Korean Job Discussion Forums

willardmusa · Joined: 28 May 2006

There seems to be a lot of different takes on how the severance is supposed to work, and many of these seem to be in error. I have read up a bit on the severance system and this is what I understand about how it is supposed to work:

The way I understand it, with "severance" meaning you are being "severed" from your employment, . . i.e., leaving employment with the company or such, the severance payment is supposed to be paid to an employee when they leave employment, not at the end of every year that he or she is employed. I have checked in the past the English translation of the relevant information and this is the way it is described. And, I have talked with Korean workers who've been with their companies for many years and they have never received severance, but instead will get it when they leave employment with their respective companies.

That many establishments do indeed pay foreign English teachers the severance out at the end of a yearly contract does not mean that this is the way it is supposed to be handled in fulfillment of the intent of the severance system. The severance system is intended to give a worker some additional cash in hand while he is between jobs. It's a kind of unemployment insurance of sorts in this way.

When an employer pays out the severance on a yearly basis, he is likely doing so for his convenience. First, he doesn't have to maintain some account in which he holds the money long term, avoiding the accounting, avoiding the temptation to dip into it and thereby avoiding major financial and legal headaches later on.

In addition, when an employer pays out the severance on a yearly basis, he is saving a potentially significant amount of money. How?

From my understanding, by regulation, your severance is to be calculated on the average salary you were earning in the last six months of your employment. (And that average would have to include overtime payments you received in that last six months, from what I have read of the calculation.) As most employees get a raise each year, the amount that an employer would have to pay would be based on a higher salary each additional year.

So, if say you were getting (to use an average advertised salary for foreign ESL teachers on Dave's) 2 million won a month in your first year, and 2.3 in your second year, and you left at the end of the second year, the employer would, if he followed the regulation to the letter, have to pay out two year's severance payment, . . . that's two months of your salary . . and it would be calculated on the 2.3 million won you were making in the last six months of your employment. So, he would have to pay you 4.6 million won. (And if you were earning overtime, such as for extra classes you had to teach, in your last six months, I believe, being purely technical about it, that would raise your average salary for those last six months.)

If that employer paid out your severance at the end of your first year, and then paid it out at the end of your second year, he would pay 2 million won in the first year and 2.3 million won in the second year, for a total of 4.3 million won, which is 300,000 won less.

Extend this kind of calculation out over more years and the amount can truly become significant.

AND . . . let's address another issue at hand: leaving "mid-contract". Once you have completed one full year, you are under the severance umbrella. Any time you leave after that, you will be eligible for severance compensation for the entire period of your employment, not only for years you completed. So, if you leave after 2.5 years, having completed two yearly contracts and half of a third, you would be entitled to 2.5 months salary, calculated on your average salary over the last six months of your employment.

By paying out every year, the employer may be operating under the assumption (and making you assume so as well) that he is able to treat you as a new employee each year, starting the clock all over again with each new contract and then, when you leave mid-contract of a later year, it may appear that he's off the hook, so to speak, from paying severance on the year that you did not complete. I don't believe this is the legal case, by regulation.

Well, let's say you completed 8 months of your third year and your salary was 2.5 million won. By regulation, you, having been an employee for 2 years and 8 months, should be eligible for severance compensation calculated on the whole time you were with the employer, that is two years and eight months. This means that you should receive a pro-rated severance amount for your last 8 months, and that would be about 1.6 million won.

If your employer paid you at the end of each completed yearly contract, and did not pay you for a year that you did not complete, . . . keeping in mind the calculation above, . . you would in the end lose 2.3 million won.

How? If the employer had followed the intent of the severance system and paid it at the end of your employment relationship, he would have had to pay you for 32 months of employment, with the calculation being on the average salary of your last six months of employment, which would have been at 2.5 million won a month. That means he would have to pay you: 2.5 X 2 = 5.0 million won (for the two completed years) + 1.6 million won (pro-rated amount for the 8 months you worked of the third year) = 6.6 million won.

If he had paid your severance at the end of each year and treated you as if you were a new employee year-to-year (and therefore assumed that he didn't have to pay you severance when you didn't complete the 3rd year), he would pay you: 2.0 for the first year completed + 2.3 million won for the second year completed = 4.3 million won.

6.6 million won - 4.3 million won = 2.3 million lost on your part, saved on his part.

So, if you are going to be with your employer for a while, I think you really ought to think about whether it's wise to accept your severance being based on a year-to-to year completion basis.

** Now, someone correct me if I'm wrong! However, this is the way I understand it from what I have read. If someone can show that the system has a different way of dealing with employees who work on a yearly contract basis, then all of the above calculations could be described as invalid. I have not been able to find anything that says yearly-contracted employees are treated differently. I've only seen descriptions of a system based on the number of years an employee is with an employer.

prairieboy · Joined: 14 Sep 2003 Location: The batcave.

Average salary is calculated on your salary over your last three months of employment, not six. This can be found in the Labour standards act and is defined there in article 19.

As for the yearly payout, there is an article in the Labour Standards act (article 34 subparagraph 3) that allows the employee to request payment of the severance money at anytime, otherwise it is supposed to be made at the end of your employment.

As for the prorated payment for time over one year, I have not been able to find a direct reference so if you could provide a link to the info or where I might find it I would be grateful.

I myself have been doing some research and have tried to clear up some of the things I've read posted here with actual reference to the law or policy applied by the MoL.

Anyway, links please (I don't doubt but I would like to see for myself).

Cheers

Bear256 · Joined: 28 Dec 2006 Location: Anacortes, Washington USA

It also depends on what your contract says. My contract, for example, spells out that my annual "bonus" will be paid each year. I had to show the contract to my new administrator before getting my 2nd bonus as she was under the impression it worked as was posted above.

willardmusa · Joined: 28 May 2006

thebomb · Joined: 13 Nov 2006

Praireboy,

To you happen to know off hand what article No. relates to that an employer is legally required to pay severance upon termination of employment, regardless of clauses written into the contract?

Cheers in advance Very Happy

paperbag princess · Joined: 07 Mar 2004 Location: veggie hell

i worked with someone who was screwed out of his severance when the school changed owners (for the worse). after they accused him of child abuse they refused to pay the total severance he was owed for the 3 years he had worked there.

when he went to the labour board, they told him he should have been paid each year.

willardmusa · Joined: 28 May 2006

willardmusa · Joined: 28 May 2006

Young FRANKenstein · Posted: Tue Jan 16, 2007 1:38 am Post subject:

willardmusa · Joined: 28 May 2006

Young FRANKenstein · Posted: Tue Jan 16, 2007 10:55 pm Post subject:

willardmusa · Joined: 28 May 2006

Mack · Joined: 15 Sep 2006 Location: korea

Can anybody refer me to the section/clause that says specifically that severance is calculated with overtime included? -I'm assuming some or many employers would try to do it without overtime.

prairieboy · Joined: 14 Sep 2003 Location: The batcave.

dimnd · Joined: 19 May 2005 Location: Western USA

A contract that is for ten months ending the end of February....the question...is severance supposed to be given..one of the 3 months was double my salary for extra work and the last two months will be a normal salary....Is severance expected to be paid ..I have to get a copy of a contract today to look at..cannot find the whole one here..and what if it does not say that..company refused to pay the air fare saying that it is not a year here..but they did not pay the way here nor did they pay a visa run....

Advice would be appreciated.