Payroll in South Korea combines monthly income tax withholding, four social insurance programs, and a mandatory severance allowance, with contribution rates that changed at the start of 2026. This guide sets out the current rates, the filing calendar, and the ways to run payroll, whether you use your own entity or outsource it to AYP.
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Running payroll in South Korea means keeping income tax, four social insurances, and a severance liability in order every month, each reporting to a different agency. The rates are clear, but two of them changed on 1 January 2026, and the severance obligation quietly builds on the balance sheet from an employee's first year. This is where foreign employers most often underestimate the cost of hiring in Korea.
This guide covers what employers are legally required to do: the 2026 contribution rates, the tax treatment, the severance rule, the filing calendar, and the ways to actually run payroll once you have staff on the ground. It sits alongside AYP's wider APAC payroll services and the full payroll country guides.
The table below is the quick reference most employers need. Rates are current for 2026.
Four bodies set the rules. The National Tax Service runs income tax and withholding. The National Pension Service runs the pension, the National Health Insurance Service runs health and long-term care insurance, and the Ministry of Employment and Labor oversees employment terms, the minimum wage, and severance. Employment and industrial accident insurance are administered through COMWEL.
Payroll is processed monthly and paid in Korean Won, usually between the 25th and the 5th of the following month. The tax year follows the calendar. What sets Korea apart is the year-end tax settlement in the first quarter, when each employee's actual annual tax is reconciled against what was withheld, and the severance allowance, which accrues from the first year of service.
The framework rests on the Labor Standards Act for wages, hours, leave and severance, the Income Tax Act, and the four social insurance laws. Because the systems report to different agencies, payroll in Korea is as much about coordinating filings as it is about the calculations.
Every compliant Korean payslip reflects the same set of deductions and employer contributions. Here is what each one requires in 2026.
Employers withhold income tax each month using the National Tax Service simplified withholding table, then reconcile it through the year-end settlement. Residents are taxed on a progressive scale, and a local income tax of 10% of the income tax amount is added on top. Eligible foreign employees can instead elect a flat 19% rate, excluding local income tax, for a set period. The resident brackets are below.
South Korea's four social insurances are national pension, health insurance (with long-term care insurance attached), employment insurance, and industrial accident insurance. Two of the rates changed on 1 January 2026: the national pension rose from 9% to 9.5%, and health insurance rose from 7.09% to 7.19%. Most are shared between employer and employee, while industrial accident insurance is paid entirely by the employer at a rate set by industry.
National pension contributions are calculated on a monthly income that is capped at an upper limit, adjusted each July, so contributions for higher earners are capped rather than rising without limit.
Severance pay is the part of Korean payroll that surprises foreign employers, because it is a real liability that builds from an employee's first year rather than a cost that appears only at the end. Any employee who has worked for at least one year and more than 15 hours a week is entitled to at least 30 days' average wage for each year of continuous service. There is no cap, and it is owed regardless of why the person leaves, including voluntary resignation.
Payment is due within 14 days of the employment ending unless the parties agree otherwise. Because the amount grows with tenure and salary, most employers fund it through a registered retirement pension plan, either defined benefit or defined contribution, rather than carrying it as an open reserve.
Standard working hours are 40 a week, and total weekly hours including overtime are capped at 52. Overtime, night work and holiday work are paid at premiums on top of the regular hourly rate.
Korea's monthly filings both fall on the 10th, which keeps them together, but the year-end settlement in the first quarter is the one that takes real planning.
Most payroll problems for foreign employers in South Korea come from a few recurring issues rather than the base calculations.
The first is the year-end tax settlement. This annual reconciliation in January and February collects medical, education and insurance documents from every employee and trues up their tax, and it is involved enough that many foreign companies hand it to a specialist.
The second is severance. Because it accrues from the first year and has no cap, employers that fail to fund it properly can face a large, sudden liability when several long-tenured staff leave, along with audit questions if reserves are not clearly held.
The third is staying current on the social insurance rates, which is exactly the trap this year: the pension and health rates both rose on 1 January 2026, and payroll still running the 2025 figures will under-deduct.
The fourth is employment classification. Korean law limits fixed-term contracts to two years, after which the employee generally converts to permanent status, and misclassification can carry penalties.
Once you have people to pay, there are three practical ways to handle Korean payroll, and the right one depends on whether you already have a local entity and how many staff you expect to hire.
Building payroll in-house gives full control but needs local expertise, Korean-language software, and an entity already in place. A local provider takes the processing off your plate while you keep the employer relationship. Outsourced or managed payroll goes further, covering income tax, the four insurances, severance and the year-end settlement as a single service.
If you have not set up a Korean entity yet, or you want to hire before you do, an Employer of Record is the usual route, since it lets you employ staff compliantly without your own local company. That is a broader hiring decision than payroll alone, so it is covered separately in AYP's Employer of Record South Korea service and the guide to hiring in South Korea. For a comparison of running payroll internally against outsourcing it, AYP's team has written on in-house versus outsourced payroll.
AYP handles Korean payroll for companies that would rather not build the compliance machinery themselves. The platform runs income tax withholding, calculates and files the four social insurances, tracks and funds severance, manages the year-end tax settlement, and produces bilingual payslips, with reporting to each agency on schedule. Pricing is a predictable monthly fee, set out on the pricing page.
The same team supports payroll across 18 Asian markets, so a company scaling from South Korea into the wider region keeps one provider rather than stitching together local vendors. To see how it maps to your headcount, speak to the AYP team. Employers new to the process can also read AYP's note on the common payroll mistakes businesses make.
In 2026, national pension is 9.5% split equally (4.75% each), health insurance is 7.19% split equally (3.595% each) with long-term care insurance added at 13.14% of the health premium, and employment insurance is 0.9% for the employee plus 0.9% and a size-based 0.25% to 0.85% for the employer. Industrial accident insurance is paid entirely by the employer at an industry-based rate.
Any employee with at least one year of continuous service who works more than 15 hours a week is entitled to at least 30 days' average wage for each year of service. There is no cap, it applies even to voluntary resignation, and it must be paid within 14 days of the employment ending.
Employers withhold income tax monthly on a progressive 6% to 45% scale, plus a local income tax of 10% of the income tax amount, and reconcile it through the year-end settlement. Eligible foreign employees can elect a flat 19% rate, excluding local income tax, for a set period.
The year-end tax settlement is an annual reconciliation carried out in January and February, when the employer trues up each employee's tax against deductions and reliefs supported by documents such as medical, education and insurance records. Any underpayment or refund is settled in the following payroll.
Not directly through a standard payroll provider, which needs an entity to file under. Employers who want to hire and pay staff before setting up a company typically use an Employer of Record instead.