One of the questions we are frequently asked from a foreign company establishing a branch or corporate subsidiary in Korea is the level of social insurance contribution which such branch or subsidiary is require to make. So, we briefly introduce below the social insurance system of Korea.
Korea has four social insurance components, which are (i) national pension under the National Pension Act, (ii) industrial accident compensation insurance under the Industrial Accident Compensation Insurance Act, (iii) employment insurance under the Employment Insurance Act, and (iv) national medical insurance under the Medical Insurance Act.
Out of the above social insurance components, a foreign company’s branch or subsidiary (“Korean branch/subsidiary”) in Korea would be required to pay entire amount of the payment for the industrial accident compensation insurance. As for the payments for national pension, employment insurance, and medical insurance, Korean branch/subsidiary and employees would each be required to pay a portion of the relevant payments for the said social insurances.
More specifically, we note as follows.
(a) National Pension
Korean branch/subsidiary and its employees each are required to make contributions for national pension payment that are equivalent to 4.5% of the “standard monthly remuneration amount.” Here, the standard monthly remuneration amount refers to an amount that is established pursuant to a Table for the Standard Monthly Remuneration Amount By Grade (the “National Pension Table”) that is found in Addenda to the Enforcement Decree of the National Pension Act of Korea. The National Pension Table allocates a certain grade based on an income bracket group and sets a standard remuneration amount for employees falling within that grade.
By way of illustration, using an example of the annual salary amount of 40,000,000 Korean Won (KRW), such amount is accorded 44th grade according to the National Pension Table, which further indicates that the standard monthly remuneration amount for the 44th grade is 3,380,000 KRW. Therefore, the monthly national pension payment amount which the Korean branch/subsidiary and an employee each is required to pay is 152,100 KRW (4.5% of 3,380,000).
(b) Industry Accident Compensation Insurance
Under Korean law, Korean branch/subsidiary would be required to pay approximately 4.45% of total payroll of the branch/subsidiary for industrial accident compensation insurance, which would be divided into 4 quarterly payments. So, if the total payroll of the branch/subsidiary is, say, 300,000,000 KRW, then the total industrial accident compensation insurance would be around 13,350,000 KRW per annum. But since the insurance payment rate may vary depending upon the total payroll amount and the type of industry, a precise amount would be determined after the relevant foreign company has established its branch or subsidiary operations here in Korea.
(c) Employment Insurance
Employment insurance system has several sub-components within the system, such as the employment stabilization program, the job skills development program and unemployment benefits, etc., and the calculation of the employment insurance payment is rather complex, taking into account of insurance fee rate applicable to each component. But, using the annual salary of 40,000,000 KRW as an example, the employment insurance payment calculation could essentially be noted as follows.
For employee:
40,000,000 ⅹ 9/1000(insurance fee rate applicable to unemployment benefit) ⅹ 1/2; the resulting amount is 180,000 KRW, which will be divided into 12 monthly payment of 15,000 KRW per month.
For employer:
(40,000,000 ⅹ15/10000(insurance fee rate applicable to employment stabilization)) + (40,000,000 ⅹ 1/1000(insurance fee rate applicable to job skill development)) + (40,000,000 ⅹ 9/1000 ⅹ 1/2); the resulting amount is 280,000 KRW, which will be divided into 12 monthly payments of 23,333 KRW per month.
(d) National Medical Insurance
An employer and an employee are each required to make equal contributions for medical insurance payment corresponding to one-half of 3.4% of the “standard monthly remuneration amount”. Here, the standard monthly remuneration amount refers to an amount that is established pursuant to a Table for the Standard Monthly Remuneration Amount By Grade (the “Medical Insurance Table”) that is found in Addenda to the Enforcement Decree of the Medical Insurance Act of Korea. The Medical Insurance Table allocates a certain grade based on an income bracket group and sets a standard remuneration amount for employees falling within that grade.
So, if an employee’s monthly salary is 40,000,000 Korean Won (KRW), such amount is accorded 31st grade according to the Medical Insurance Table, and such table indicates that standard monthly remuneration amount for the 31st grade is 3,350,000 KRW. Therefore, the medical insurance payment amount the employer and employee is each required to pay is one-half of 113,900 KRW (3.4% of 3,350,000), which is 56,950 KRW per month.