10 min read
South Korea
Hire in South Korea with Confidence
Worksuite offers a whole range of professional services and compliance tools, making it easy to compliantly engage independent contractors in South Korea.
We work with the best legal partners in South Korea to create contract templates that are compliant with local laws to protect you and your contractors from fines and penalties.
Our bespoke onboarding workflows and screening questioners will help you determine the worker status in compliance with South Korean law, based on which you can decide to engage a worker as a contractor or full-time worker—all without needing to set up your business entity.
Contractor Classification in South Korea
Businesses hiring in South Korea should understand the legal distinction between independent contractors and employees. Businesses hiring independent contractors under the guise of employment conditions risk facing court proceedings. Ambiguities in South Korean legislation make companies prone to miscalculations. It is crucial to work with a partner like Worksuite when engaging contractors abroad, in order to establish a compliant and legal hiring framework.
In the Republic of Korea, whether a worker is considered an independent contractor (독립 계약자, doglib gyeyagja), a dispatched worker (파견 노동자, pagyeon nodongja) or an employee (직원, jig-won), is determined by two aspects:
- Type of agreement
- Court decisions
Disputes concerning the character of work agreements are resolved by Korean labor courts irrespective of an employment agreement type. A court can determine the character of an agreement, taking into account the actual working conditions.
Korean labor laws follow the principles laid down in various international conventions, the country’s Labor and Civil codes. However, they are constantly subject to revision and policy changes. It is important to work with a partner like Worksuite to ensure that you have an engagement framework that properly classifies freelancers able to work as independent contractors.
Factors
Employee
Independent Contractor
Employment Laws
Employment contracts are regulated by Korean labor legislation based on the Labor Standards Act (근로기준법, geunlogijunbeob), as well as on labor court decrees.
There are two types of employment contracts in the Republic of Korea:
- Permanent (영구 고용 계약, yeong-gu goyong gyeyag)
- Fixed-term (기간제 근로계약, giganje geunlogyeyag) – for a period of up to two years
Only contracts for part-time employees must be signed in writing. Terms relating to wages, working schedule, holidays and paid annual leave must be clearly stated in writing for all types of employment agreements, in the form of a separate document.
Both employment contracts and working terms can be drawn up in a foreign language.
Independent contractor agreements are regulated by the Korean Civil Code (민법, minbeob).
In South Korea, independent contractors are hired based on a freelance contract (프리랜서 계약, peulilaenseo gyeyag). Such contracts are not categorized, and they must be signed in writing in any preferred language.
Hiring Practice
An applicant must submit their CV to the employer. When the employer decides to hire the applicant, they must deliver a formal job offer to the individual. The following information may be then collected for hiring and tax purposes:
- Full name
- ID number
- Birth date
- Expected employment start date
Employers are prohibited to collect the information on the following aspects from candidates, unless it can be proven that this information is required for a given job:
- National origin
- Marital status
- Family members
- Property ownership status
- Physical appearance
Through professional employer organizations or directly.
Contractors can be hired directly or via a third party, such as a staffing agency. Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
There is no limitation on the use of independent contractors.
Tax Documents
Employers are obliged to submit monthly social contributions and income tax reports (소득세 보고서, sodeugse bogoseo) to the tax authority by the tenth day of the month online through the HomeTax platform.
Contractors file annual income tax reports online and pay social contributions on their own each May (from 1st till 31st) through the HomeTax platform.
Payer's Tax Withholding & Reporting Requirements
Employers must withhold:
- Personal income tax (개인소득세, gaeinsodeugse) – from 6% to 49.5% depending on employee’s gross annual income size
- Pension contribution – 4.5%
- Health insurance – 3.495%
- Unemployment insurance – 0.8%
Independent contractor’s income is subject to:
- Personal income tax – from 6% to 49.5% depending on the employee’s gross annual earnings size
- Health insurance – 3.495%
- VAT – 10% (when the contractor is not directly hired by a foreign company, but rather by an umbrella company)
Remuneration
Employers are expected to pay their staff via automatic monthly payroll deposits into their bank accounts.
