social insurance system in Korea outlined

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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 systems 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.

 

(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.

 

(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.

 

(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.

 

End.