What does the Korean national payroll system include?
When an employee is hired by a company, he/she will get salary payment each month and there will be deductions from their earnings. Employees need to pay income/resident taxes for their salary and the mandatory social insurance programs that employees need to be enrolled immediately upon being hired by a company.
Withholding Income Taxes, Resident Taxes & Benefit Deductions
Income/resident taxes are paid directly to the Korean government by the employer. During the year, they are calculated and deducted from gross salary amount according to the calculation regulations being provided by the National Tax Service (NTS). The employer is required to deduct those taxes and make the required payments to the government for the employee the following month.
There are four mandatory benefit programs in Korea: National Pension, National Health Insurance, Unemployment Insurance and Workplace Injury Insurance. Contribution rates for those insurances vary according to income and other factors. The employee’s portion of “The 4 Insurances” is deducted from their salary every month just like the income/resident taxes. Then the deducted amount and the employer’s portion are paid in a combined payment to the relevant insurance companies by the employer the following month.
Calculation, Registration & Year End Settlement
The employer needs to report a newly hired employee’s personal information and his/her monthly gross salary amount to the social insurance companies, with fourteen (14) days from his/her start date. For foreign employees, there will be different registration procedure depending on the visa types.
Once registered to the Korean social insurances, the insurance companies impose the employee’s monthly contribution and the employer receives their payment vouchers every month.
For income/resident taxes, the employer needs to withhold taxes and deduct the amounts from the employees. Guidelines for those withholding taxes are provided by NTS, in accordance with the Korean individual income tax laws.
At the year-end the employer needs to settle the deducted amounts for payroll taxes. It’s very similar procedure of the income tax filing. For those individuals who had “salary” earnings only during the year, their taxes are settled with this year-end tax settlement prepared and reported by the employer.
The year-end tax settlement procedure is quite complicated but it is the employer’s requirement to settle their employees’ payroll taxes.
HR Software Website Services: In America it’s Quickbooks; In Korea it’s “Duozone”
This is why almost all businesses outsource their HR services in Korea
Duozone is practically the only system that integrates with the Korean government’s filing system website, Hometax. Individual subscriptions to Duozone are just too expensive, costing over KRW 3 million for the first year. Accountants and firms can distribute this expense over many clients, but small businesses can’t.
The system itself is also extremely complicated and no English service is provided. Even though Duozone delivers a wide range of features in relation to accounting and tax it mainly focuses on the preparation of tax documentation. Ironically, you cannot directly file tax returns via Duozone to the Korean tax authorities though. So in the end a tax advisor needs to review the returns to make sure they are compliant with the constantly changing tax laws.
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