Introduction: In South Korea, the tax settlement process for resigned employees involves several important steps. While specific details may vary, for the purpose of this blog, let’s assume that the employee’s salary and bonuses have been finalized. This article will cover the key aspects of the tax settlement process that every resigning employee should be aware of.
- Health Insurance Premium Settlement: When an employee leaves their job, the process of reporting the loss of the 4 major insurances (health, employment, industrial accident, and national pension) begins. Each insurance agency in Korea calculates the insurance premiums based on the total annual earnings. Among these insurances, it is crucial to focus on the calculation of the National Health Insurance premium. This premium is approximately 9% of the total annual earnings (combined employer and employee contributions). In most cases, resigning employees may have to pay additional insurance premiums through the health insurance premium settlement process.
- Severance Pay Calculation: In South Korea, employers are required to provide one month’s worth of severance pay to employees who have worked for at least one year. The severance pay is calculated after finalizing the employee’s salary and bonuses before resignation. According to the relevant laws, unless there is a significant issue agreed upon in writing, the company is obliged to pay the severance pay within 14 days of the employee’s last working day.
- Year-End Tax Settlement: For continuing employees, the year-end tax settlement process takes place in February each year. It involves applying various income deductions and tax credits to the total annual compensation (salary and bonuses) from the previous year to determine the final tax liability. However, for resigning employees, even if they cannot avail income deductions and tax credits, the company must complete the year-end tax settlement using basic deductions on their behalf. This settlement is mandatory for resigning employees and must be provided by the departing company. The resigning employee’s year-end tax settlement from the previous company is then combined with the settlement from the new employer during the February tax filing.
Conclusion: The tax settlement process for resigning employees in South Korea is a crucial aspect to understand and comply with. By being aware of the various steps involved, employees can ensure a smooth and accurate settlement of taxes and other financial obligations upon leaving their job. It is advisable for both employees and employers to be well-informed about these processes to avoid any issues and ensure a seamless transition during the resignation period.
Tax Settlement Process for Resigned Employees in South Korea