or wage payments using a payroll provider in South Korea.

Payroll Accounting

Here is where you move on closer to regulatory and compliance matters by ensuring your payroll records are ready for later form-filling and reporting activities as mandated in law.

Here you must include all payroll components — such as salaries or wages, social insurance, benefits, deductibles, etc. — plus any additional payroll expenses spent managing the payroll process.  

Payroll Reporting and Compliance

The payroll process is concluded by filling in all required tax forms and making sure you report all required corporate earnings by announced deadlines and to relevant regulatory bodies

As previously noted. the three-phase payroll process discussed above is performed almost universally.

The recent pandemic-related developments, combined with South Korea's complicated two-tiered labor regulations for regular and non-regular workers, make the payroll process an unfeasible feat for many international employers.

That is why a short call to Skuad is all you need as an international employer to stay focused on your core business activities and still expertly handle all your payroll needs.

Payroll Processing in South Korea

As an international employer in South Korea, you must perform a wide range of payroll processing activities spanning pre-payroll and post-payroll phases as mentioned.

To do so, you don't only need the right internal legal expertise (assuming you've got enough resources), but also an awareness of a South Korean jurisdiction whose labor laws and regulations may vary considerably from comparable laws in your where your business is based.

In many cases, small-to-medium companies reach out to payroll and HR services in South Korea to handle in-country payroll and compliance matters.  

Payroll Processing Company in South Korea

As an established payroll company in South Korea, Skuad is your best choice payroll provider to help you stay compliant and focused on what matters most to your business.

Give us a nudge and we'll be happy to make your payroll concerns history.

Payroll Management in South Korea

Managing payroll in South Korea is not only about maintaining payroll records for future compliance and reporting purposes.

Instead, as an international employer, you need to pay particular attention to country-specific payroll laws and considerations in South Korea including (but not limited to):

• Changes in corporate income tax
• Withholding taxes
• Tax administration
• Personal income tax
• Income determination
• Tax credits and incentives

Payroll Compliance in South Korea

Taxes are usually a priority for many businesses, especially ones having international operations.

However, compliance in any jurisdiction is not limited to taxes but includes just as important compliance requirements for social security, statutory benefits, deductibles, and more.

Compliance is not, moreover, only about abiding by a country's tax and employment laws but is also a matter of reputation. That is, maintaining a good record with in-country regulatory authorities is apt not only to confirm your business as trustworthy but also to promote your brand among existing and prospective employees.

In South Korea, failing to comply with tax laws and regulations subjects you to penalties including (but not limited to):

• 3X * KRW 300 million-KRW 500 million — for tax evasion of amounts KRW 300-KRW* 500
• KRW 20 million — for destroying or concealing books or documentary tax evidence within five years after the statutory due date of tax return
• KRW 20 million — for replacing another person or entity in reporting and returning tax claims
• Double the required tax amount — for issuing false tax invoices

*KRW = South Korean won

Payroll Components in South Korea

The Labor Standards Act 5309 of 1997 in South Korea defines labor law on matters of minimum employment standards in areas including but not limited to contracts, leaves, dismissal, working hours, and more.

For current purposes, here is what matters most for an international employer planning to hire and pay talent in South Korea:

Compensation

• Employees are entitled to a minimum compensation of KRW 822,480 per month or KRW 8,720 per hour as of January 1st, 2021.

Working Hours

• Set at 40 hours per week or eight hours per day
• Defined as night work if performed between 11:00 p.m. and 6:00 a.m.

Overtime Laws

• Under South Korea's Labor Standards Act, employees can work up to 12 more hours per week, upon agreement. in return for an additional 50% of base salary or wage.

Social Security

Social security contributions are shared between employers and employees as a percentage of monthly salary as follows:

Employer

50% of 9% for national insurance

50% of 6.86% for national health insurance

50% of 11.52% of health insurance premium for long-term care insurance

0.6%-18.5% for industrial accident compensation assurance, industry-dependent

0.13%-0.1% for industrial accident compensation assurance on accidents during commuting

50% of 1.6% for unemployment insurance

0.25%-0.85% for job security and vocational capability insurance

Employee

50% of 9% for national insurance

50% of 6.86% for national health insurance

50% of 11.52% of health insurance premium for long-term care insurance

Sick Leave

• Unpaid for any non-work-related reasons
• Paid for as a leave allowance in cases of COVID-19-related matters
• Covers a living expenses allowance between KRW 454,900 and KRW 1.457,500 for employees who have received a self-isolation notice from health authorities

Parental Leave

To overcome an aging population problem, South Korea has extended earlier parental leaves for working fathers and mothers under a series of laws and measures as follows:

Paternity Leave

• 10 days for childcare, up from 3-5 days
• 90 days for childbirth
• 15 to 35 reduced working hours per week for up to one year for childcare of children eight years and less

Maternity Leave

• 90 days, 60 of which are paid, for pregnant women
• 45 days before childbirth and 45 days after childbirth

Just a small note parental leave in South Korea.

One most progressive employee benefits in the whole world, paternity benefits in South Korea grant parents up to two years for childcare or reduced working hours per week.

This exceptional benefit — provided to boost fertility rates in South Korea, which has one of the lowest in the world — is a particularly flexible arrangement for working parents, more so for high-skilled workers who are always looking for the right balance between great work expectations and rewarding life experiences.  

Public Holidays

January 1.  New Year's Day

December 31 to January 2. Lunar New Year's Day ("Seollal")

March 1. Independence Movement Day ("Sam Il Jul")

May 5. Children's Day ("Uhrininal")

April 8. Buddha's Birthday

June 6. Memorial Day

August 15. Independence Day ("Kwang Bok Jul")

August 14 to August 16. Harvest Moon Festival ("Chuseok")

October 3. National Foundation Day ("Kae Chun Jul")

December 25. Christmas Day

Payroll Taxes

These are levied progressively as a percentage of employment income and surtax as follows:

6% — zero to KRW 12 million

15% (plus KRW 0.72 million) —  KRW 12 million to KRW 46 million

24% (plus KRW 5.82 million) — KRW46 million to KRW 88 million

35% (plus KRW 15.90 million) — KRW 88 million to KRW 150 million

38% (plus KRW 37.60 million) — KRW 150 million to KRW 300 million

40% (plus KRW 94.60 million) — KRW 300 million to KRW 500 million

42% (plus KRW 174.60 million) — KRW 500 million to KRW 1 billion

45% (plus KRW 384.60 million) — KRW 1 billion and above

Other Laws

In addition to South Korea's flagship Labor Standards Act, there are several labor-related laws of which you must also be aware as an international employer. These include (but are not limited to):

• Occupational Safety and Health Act of 2011 (amended 2012)
• Equal Employment Opportunity and Work-Family Balance Assistance Act of 2007 (amended 2019)
• Employment Insurance Act of 2011 (amended 2019)

Conclusion

The state of payroll management and labor-related laws in South Korea should be clear to you now.

As an international employer planning to hire and pay talent in South Korea, you have a couple of options to consider:

• Going solo, and risk missing important payroll-related developments and legal requirements
• Outsourcing part of your payroll requirements, and possibly running into high stakes of non-compliance for one or more payroll components

Or, reaching out to us at Skuad full force and making payroll management of your South Korean talent a breeze.

KRW exchange rate against USD is 0.00079.