Independent contractors are paid:
- On the basis of invoices issued by contractors by the end of the month. Payments become due after the contractor issues an invoice.
- Through outsourced wage processing providers
The frequency of remuneration is to be agreed upon by an employer and a contractor. It is recommended, but not mandatory to issue payments in South Korean won (KRW).
Workers’ Rights
In the Republic of Korea, employees enjoy the following rights:
- Annual leave – 11 days in the first year of employment, 15 days in the second and third years. After he third year, one day’s paid leave is added for every two years of employment, up to a total of 25 days
- Maternity leave – 90 days before and after childbirth, or 120 in case of a multiple birth, with 60 days (for a single birth) paid, and 75 days paid (for a multiple birth)
- Paternity leave – 10 days within 90 days after the employee’s partner’s delivery
- Education leave – working hours can be reduced to between 15 and 30 hours per year
- Carers’ leave – up to 90 days
- Severance pay – a month’s wages for every year of continuous employment with the employer paid within 14 calendar days after the termination of employment
In South Korea, employees are not entitled to a paid sick leave.
Overtime work is paid at 150% of an employee’s salary. Work done after 10 pm pays 200%. There is no limit for daily overtime for employees, but weekly overtime cannot exceed 12 hours.
Independent contractors do not enjoy any of the benefits granted to employees unless internally agreed otherwise.
Severance pay may be issued pursuant to a labor court decision upon the termination of contract, provided that the relationship between the employer and the contractor had some aspects of employment relationship (direct supervision, schedule, fixed hourly wages).
Benefits
Employees are entitled to receive retirement benefits, health insurance, and industrial accidents compensation.
No benefits are granted to contractors.
Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e. umbrella company) and is considered their employee.
Mandatory health insurance is provided by the state (through the National Health Insurance Service) or private insurance companies.
When Paid
Wages are paid out either on the 25th or the last day of the month.
Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:
- Invoice number and date
- The client’s name and address
- The contractor’s bank details
- Agreed payment terms and due date
Employee
Employment Laws
Employment contracts are regulated by Korean labor legislation based on the Labor Standards Act (근로기준법, geunlogijunbeob), as well as on labor court decrees.
There are two types of employment contracts in the Republic of Korea:
- Permanent (영구 고용 계약, yeong-gu goyong gyeyag)
- Fixed-term (기간제 근로계약, giganje geunlogyeyag) – for a period of up to two years
Only contracts for part-time employees must be signed in writing. Terms relating to wages, working schedule, holidays and paid annual leave must be clearly stated in writing for all types of employment agreements, in the form of a separate document.
Both employment contracts and working terms can be drawn up in a foreign language.
Hiring Practice
An applicant must submit their CV to the employer. When the employer decides to hire the applicant, they must deliver a formal job offer to the individual. The following information may be then collected for hiring and tax purposes:
- Full name
- ID number
- Birth date
- Expected employment start date
Employers are prohibited to collect the information on the following aspects from candidates, unless it can be proven that this information is required for a given job:
- National origin
- Marital status
- Family members
- Property ownership status
- Physical appearance
Tax Documents
Employers are obliged to submit monthly social contributions and income tax reports (소득세 보고서, sodeugse bogoseo) to the tax authority by the tenth day of the month online through the HomeTax platform.
Payer's Tax Withholding & Reporting Requirements
Employers must withhold:
- Personal income tax (개인소득세, gaeinsodeugse) – from 6% to 49.5% depending on employee’s gross annual income size
- Pension contribution – 4.5%
- Health insurance – 3.495%
- Unemployment insurance – 0.8%
Remuneration
Employers are expected to pay their staff via automatic monthly payroll deposits into their bank accounts.
