South Korea’s payroll system
When an employee is hired, he/she will receive monthly salary payments that will have taxes deducted from. Employees must pay income/resident taxes from their salary along with mandatory social insurance programs that employees need to be enrolled into immediately upon being hired.
Withholding Income & Resident Taxes Plus 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 South 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: In the USA it’s Quickbooks; in South Korea it’s Duozone
This is why most businesses outsource HR services in the Republic of 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 Services 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, see our Korean payroll services page or get in touch with us today.