Expanding into South Korea provides exciting growth opportunities for global companies. However, managing payroll in South Korea requires a solid understanding of local tax laws, social security contributions, and other payroll regulations. This guide covers essential aspects to help you set up and manage payroll in South Korea efficiently.

Step 1: Understanding Salary Structure in South Korea

The salary structure in South Korea includes several mandatory and optional components to ensure compliance with national regulations and competitive compensation.

Component	Details	Mandatory/Optional
Base Salary	The agreed-upon monthly salary, with a statutory minimum wage that varies by industry.	Mandatory
Overtime Pay	Paid at 1.5 times the hourly rate for hours worked beyond 40 hours per week for non-exempt employees.	Mandatory
National Pension System (NPS)	Employer contributions to the NPS for retirement benefits, applicable to all employees.	Mandatory
Health Insurance	Employers must contribute to the National Health Insurance (NHI) for all employees.	Mandatory
Bonuses	Performance-based or incentive bonuses, which may affect taxable income.	Optional
Allowances	Includes transport, meal, or housing allowances, typically subject to taxes.	Optional

Outcome: Establishing a compliant salary structure in South Korea enhances employer reputation and supports employee satisfaction.

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Step 2: Income Tax Withholding in South Korea

South Korea employs a progressive tax system, requiring employers to withhold income tax from employees’ salaries and remit it to the National Tax Service (NTS).

Taxable Income Bracket (KRW)	Tax Rate (%)
0 – 12,000,000	6%
12,000,001 – 46,000,000	15%
46,000,001 – 88,000,000	24%
88,000,001 – 150,000,000	35%
Above 150,000,000	38%

Note: Foreign residents may have different tax rates or benefits based on Double Taxation Agreements (DTAs) with their home countries.

Outcome: Accurate tax withholding ensures compliance, preventing penalties.

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Step 3: National Pension System (NPS) Contributions

Employers contribute to the National Pension System for all employees, helping provide retirement benefits.

Contribution Type	Employer Rate	Employee Rate
NPS (Standard)	9%	9%

Outcome: Timely and accurate NPS contributions ensure employees receive full retirement benefits and prevent compliance issues.

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Step 4: Payroll Cycle and Timing in South Korea

Employers typically adhere to a monthly payroll cycle for salaried employees, though alternative cycles can be arranged based on business needs.

Payroll Cycle	Description
Monthly	Standard for salaried employees, aligns with budgeting.
Bi-monthly	Used in specific industries, offering flexible payment.

Outcome: Maintaining a consistent payroll cycle supports employee financial planning and ensures compliance with South Korean laws.

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Step 5: Paid Leave and Public Holidays in South Korea

South Korea provides various paid leave entitlements governed by the Labor Standards Act, along with a set of public holidays.

Leave Type	Entitlement
Annual Leave	Minimum 15 days after 1 year of service, increasing with tenure.
Public Holidays	16 recognized holidays per year; additional holidays may be employer-discretionary.
Sick Leave	Up to 11 days per year, with additional provisions for hospitalization.
Maternity Leave	90 days for eligible employees, with government support available.
Paternity Leave	10 days for eligible fathers, supported by government policies.

Outcome: Proper leave management aligns with regulations and supports employee satisfaction.

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Step 6: Managing Payroll for Foreign Employees in South Korea

Foreign employees are generally subject to the same payroll and tax obligations, but specific considerations apply:

• Residency Status: Determines applicable tax rates and whether worldwide or local income is taxed.
• Work Visas: Required for lawful employment, including E-2, H-1, or D-8 visas.
• Double Taxation Agreements (DTAs): South Korea has DTAs with multiple countries, reducing tax burdens on foreign income.

Outcome: Careful management of foreign employees’ payroll ensures compliance and fosters positive working relations.

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Step 7: Payroll Compliance and Reporting in South Korea

Payroll compliance requires accurate and timely reporting to the National Tax Service (NTS) and adherence to national payroll regulations.

Requirement	Frequency	Details
Income Tax Withholding	Monthly	Employers remit withheld taxes to NTS for all employees.
NPS Contributions	Monthly	NPS contributions must be deposited monthly for all employees.
Payroll Recordkeeping	Ongoing	Employers must retain payroll records for 5 years for audit purposes.

Outcome: Meeting payroll compliance requirements ensures smooth operations and reduces the risk of legal complications.

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Step 8: Social Security and Additional Contributions in South Korea

The social security system in South Korea includes mandatory contributions from both employers and employees for various welfare needs.

Contribution Type	Employer Responsibility	Employee Responsibility
National Health Insurance (NHI)	3.335% (variable by income)	3.335% (variable by income)
Employment Insurance	0.9% (for workplace injuries)	0.9%

Outcome: Accurate social security contributions guarantee employee access to social benefits and legal compliance for employers.