Workers’ Rights
In the Republic of Korea, employees enjoy the following rights:
- Annual leave – 11 days in the first year of employment, 15 days in the second and third years. After he third year, one day’s paid leave is added for every two years of employment, up to a total of 25 days
- Maternity leave – 90 days before and after childbirth, or 120 in case of a multiple birth, with 60 days (for a single birth) paid, and 75 days paid (for a multiple birth)
- Paternity leave – 10 days within 90 days after the employee’s partner’s delivery
- Education leave – working hours can be reduced to between 15 and 30 hours per year
- Carers’ leave – up to 90 days
- Severance pay – a month’s wages for every year of continuous employment with the employer paid within 14 calendar days after the termination of employment
In South Korea, employees are not entitled to a paid sick leave.
Overtime work is paid at 150% of an employee’s salary. Work done after 10 pm pays 200%. There is no limit for daily overtime for employees, but weekly overtime cannot exceed 12 hours.
Benefits
Employees are entitled to receive retirement benefits, health insurance, and industrial accidents compensation.
When Paid
Wages are paid out either on the 25th or the last day of the month.
Independent Contractor
Employment Laws
Independent contractor agreements are regulated by the Korean Civil Code (민법, minbeob).
In South Korea, independent contractors are hired based on a freelance contract (프리랜서 계약, peulilaenseo gyeyag). Such contracts are not categorized, and they must be signed in writing in any preferred language.
Hiring Practice
Through professional employer organizations or directly.
Contractors can be hired directly or via a third party, such as a staffing agency. Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
There is no limitation on the use of independent contractors.
Tax Documents
Contractors file annual income tax reports online and pay social contributions on their own each May (from 1st till 31st) through the HomeTax platform.
Payer's Tax Withholding & Reporting Requirements
Independent contractor’s income is subject to:
- Personal income tax – from 6% to 49.5% depending on the employee’s gross annual earnings size
- Health insurance – 3.495%
- VAT – 10% (when the contractor is not directly hired by a foreign company, but rather by an umbrella company)
Remuneration
Independent contractors are paid:
- On the basis of invoices issued by contractors by the end of the month. Payments become due after the contractor issues an invoice.
- Through outsourced wage processing providers
The frequency of remuneration is to be agreed upon by an employer and a contractor. It is recommended, but not mandatory to issue payments in South Korean won (KRW).
Workers’ Rights
Independent contractors do not enjoy any of the benefits granted to employees unless internally agreed otherwise.
Severance pay may be issued pursuant to a labor court decision upon the termination of contract, provided that the relationship between the employer and the contractor had some aspects of employment relationship (direct supervision, schedule, fixed hourly wages).
Benefits
No benefits are granted to contractors.
Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e. umbrella company) and is considered their employee.
Mandatory health insurance is provided by the state (through the National Health Insurance Service) or private insurance companies.
When Paid
Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:
- Invoice number and date
- The client’s name and address
- The contractor’s bank details
- Agreed payment terms and due date
Who classifies as an Independent Contractor in South Korea?
Self-employment as an independent contractor is a popular income model for many individuals in the Republic of Korea. According to the OECD, South Korea has the most educated youth in the world – measured by the percentage of people aged between 25 and 34 with a completed tertiary education degree. A significant proportion of the country’s educated youth is involved in manufacturing, consultancy, and IT sectors. Comparatively low costs of labor, combined with a distinctive corporate culture have prompted many Korean professionals to seek opportunities as independent contractors.
In South Korea, independent contractors are protected by the Korean Civil Code. However, disputes between independent contractors and employers are resolved by competent local labor courts. A court decision can be a primary factor determining the essence and character of relations between workers and organizations. As such, labor courts can oblige companies to grant benefits to independent contractors that are not usually granted to them under Korean law.
- Who is an Independent Contractor?
Whether or not an individual can be considered an independent contractor depends on the essence of the relationship between a worker and an organization. According to Korean civil and labor legislation, a worker is considered an independent contractor if they:
- Possess their own equipment, raw materials or tools needed to perform the work
- Can engage third parties to perform the work
- Can manage the business independently;
- Undertake the risk related to profit and loss;
- Withhold personal income tax on their own
- Are not subject to company’s internal guidelines and work schedule
- Do not near exclusively depend on payment from the company, i.e. have other sources of income
- Can provide services to several companies simultaneously
Contracting Models
Any individual who carries out an economic activity independently and directly under the provisions of a written freelance contract, is considered an independent contractor. Korean labor legislation does not define different types of independent contractor agreements.
