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Local Compliance InformationPayroll & Social Security Insurance in Korea
The Unused Annual Leave Compensation
for Severance Pay Calculation
1. Overview
This is to review whether the compensation amount paid for the unused annual leaves is required to be included into the average wage which is the base amount for the severance pay upon the employee's leaving with the unused annual leaves compensated.
2. Definition of Annual Leave Allowance
The Annual Leave is provided to employee who has served for the required rate during a year. Employee could be exempted from works for the allowed period of days in order to recover from employee's physical and mental spiritual fatigue and could be recharged to keep one's health. Also employee could use their leisure time for the social and cultural civic life. To secure this right for employee, it is regulated in the Article 60 of “Labor Standard Act' in Korea with penal provision for the compulsory implementation.
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(1) Every employer shall grant any worker who has worked not less than 80 percent of one year a paid leave of 15 days. (2) Every employer shall grant any worker who has continuously worked for less than one year or who has worked less than 80 percentage of one year one paid-leave day for each month during which he/she has continuously worked. (3) Where an employer grants any worker a paid leave for the latter's first year of work, the former shall grant the latter a paid leave of 15 days, including the paid-leave referred to in paragraph (2), and, if the latter has already taken the paid-leave provided for in paragraph (2), deduct the number of days of such paid-leave from the said 15 days. (4) Every employer shall grant any worker who has continuously worked for not less than three years paid-leave days that are calculated by adding one day for every two continuously working years not including the first one year to the 15 paid-leave days referred to in paragraph (1). In this case, the total number of paid-leave days, including the additional paid-leave days, shall not exceed 25 days. (6) In applying paragraphs (1) through (3), any of the following periods shall be deemed the period of attendance at work: 1. Period during which a worker takes time off due to any injury or sickness arising out of duty; 2. Period during which a woman in pregnancy takes time off due to the leave under the provisions of Article 74 (1) through (3). |
3. Unused Annual Leave Compensation for Severance Pay Calculation
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In case the unused annual leave allowance is entitled before employee leaves Company (allowance for the unused annual paid leaves which is entitled based on the attendance rate of the year before prior year of the leaving date), the amount 3/12 applied to this shall be included into the average wage which is the base amount for the severance pay.
In case the unused annual leave allowance is entitled upon the employee's leaving (allowance for the unused annual paid leaves for the year of leaving which is entitled based on the attendance rate of previous year), the amount shall not be included into the average wage which is the base amount for the severance pay. Because that this is not the wage which is paid to employee before the reason occurrence date for calculation according to the definition of average wage
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4. The Related Examples (counseling cases are referred)
Joining date Oct. 1, 2012 ~ leaving date Nov. 30, 2015
Annual leave is entitled effective Oct. 1, 2013
<1> Annual leave entitlement schedule (calendar year base)
1st : Oct. 1, 2012 ~ Dec. 31, 2012 adjustment → entitled on Jan. 2013
2nd : Jan. 1, 2013 ~ Dec. 31, 2013 adjustment → entitled on Jan. 2014
3rd : Jan. 1, 2014 ~ Dec. 31, 2014 adjustment → entitled on Jan. 2015
4th : Jan. 1, 2015 ~ Nov. 30, 2015 adjustment → (not applicable)
1) Employee is entitled 15 days of the annual leaves on Jan. 1, 2014 if employee attended 80% during the period Jan. 1, 2013~Dec. 31, 2013, as the compensation for the unused annual leave for the severance pay calculation should be the one of those entitled for the year before prior year of the leaving date.
2) In case employee has not used all or some of the annual leaves entitled accordingly, the unused annual leave should be compensated in cash in Jan. 2015. The severance pay should be calculated with average wage in which 3/12 of this compensation amount included.
3) On the other hand, the compensation amount for the unused leave for the period Jan. 1, 2014~Dec. 31, 2014 will not be included for the severance pay calculation as it is to be entitled effective Jan. 1, 2016 but paid under the reason of leaving.
<2> Annual leave entitlement schedule (joining date base)
1st : Oct. 1, 2012 ~ Sept. 30, 2013 adjustment → entitled on Oct. 2013
2nd : Oct. 1, 2013 ~ Sept. 30, 2014 adjustment → entitled on Oct. 2014
3rd : Oct. 1, 2014 ~ Sept. 30, 2015 adjustment → entitled on Oct. 2015
4th : Oct. 1, 2015 ~ Nov. 30, 2015 adjustment → (not applicable)
1) Employee is entitled 15 days of the annual leaves on Oct. 1, 2014 if employee attended 80% during the period Oct. 1, 2013~Sept. 30, 2014, as the compensation for the unused annual leave for the severance pay calculation should be the one of those entitled for the year before prior year of the leaving date.
2) In case employee has not used all or some of the annual leaves entitled accordingly, the unused annual leave should be compensated in cash in Oct. 2015. The severance pay should be calculated with average wage in which 3/12 of this compensation amount included.
3) On the other hand, the compensation amount for the unused leave for the period Oct. 1, 2014~Sept. 30, 2015 will not be included for the severance pay calculation as it is to be entitled effective Oct. 2016 but paid under the reason of leaving.
Customer Service Center Dept. 2 of Ministry of Employment and Labor
partially extracted from the counseling contents on Oct. 12, 2015
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Please refer the enclosed for more information.
This material is for your reference ONLY, and is NOT subject to release to the others at the cost of charge. All copyrights on this material are reserved by Selim Tax-Account Firm.
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