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Category Date 2009-01-15
Title Payment Requirements and Calculation Method of Retirement Pay

Dear HR managers of Foreign invested Firms,
This is the National Labor Consultation Center.
We would like to inform you of retirement pay system under the Korean Labor Law
as follows:

Q: Our company employs less than 5 workers. However, in order to determine whether
the management will adopt the retirement pay system we would like to know about the
following points:

   1) Payment conditions for the retirement pay pursuant to the labor laws
   2) How to calculate the retirement pay
   3) How to access the related materials for reference.

A: 1. According to Article 34 of the Labor Standards Act and Article 8 of the Employee
Retirement Benefit Security Act, when a worker who has worked one year or more retires
from the workplace with five or more workers employed ordinarily, the employer who
adopts a retirement pay scheme shall provide the retiring employee with 30 days or more
average wage for every year of consecutive service. Here, average wage means the amount
calculated by dividing the total amount of wages paid to the relevant worker during
three calendar months prior to the date on which the event necessitating such calculation
occurred by the total number of calendar days during those three calendar months.

2. Here, the term "Years of consecutive service" means a period from the date a worker
starts his/her work to the date such worker retires.

※ Average Wages = Total amount of wages paid for the last three calendar days prior
to the date on which the event necessitating such calculation occurred / Total number
of calendar days in the last three calendar months prior to the date on which the event
necessitating such calculation occurred.

3. Here, the term "total amount of wages" means whatever wages under the Labor Standards
Act paid as a reward for labor provided during a period for calculation of average wages,
which includes not only wages actually paid to a worker but wages unpaid among wages
which should have been paid during the said period and refers to wages before tax credit.

4. The term "total number of calendar days" means the number of days calculated
retroactively to three months prior to the date on which the grounds for calculation
of average wages arise and is any of the number of days from 89 to 92 days depending
on the size of relevant months.
 ※ Amount of retirement pay = Amount of average wage x 30 days x [( ) years+( ) days
    / 365 ]

5. Pursuant to Employee Retirement Benefit Security Act, the employer shall pay retirement
pay to the worker within 14 days from the date of retirement.

6. As no restrictions are imposed on the reasons of retirement, retirement pay are required
to be paid for any case where the employment contract is terminated, such as resignation
regardless of the workers age, death of the worker, extinction of the enterprise,
completion of work, arrival at retirement age and disciplinary dismissal.

7. Provisions for working conditions prescribed by the Labor Standards Act of Korea are
mandatory and an employer is required to guarantee working conditions not to be inferior
than the level determined by the said Act. Any labor contract, rules of employment,
collective agreements, etc. stipulating working conditions failing to reach the level
prescribed by the said Act shall be null and void only for the relevant part and the part
so nullified shall be subject to the standards prescribed by the said Act. In the meantime,
if working conditions stipulated in the labor contract concluded between the employer and
the worker are higher than those provided for by the said Act and are not unfavorable or
disadvantageous to the relevant worker, such conditions shall be valid and effective
pursuant to the principle of free contract.

8. Therefore, when the payment of retirement pay is provided for in the rules of
employment, labor contract, etc., such as the terms and conditions of payment, amount,
time to pay, and retirement pay have been customarily paid to workers of less than one
year of continuous service or of workplace with less than 5, thereby a worker in your
company expect such payment naturally out of a social common notion, it is deemed
appropriate that the obligation to pay such payment is imposed on the employer by
construing such payment as money and valuables arising from employment relationship
although it does not carry the nature of a wage under the Labor Standards Act.
(Administrative interpretation of the Ministry of Labor dated February 2, 2006 / Wage
Working Hour Policy Team-247)

9. Fore more reference, We are attaching the relevant Labor Acts.
For more information, contact us at call 031-345-5200(for only CEOs or HR managers)


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