Engagement Models
There are two primary engagement models for working with independent contractors in the Republic of Korea.
A. Direct engagement of the worker as self-employed or registered via their own limited company. Under this model, the hiring company engages directly with the independent contractor and draws up an agreement for the provision of services. The hiring company then pays the independent contractor directly.
B. Umbrella company. Firms listed as Employers of Record (EOR) in South Korea are often split into two categories, but both are essentially designed to vet and engage freelancers compliantly as either contract employees, or independent contractors on your behalf.
- Staffing agency: Some contractors may work under an umbrella company. In this case, the contractor is responsible for finding and performing their work, but they are an employee of the umbrella company, which manages payroll and applies an administration fee on the contractor’s earnings.
- Hiring partner: The hiring company can also work with a hiring partner who helps them vet potential contractors, set up contracts, ensure the contractor is properly classified, onboard and manage contractors, and make payments to them.
Contractor Payments
Independent contractors typically get paid upon issuing an invoice on net 30-day terms to the employer at the end of each month unless otherwise stipulated in the contract. Payments are made through direct deposits to their bank accounts or another preferred method stipulated in the contractor agreement.
Alternatively, companies may partner with wage processing providers. They can process wage calculations, prepare tax statements, and make deposits and withdrawals for contractors.
Terms, conditions, and frequency of payments can be settled between the contractor and the employer. Currencies other than the South Korean won (KRW) can be used, and they are subject to fluctuating exchange rates, which may have an impact on the contractor’s paycheck.
If you work with a hiring partner like Worksuite, it becomes significantly easier to streamline contractor payment processes. A dependable partner can help you hire contractors legally and pay them quickly, accurately, and in a way that complies with South Korean regulations.
Contractor Taxes
Independent contractors in South Korea are responsible for reporting and paying gross personal income tax and mandatory health insurance contributions. Tax filing procedures are handled by the contractors themselves. Tax reports must be submitted online through the HomeTax portal. The following documents are needed for each submission:
- Invoices issued to companies
- Payment receipts
- Receipts for medical expenses, education expenses, insurance payments, donations (whichever is applicable)
- Report of exemption and deduction from wage and salary income (근로소득 공제 및 공제 신고, geunlosodeug gongje mich gongje singo), which can be obtained through the same platform
Gross personal income tax
The Republic of Korea has a progressive taxation system, i.e., a greater tax rate is applied on higher earnings.
Gross annual income |
Tax rate |
Up to 12 million KRW (EUR 8500) |
6.6% |
12 million – 46 million KRW (EUR 8500 – 32500) |
16% |
46 million – 88 million KRW (EUR 32500 – 62300) |
26.4% |
88 million – 150 million KRW (EUR 62300 – 106000) |
38.5% |
150 million – 300 million KRW (EUR 106000 – EUR 212000) |
41.8% |
300 million – 500 million KRW (EUR 212000 – 354000) |
44% |
500 million – 1 billion KRW (EUR 354000 – 708000) |
46.2% |
1 billion KRW and up |
49.5% |
In South Korea, independent contractors are also subject to a local income tax, which is 10% of the annual gross income tax. It is automatically deducted from the annual gross income tax and does not have to be filed separately.
Value-added tax
The current VAT rate in South Korea is 10%. Independent contractors who are hired directly by a company from abroad (i.e., not through an employer of record or a staffing agency) are exempt from this tax.
Mandatory health insurance
All Korean residents must have health insurance. 3.495% of a contractor’s monthly income is automatically deducted and charged by the National Health Insurance Foundation at the end of each month from a contractor’s bank account. Private insurance companies apply different payment rates and procedures.
