HR Tips

● Maximum extension terms allowed for short-term contract workers 

Under Article 4 of the Fixed-Term and Short-Term Employees Protection Law of Korea, the employer may offer a fixed-term contract for a maximum duration of 2 years. If an employee works for more than 2 years and none of the exceptions listed below apply, the employee shall automatically be converted to a permanent employee, considered to have an employment contract with no fixed term. 

Article 4 (Use of Fixed-Term Employees) of the Fixed-Term and Short-Term Employees Protection Law of Korea defines the period of employment for fixed-term employees, as extracted below. 

①  An employer may hire a fixed-term employee for a period not exceeding 2 years (the total continuous employment period shall not exceed 2 years in cases where a fixed term employment contract is repeatedly renewed). However, a fixed-term employee may be employed for a period exceeding 2 years if any of the following exceptional conditions are met. 

1. When a period necessary for completion of a business project or a specific task is specified. 
2. When a vacancy arises due to an employee’s leave of absence or transfer to another business location, and a temporary replacement is needed until the employee returns. 
3. When a period necessary for an employee to complete academic courses or vocational training is specified. 
4. When an employment contract is concluded with an elderly person, as defined in Article 2, Paragraph 1 of the Act on Employment Promotion of the Elderly. 
5. When the use of professional knowledge or skills is required, or when jobs are provided in accordance with government welfare or unemployment policies as prescribed by the Presidential Decree. 
6. Other rational reasons equivalent to items 1 through 5 above, as prescribed by the Presidential Decree. 

② If an employer continues to employ a fixed-term employee for a period exceeding 2 years without satisfying any of the exceptions outlined in Paragraph 1, or if such exceptionsno longer apply, the fixed-term employee shall be deemed to have entered intoan employment contract of indefinite duration.

● Korean statutory four major insurance contribution requirement and general practice for re-employed employees after the statutory retirement age 

There is no material distinction between “post-retirement re-employment” and “employment after the statutory retirement age”, other than that the former is regarded as a retirement followed by re-hiring upon reaching the statutory retirement age.

In common practice, employers commonly hire individuals beyond their retirement ages under fixed-term or part-time arrangements, with compensation and benefits tailored to their roles. The distinction between re-employment of existing retirees and the hiring of new employees beyond retirement age is not material from a compliance perspective. The same rules on contract structure, tax, and social insurance contributions shall apply. 

The employee’s age affects coverage under the four major social insurance programs as follows:

(Notes)

* Individuals over the age of 60 who wish to increase their future pension benefits may apply for voluntary continued participation and continue making national pension contributions until the age of 65. However, in this case, the individual is required to pay the full 9% contribution solely on their own based on their standard monthly income, without any employer contribution).

** UI participation requirements-

1) For new hires aged 65 or older:

- Enrollment is required; however, unemployment benefits are not available.

- Both employees and employers are exempt from the 1.8% unemployment insurance contribution (0.9% each), and employer is responsible only for the Employment Stability and Vocational Competency Development contributions (ranging 0.25 ~0.85%).

2) For employees hired before the age of 65 who continue working after reaching 65

- Enrollment is required to be eligible for unemployment benefits.

- Both the employee and the employer must pay the 1.8% unemployment insurance contribution (0.9% each), and employer is required to continue paying Employment Stability and Vocational Competency Development contributions.

As s side note, employees aged 60 or older working in SMEs in Korea may be eligible for a 70% income tax reduction benefit for a period of three years starting from their 60th year (or from the date of initial employment if hired after reaching 60), provided certain conditions are met. A separate application must be prepared and submitted to receive this benefit.