Method of Payment of Lump-sumRetirement Benefits 
Calculation of lump-sum retirement benefits and period covered
- The employer must issue lump-sum benefits in amount at least equal to 30 days’ average wage for every year of continuous employment to a retiring employee (Act on the Guarantee of Workers’ Retirement Benefits, Article 8, Paragraph 1, Item 4; Labor StandardsAct, Article 2, Paragraph 1, Item 6 and Paragraph 2).
· The ‘average wage’ means the total amount of wages paid to the employee during the overall period of employment until three months prior to the triggering event that necessitated the calculation, dividedby the total number of days in this period.
· If the average wage so calculated is smaller in amount than the employee’s ordinary wage, the ordinary wage is considered the average wage.
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Lump-sum retirement benefits = daily average wage × 30 days × (total number of days of continuous employment ÷ 365)
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- Upon the retirement of an employee, the employermust pay retirement benefits within 14 days from the date of retirement (if thisdeadline cannot be met due to special circumstances, the employer and the employeemay agree upon a later date) (Article 9(1) of the Act on the Guarantee of Employees’ Retirement Benefits).
-The above retirement benefits shall be paid by transferring them to the accountof the individual retirement pension plan designated by the worker or to theaccount under Article 23-8 of the Act on the Guarantee of Employees' RetirementBenefits (the main text of Article 9(2) of the Act on the Guarantee ofEmployees' Retirement Benefits).
※ However, this shall not be the case under the following circumstances(proviso to Article 9(2) of the Act on the Guarantee of Employees' RetirementBenefits and Article 3-2 of the Enforcement Decree thereof).
√ Where a worker retires after the age of 55 and receives benefits;
√ Where the salary is less than the amount determined and notified by the Minister of Employment and Labor;
√ Where the worker dies;
√ Where a retired worker who has provided labor services in Korea with a status of stay that allows him/her to be employed under Article 23(1) of the Enforcement Decree of the Immigration Act leaves the country after retirement;
√ Where other laws and regulations require that all or part of the salary be deducted.
Calculating lump-sum retirement benefits for employees having taken parental leaves, etc.
- If any leaves before and after childbirth, miscarriage/stillbirth leave, or child-care leave were taken during the period of employment, based on which the average wage is calculated, the lengths of such leaves and wages paid during the leaves must be excluded from the base period of employment and total wage for the purpose of this calculation (subparagraphs 3 and 5 of Article 2(1) of the Enforcement Decree of the Labor Standards Act).
- For the calculation of the average wage, pursuant to Article 2, Item 6 of the Labor Standards Act, for employees who opted for shorter work hours for the care of an infant or toddler, any period during which they worked according to a part-time schedule is excluded from the base period for this calculation (Act on Equal Employment and Supportfor Work-Family Reconciliation, Article 19-3, Paragraph 4).
Precedents Related to theCalculation of Lump-sum Retirement Benefits
Inclusion of retirement benefits in the wages
Judicial Precedent 1 – Rulingagainst the inclusion of retirement benefits in wages
Any agreement between an employer and an employee whereby a setamount of money is paid toward the lump-sum retirement benefits, together with a salary or wage paid out on a monthly or daily basis, goes against prevailing norms and is invalid. Thus, the employer is considered to have incurred a financial loss by issuing payments asinstallments toward the employee’s lump-sum retirement benefits, without a valid legal basis, and the employee to have realized a financial gain by receiving the same payments. Therefore, any amounts received by the employee as lump-sum retirement benefits constitute an illegal gain and must be returned to the employer (Supreme Court ruling 5/20/2010, case #2007-da-90760, per curiam decision).
Judicial Precedent 2 – Ruling recognizing the validity of the wage-included retirement benefits
This example only applies to cases where the employer and employee agree to pay and receive a certain amount, distinct from and inaddition to, the wage, as recurring installments toward the lump-sum retirement benefits, which furthermore satisfy the following conditions: an agreement exists between the employer and the employee to the effect that the lump-sum retirement benefits are paid in increments as part of a monthly salary or daily wage and that no separate retirement benefits will be issued upon retirement; a set amount is paid toward retirement benefits; the terms of the employment agreement, which includes clauses about the installment payments of the lump-sum retirement benefits, are not unfair to the employee in terms of the amount of wage-excluding the amount paid toward retirement benefits – and compared to the previous employment agreement and relevant provisions of the Labor Standards Act. This ruling is not applicable, for example, to simple agreements for the installment payment of lump-sum retirement benefits in order to avoid paying the lump-sum benefits upon the employee’s retirement (Supreme Court ruling12/13/ 2012, case # 2012-da-77006 ).
When the base period for the calculation of lump-sum retirement benefits includes leaves from work:
- When the base period for the calculation of the average wage includes any of the following periods of interruption of work, these periods and wages paid during these periods must be excluded from the base period and the total wages (Enforcement Decree of the Labor Standards Act, Article 2, Paragraph 1):
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Period excluded from the calculation of average wages
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▪ A period of up to 3 months after a worker who entered into a labor contract and works as a probational employee began the probation; ▪ Period of business shutdown due to a cause attributable to the employer; ▪ Maternity leave before and after childbirth and miscarriage/stillbirth leave ▪ Interruption of work due to a work-related injury or illness; ▪ Parental leave; ▪ Period of a concerted industrial action such as strike, slowdown, or blockade; ▪ Leave or interruption of work for military service (excludes cases where wages are paid during this period) and ▪ Leave approved by the employer, on account of an injury or illness not related to work or for other reasons
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- If there is no base period for the calculation of the average wage due to a recent leave that lasted more than three months, the first day of the leave is considered the date on which the triggering event necessitating the calculation occurred, and the average wageis calculated based on the wages received during the three month period preceding this date (Ministry of Employment and Labor, Questions and Answers on the Act on the Guarantee of Workers’ Retirement Benefits, p13).