South Korea is an economic powerhouse home to thriving companies such as Samsung and Hyundai. It’s a great place to expand to if you want to tap into a skilled workforce and grow your team. However, the country has some unique guidelines for setting up South Korea payroll that can make expansion difficult, but G-P is here to help.
Taxation rules in South Korea
Companies in South Korea are responsible for various taxes:
- The first KRW 200 million of a company’s taxable income is subject to a 9% tax rate of the corporate tax.
- Income between KRW 200 million and KRW 20 billion is taxed at 19%.
- Income between KRW 20 billion and KRW 300 billion is taxed at 21%.
- Income over KRW 300 billion is taxed at 24%.
- Companies must also pay a 10% local income surtax on all income before tax credits and exemptions.
South Korea uses a progressive income tax rate for employees that includes additional rates for local income tax. Employees are all part of a mandatory social security system and National Health Insurance (NHI), and both employees and employers contribute to the NHI at a rate that depends on the employee’s salary.
Under the various social security-related laws in South Korea, companies — including foreign invested companies — with a certain number of employees, are required to participate in the various social security programs and to make contributions for the benefit of employees. Noncompliant companies may be subject to penalties. There are 4 mandatory social security programs in South Korea: the National Pension, the National Health Insurance (including the long-term Care Insurance for the Elderly), the Employment /Unemployment Insurance (EI), and the Industrial Accident Compensation Insurance (IACI).
South Korea payroll options for companies
Companies have 3 main South Korea payroll options when expanding:
- Internal: If you already have an established subsidiary, you can run payroll internally, providing you have the time, resources, and HR team. This option is best suited for larger companies that plan to maintain a long-term presence in South Korea.
- South Korea payroll processing company: A local South Korea payroll processing company can help you outsource your payroll, but you will still be held liable for compliance issues.
- G-P: The easiest way to run payroll in South Korea and stay compliant is partnering with an Employer of Record like G-P. With us, you can rest assured that all employees will be paid on time, freeing you to focus on other important aspects of your business.
How to establish a payroll in South Korea
Before setting up a South Korea payroll, you’ll need to establish a subsidiary in the country or choose an alternative, such as an EOR. International employees will also need a visa, so companies should take this into account when deciding which business structure is best for expansion.
The steps to set up payroll depend on what kind of structure you choose. Generally, you will need to register at the National Tax Information System, the Internet Registry Office, and fulfill local tax payments.
Entitlement/termination terms
It’s best practice to draft a written employment contract when hiring employees in South Korea. In this contract, employers should include entitlement and termination terms, such as notice periods and severance payments. In South Korea, employers must provide at least 30 days’ notice or pay the employee 30 days of salary in lieu of notice and ensure that termination is conducted in accordance with local laws.
Streamline global payroll management with G-P.
G-P streamlines each step of the payroll management process with our market-leading Global Growth Platform™. Pay your team with confidence anywhere in the world in 150 currencies with our 99% on-time automated payroll system — all with just a few clicks. Our products also integrate with leading HCM solutions, syncing employee payroll data across platforms automatically to create one reliable, convenient source of truth for HR teams.
Contact us to learn more about how we can support you.