Why Gross Salary Is Only the Starting Point

When a foreign company plans to hire an employee in Korea, the annual gross salary is only the starting point of the employment cost calculation.

In addition to salary, employers must consider their share of Korean social insurance contributions, statutory severance, paid leave obligations, payroll administration and other employment-related costs.

As a practical starting point, a foreign employer should generally budget at least approximately 20% above an employee’s annual gross salary for mandatory employer contributions and statutory severance alone.

The actual cost will depend on the employee’s compensation structure, applicable contribution ceilings, the employer’s industry, workforce size and retirement benefit arrangement.

Employer Social Insurance Contributions

Korean employers are generally responsible for paying the employer portion of the following social insurance programs:

• National Pension;

• National Health Insurance;

• Long-Term Care Insurance;

• Employment Insurance; and

• Workers’ Compensation Insurance.

For budgeting purposes, an employer may expect its total social insurance cost to be approximately 12% of the employee’s applicable remuneration.

The actual percentage may be lower or higher because:

• National Pension and National Health Insurance are subject to contribution bases and ceilings;

• Employment Insurance rates may vary depending on the company’s size and applicable programs;

• Workers’ Compensation Insurance rates vary by industry and occupational risk; and

• A foreign employee’s National Pension treatment may be affected by nationality or an applicable social security agreement.

The employee’s own contributions are withheld from salary through payroll. The employer portion, however, is an additional cost borne by the company.

Statutory Severance Cost

An eligible employee who completes at least one year of continuous service is generally entitled to statutory severance pay.

The statutory minimum is 30 days of average wages for each year of continuous service. For preliminary budgeting, this is commonly estimated at approximately 8.33% of the employee’s annual compensation.

However, the final amount may not equal exactly one month of base salary. Korean severance is generally calculated using the employee’s average wage during the three months preceding termination and may be affected by allowances, bonuses and certain unused annual leave payments.

Employers should therefore accrue for severance throughout employment rather than wait until the employee announces a departure.

For more details, see our guide: Severance Pay in Korea: What Foreign Employers Need to Know in 2026.

Illustrative Employment Cost

Assume that an employee receives an annual gross salary of KRW 60 million.

A preliminary employer cost estimate may be:

• Annual gross salary: KRW 60,000,000

• Estimated employer social insurance contributions: approximately KRW 6,900,000 to KRW 7,200,000

• Estimated annual severance accrual: approximately KRW 5,000,000

• Estimated baseline annual employment cost: approximately KRW 71,900,000 to KRW 72,200,000

Under this simplified example, the employer’s baseline cost is approximately 20% higher than the contractual gross salary.

This estimate does not include payroll service fees, overtime, unused leave payments, bonuses, private benefits, visa support, relocation costs or other company-specific expenses.

It is an indicative budgeting example only—not a final payroll or legal calculation.

Is Employee Income Tax an Additional Employer Cost?

Korean employment income tax and local income tax are normally withheld from the employee’s gross salary. They are therefore not generally an additional employer cost.

The employer is nevertheless responsible for:

• Calculating the appropriate monthly withholding;

• Deducting income tax and local income tax from payroll;

• Paying the withheld amounts to the tax authorities;

• Submitting the required payroll tax returns and payment statements; and

• Completing the employee’s annual Year-End Tax Settlement, or YETS.

An employee’s income tax may become an employer cost where the company guarantees a net salary or applies a tax equalization or tax protection arrangement. In that situation, the employment cost should be calculated on a grossed-up basis.

For more details, see our guide: Korean Employment Income Tax in 2026: Understanding YETS and the Foreign Employee Flat Tax.

Paid Leave and Other Employment Costs

Korean employment costs are not limited to amounts shown in the monthly payroll calculation.

Depending on the employer’s size and the employee’s working arrangements, the employer may also need to consider:

• Statutory paid annual leave;

• Paid public holidays;

• Overtime, nighttime and holiday work premiums;

• Payment for unused annual leave where applicable;

• Maternity, childcare and other protected leave administration;

• Contractual bonuses and incentive payments;

• Private insurance or welfare benefits;

• Visa, immigration and relocation support; and

• Termination procedures and final payroll administration.

Some of these items do not produce an immediate additional cash payment every month. Nevertheless, they may affect staffing requirements, payroll calculations and the employer’s overall workforce budget.

Payroll Compliance Is Also Part of the Cost

Operating payroll in Korea involves more than transferring the employee’s net salary.

The employer must coordinate:

• Monthly payroll calculations;

• Income tax and local income tax withholding;

• Social insurance enrollment and monthly reporting;

• Changes in salary and insurance assessment bases;

• Expense reimbursements and taxable benefits;

• Year-End Tax Settlement;

• Severance and IRP payment procedures; and

• Payroll-related certificates and employee reporting.

For an overseas headquarters, Korean payment procedures and local banking requirements may create an additional operational burden. Funding requests, internal approvals and bank transfers should therefore be planned sufficiently in advance.

What Foreign Employers Should Prepare Before Hiring

Before making an employment offer in Korea, a foreign employer should confirm:

• Whether the proposed salary is stated as gross or net;

• The estimated employer social insurance cost;

• The annual severance accrual;

• Whether bonuses and allowances are included in the compensation package;

• The applicable working hours and overtime arrangements;

• The retirement benefit arrangement;

• The monthly payroll and funding schedule; and

• Which party will manage Korean payroll, tax, social insurance and banking coordination.

A well-structured cost estimate before hiring can prevent budget overruns, funding delays and compliance issues after payroll begins.

Practical Budgeting Guideline

For an ordinary employee, a useful preliminary guideline is:

Annual Gross Salary + Approximately 12% Employer Social Insurance + Approximately 8.33% Severance

In other words, employers should generally begin their budget at approximately 120% of annual gross salary, before adding variable compensation, payroll administration and other employee benefits.

This is a planning guideline only. A company-specific calculation should be prepared before the employment terms are finalized.

Korea Payroll Partners supports payroll cost estimates, monthly payroll processing, social insurance, Year-End Tax Settlement, severance calculations and payroll-related payment coordination for foreign companies operating in Korea.

Planning to hire an employee in Korea? Email Korea Payroll Partners for an estimated payroll and employment cost calculation.

Related Guides

• Korea’s Social Insurance Contribution Rates for 2026

• Korean Employment Income Tax in 2026: Understanding YETS and the Foreign Employee Flat Tax

• Severance Pay in Korea: What Foreign Employers Need to Know in 2026

Official References

• Ministry of Employment and Labor – Official Severance Pay Calculator

• Korean Government Easy Law Guide – Severance Pay and IRP Payment

• National Tax Service – Year-End Tax Settlement and Foreign Employee Tax Forms