A Guide to The Korean National Payroll Management System

The Korean Payroll system is complicated and treacherous to businesses; make the wrong move and the penalty imposed upon you by the government can be severe. For employees, you need to know exactly what you’re entitled to and how much you should be paying for it in order to make sure your employer is being fair.

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.

Outsource Your Korean Payroll To The Korean Tax Experts

We make sure you pay everything you have to – and not one won more! If you’re looking for proactive accountants who will save you from having to pay penalties, get in touch with us today. 

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