South Korea is one of the top economic success stories in the Asia Pacific region. Over the past 45 years, powerhouse companies like Samsung Electronics, LG Electronics, Hyundai Motors, Kia Motors and Korea Gas have grown and prospered. Its 50 million population (About half of its citizens are between ages 25 and 54) is also highly educated, due to large investments in education in the country.
Today, South Korea is a major participant in international trade, and is among the top five largest importing and exporting countries in the world. South Korea signed a free trade agreement with China in 2015, making it the only industrialized nation that has the ability to trade freely with China, United States, and the European Union. This trading has enabled a robust economy in automotive, commerce, education, and government industries.
Doing business in South Korea can create many advantages, but involves some unique and complex guidelines that impact the payroll function. Global companies launching or maintaining operations in South Korea can benefit from working with a global payroll solutions provider to manage all aspects of country-specific payroll.
Individuals need a visa to set up or invest in a business (usually a D-7 for business managers, and D-8 for corporate investors). The next step is to set up their business structure. The four most common types of business structure are:
- Sa-eopja - solo proprietorship
- Hapmyeong hoesa - general partnership
- Yuhan hoesa - limited company and
- Jushik hoesa - stock corporation
The type of business structure chosen will generally vary on details about ownership, tax structure and management system for the business.
Start Biz Online is South Korea’s one-stop government web site for all things business. The site combines various parts of the incorporation process, including the National Tax Information System, the Internet Registry Office, Local Tax Payments and more.
At this site, global companies and entrepreneurs can check on available domains, register trade names, file for incorporation, get a tax ID number, open bank accounts and register the company for health insurance, unemployment insurance, employee compensation and much more.
Getting Started with Payroll
Companies have to register their employees for payroll in South Korea by the 15th day of the first month of operations. In doing so, the company can then begin to pay monthly withholding tax during the following month. Companies are also liable for tax registration in the first 20 days of operation to be in compliance of all Korean tax laws. Companies should allow about 4-6 weeks for this process to be finalized.
Companies must also have an in-country bank account in place to make payments to employees and tax authorities. Banks are generally open from 9am-4pm daily. Work office hours are generally from 9am-6pm Monday-Friday.
Upon the hiring of a new employee, whether in-country or expat, global companies need to have that employee registered by mid-month of the payroll period. Information on the employee should include:
- the employment contract between company and employee
- the employee’s start date, resident registration number and other details
- the company’s payroll policy including severance pay, and payroll calculation
Expats will have to provide the South Korean social insurance authorities with:
- Legal alien registration check
- Health insurance/Local medical expenses
- National pension certificate
- Employment insurance, depending on employee status in country
Employees working in South Korea have withholding tax taken from payments. These withholdings are at rates between 6% and 40%, according to their salary ranges.
Compensation, Bonuses, Severance
The minimum wage for about 3.3 million workers in South Korea went into effect on January 1, 2017. The raise moved workers’ hourly pay up to 6,470 won ($5.74, £4.65, €5.35) from 6,030 won ($5.35, £4.32, €4.99).
Salaries in South Korea tend to be based on years of service to a given company, rather than skill sets brought to particular jobs. So, a first-year engineer might make as much as a first-year HR recruiter, simply based on their length of service to the company. Salaries for professionals can range from 2-10 million won/yr. ($1,775-8,875; £1,435-7,177; €1,653-8,266) depending on the industry and choice of profession.
Leave – Sick, Maternity, Vacation, Absence, Holidays
South Korea has very detailed laws on the books about sick leave, maternity leave, vacations, holidays and missed work. Here’s a run-down.
- Holidays - Average holiday time off is a minimum of 15 days’ paid annual vacation for employees who have worked at least 80% during the previous year.
- Maternity leave is generous - to the birth-giving female. Employers must grant 90 days (or 120 days in case of multiple births) of paid maternity leave to pregnant female employees. (Men get only 3 days paid leave, with the option of an additional 2 days determined by the employer).
- Childcare - A parent employee can take up to one year of leave to care for a elementary school-aged child, provided the employee has put in at least 1 year of service to the employer. The employment insurance system funds up to 40 of the leave.
|Date||South Korea's Public Holiday Schedule|
|January 1st||New Year's Day|
|January 27th||Korean New Year|
|Early February (3 days)||Korean New Year Holiday|
|March 1st||Independence Day|
|8th day of 4th Lunar Month||Buddha's Birthday|
|May 5th||Children's Day|
|June 6th||Memorial Day|
|August 15th||Liberation Day|
|Day before Chuseok||Harvest Festival Holiday|
|October 3rd||National Foundation Day|
|October 4th and 5th||Chuseok|
|October 9th||Hangeul Day (Korean Alphabet Day)|
|December 20th (Every Five Years)||Presidential Election Day|
|December 25th||Christmas Day|
South Korea Business Complexity
The competitive business environment in South Korea means foreign entrepreneurs and global companies must do their best to handle all the registration and tax paperwork for the business. Managing it all on their own can be taxing work in a new country.
Efficiency and organization are hallmarks of conducting business in South Korea. As a result, working with a global payroll managed services provider that knows how to deal with South Korea’s tax laws and regulations can work in a multinational company’s favor over the long run!
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.