Korean employment law is employer-friendly in some respects and surprisingly protective of employees in others. Foreign companies entering the Korean market often make costly assumptions based on their home country experience. Here are the five mistakes we see most often.
1. Assuming Probation Periods Waive Severance Entitlements
In Korea, employees who work for more than one year are entitled to statutory severance pay (퇴직금) of at least one month's average wage per year of service. This applies regardless of whether the employee was on probation, whether the contract says otherwise, and whether the termination was voluntary or involuntary.
Many foreign employers assume that a 3-month probation clause eliminates or reduces this obligation — it does not. If the employee works beyond one year, the full severance entitlement applies from day one of employment. Since 2022, severance must be paid into a designated DC (Defined Contribution) pension account monthly as employees accrue it, rather than as a lump sum at separation.
2. Using Inadequate Employment Contracts
Korean labor law requires that certain terms be specified in writing and provided to the employee at or before the start of employment. These include: wages and calculation method, working hours, holidays, annual leave, and place of work. A generic English-language contract that doesn't address Korean statutory requirements may be unenforceable — and could expose you to liability.
Practical note: Employment contracts should be bilingual (Korean and English) with a clause specifying which language governs in case of dispute. Korean courts will apply Korean law regardless of what your contract says.
3. Misclassifying Employees as Independent Contractors
Korea's courts and labor authorities apply a substance-over-form test to employment relationships. If an individual works exclusively for your company, follows your instructions on how and when to work, and uses your equipment — they will likely be treated as an employee regardless of what the contract says. Misclassification exposes you to back-payment of severance, social insurance contributions, and penalties.
4. Underestimating Annual Leave Obligations
Employees who work for one year are entitled to 15 days of paid annual leave, increasing by one day for every two additional years of service, up to a maximum of 25 days. During the first year, employees earn one day of leave per month worked. Unused annual leave must either be used or compensated in cash — employers cannot simply let it expire.
5. Not Following Proper Termination Procedures
Dismissing an employee in Korea requires just cause and proper process. Employers must provide at least 30 days written notice (or 30 days' pay in lieu) and must be able to demonstrate a legitimate, proportionate reason for termination. Employees with more than 3 months' service can file an unfair dismissal claim with the Labor Relations Commission. Remedies include reinstatement and back pay.
Restructuring-based dismissals (정리해고) have even stricter requirements: the company must be in genuine financial difficulty, must have taken all possible measures to avoid dismissal, must consult with employee representatives in good faith, and must follow a fair selection process.
Korean employment law is detailed and actively enforced. Getting professional advice before you hire your first employee in Korea is far less expensive than dealing with a Labor Relations Commission claim afterward. Speak with our legal team.