Annual Paid Leave in Korea: Legal Rules and Common Mistakes Foreign Companies Make
1. Introduction
One of the common misconceptions foreign companies have in Korea is annual paid leave and unused annual leave compensation.
Many foreign companies in Korea assume that unused leave can simply expire based on internal policies.
However, under Korean law, this approach can lead to unexpected financial liabilities and labor disputes.
In this article, we explain:
- The legal basis of annual leave in Korea
- When unused leave must be paid
- Common mistake by Foreign Companies
2. Legal Basis of Annual leave in Korea
The criteria for granting annual paid leave under the Labor Standards Act are as follows:
- Employees who have worked at least 80% of a year are entitled to 15 days of paid leave
- Employees with less than one year of service, or those whose attendance rate is below 80%, are entitled to one day of paid leave for each month of full attendance
In addition, for employees with more than one year of continuous service, one additional day of paid leave must be granted for every two years of service beyond the first year.
In such cases, the total number of annual paid leave days, including additional leave, is capped at 25 days.
3. Annual Leave Compensation
Annual leave compensation must be paid on the regular payday of the month in which the employee’s right to use the leave expires, i.e., when one year has passed from the date the leave entitlement arose.
However, if the employer has properly implemented the leave usage encouragement procedure and the employee still does not use the leave, the obligation to provide monetary compensation may be exempted.
4. Common Mistake by Foreign Companies – Misunderstanding the Annual Leave Encouragement System
Many foreign companies assume that simply reminding employees to use their unused annual leave is sufficient, and that any unused leave will automatically expire after one year without requiring compensation.
However, under the Labor Standards Act, this understanding is incorrect. The obligation to compensate unused annual leave is only exempted if the employer strictly complies with the legally prescribed annual leave encouragement procedure.
To meet this requirement, the employer must first inform each employee, in writing, of the number of unused paid leave days and request that the employee submit a plan indicating when the remaining leave will be taken. This notice must be provided at least six months before the leave entitlement expires, and the employee must be given ten days to respond.
If the employee fails to submit a leave plan within this period, the employer must then designate the timing of the remaining leave and notify the employee in writing. This second step must be completed no later than two months before the expiration of the leave entitlement.
In practice, many companies overlook these formal requirements and rely on informal reminders or internal policies. However, unless the full legal procedure is properly followed, unused annual leave will not simply lapse. Instead, it will generally remain as a wage claim, and the employer will be required to provide monetary compensation.
5. Why This Matters for Your Business in Korea
Misunderstanding the annual leave rules in Korea can easily lead to unexpected wage liabilities. Foreign companies should ensure that their internal policies are fully aligned with local legal requirements.