The four social insurance schemes in
Korea, based on the Framework Act on Social Security, are part of socio-economic
system created by introducing principles and methods of insurance for the country
to carry out social policy. The goal of this socioeconomic system is to prepare
for possible social risks (disease, disability, unemployment, death, etc.) to
ensure the people's economic life in a stable manner. Social insurance system
includes National Pension, National Health Insurance, Employment Insurance and
Workers’ Compensation Insurance.
Businesses hiring more than one employee
in Korea are subject to enrollment in the four social insurances, and employers
and workers are obliged to contribute their prescribed portions to the
insurance authorities in accordance with the relevant laws (Except for the
workers whose working hour is less than 60 hours/month). All workers under
legal labor contract are eligible for social insurance coverage regardless of
their types of contract (e.g., Intern, non-regular or full-time workers).
In this article, we would like to
introduce the details of the social insurances which are critical when hiring
employees and doing business in Korea.
National Pension
Authority: National Pension Service
The National Pension Service is an
insurance scheme in case the national citizen ages in the future or income
activities are suspended due to sudden accidents or diseases and is managed by
the government when people pay part of their income as insurance premiums. It
protects life of the elderly so that one can maintain one’s basic life by
returning the insurance money to himself/herself or his bereaved family. The
less you earn, the more money you'll receive relative to the amount you paid.
All employers should enroll their
employees (including a representative director of a company) in the National
Pension plan. Those who are defined under the relevant Acts such as employees
aged 60 or more, casual workers and temporary employees are exempted from the
mandatory enrollment. Employers should register with the National Pension plan
for foreign employees who reside in Korea except for a foreign expat from one
of countries where there is mutual social security agreement with Korea. Given
that the prescribed requirements are met, foreign employees may apply to get a
refund for the contributions paid to the National Pension authority when he or
she leaves Korea.
The amount paid for National Pension is
9% of the employee's income. If you are working at a Korea company, you and
your employer will each pay 4.5% of the income, which is half of the premium. Other
individuals and freelancers will pay total premium which is equivalent to 9% of
their income. From July 2019, the income ceiling for pension contributions per
month is set to increase to 4,860,000 won, and total pension contributions per
month are capped at 437,400 won.
National Health
Insurance
Authority: National Health Insurance Service
National Health Insurance is social
security insurance to prevent high medical costs from becoming a household
burden and to promote public health by providing insurance services for disease
or injury. Like National Pension Service, the government collect insurance
premiums paid by the citizens every month and bear part of the medical
expenses. Health insurance, which every citizen must subscribe to, is
characterized by paying insurance premiums in proportion to their income and
benefits being equal.
Like National Pension Service, all
employers should enroll their employees (including a representative director of
a company) in the National Health Insurance plan. Those who are defined under
the relevant Acts such as casual workers and temporary employees are exempted
from the mandatory enrollment. However, if foreign employees receive medical
insurance benefits under global medical insurance cover sponsored by their
employers or National Health Insurance plans provided by their resident
countries, they may file an application to get an exemption from mandatory enrollment.
Insurance premiums consist of
"health insurance" and "long-term care insurance". Health
insurance contributions are computed as 6.46 % of monthly employment income.
Additional contributions for long-term care of old-aged patients, amounting to
8.51% of monthly Health insurance premium, are also charged both to employers
and employees. Therefore, an employer and an employee equally bear the cost of
insurance contributions. Premiums for local subscribers, those who are not
registered under a company in Korea, are calculated based on individual income
and property.
Employment
Insurance
Authority: Korea Workers’ Compensation & Welfare Service
Employment Insurance is social security
insurance that supports job security and reemployment by paying the necessary
salary for living when one's income is lost due to job hunting and
unemployment. Employment Insurance has become increasingly necessary as the
crisis over employment and labor increases, resulting from the foreign
exchange/financial crisis, the increase of the unemployed, and the continued
expansion of youth unemployment.
All employers must enroll all employees
(except for a representative director of a company) in the Employment Insurance.
However, employees commencing one’s first employment at the age of 65 or older,
or casual workers are exempted from the enrollment. Further, foreign employees
except for those who having F-2 or F-5 visa are generally not required to be
registered with the Employment Insurance (Enrollment of Employment Insurance is
optional for employees with F-4 visa).
Employees are responsible for paying the
insurance contributions at 0.80%(Unemployment benefits) of monthly employment
income, whereas employers are required to pay contributions at 1.05%(Unemployment
benefits 0.80% + Employment stability ∙ Vocational
competency development 0.25%) to 1.65%(Rate of Employment stability ∙ Vocational competency development differs
depending on the number of employees) of monthly employment income. For your
reference, there is no income ceiling for the Employment Insurance premium. Unemployment
benefits can only be received in the event of ‘non-voluntary retirement’ due to
employ matters.
Workers’
Compensation Insurance
Authority: Korea Workers’ Compensation & Welfare Service
Workers’ Compensation Insurance is a
social security insurance that compensates for various treatment costs and
death insurance in the event of occupational accidents. Government collects
insurance premium from the employer and compensates the employees who suffer
from industrial accidents with the funds.
All employers, having at least one
permanent employee, must enroll all their employees including foreign employees
regardless of the age or visa status in the Workers’ Compensation Insurance.
Employers are solely responsible for
paying the insurance contributions. The contribution rates are determined by
the industry of the employer.
For instance, the contribution rates for
companies in manufacturing sector are 0.7 to 4.2% and the rate for businesses
in wholesale or retail industry is 0.9%, whereas the premium rate for
enterprises in financial services and insurance is 0.7%. For your reference, manufacturing
companies tend to subject to the higher rates of WCI and there is no income
celling for this insurance.
Year-end settlement
Above-mentioned national social
insurances except National Pension will go through year-end settlement process
in the following year. Monthly insurance premiums will be charged on the
reported chargeable income multiplied by the prescribed rate and in March of
the following year, the different amount between the insurance premium
calculated based on the total chargeable income incurred in the previous year
and insurance premium paid will be further notified or refunded.
Conclusion
Social insurance scheme is one of requirements
for a company to run business in Korea. As almost all employers must register
with social insurances for their employees and pay employer’s portion of
contributions to the relevant authorities, social insurance contributions
should be taken into consider along with salaries and bonuses when hiring
employees in Korea.
If you have any questions about Korea company
incorporation and investment in Korea, please contact us via Contact Us page. We will
provide you with a variety of solutions for efficient business operations as
well as practical advice on legal requirements.
