South Korea Plans Mandatory External Severance Funds for Employers From 2028

South Korea plans to require employers to set aside money for workers' severance payments with external financial institutions, beginning with businesses employing at least 100 people in 2028, the finance ministry said on October 28.

The proposal was discussed at a meeting of ministers responsible for economic and science policy. Under the proposed timetable, larger companies would prepare during 2027 and begin complying in 2028. Employers with 10 to 99 workers would follow in 2029, with businesses employing nine or fewer workers covered from 2030.

The ministry said unpaid severance benefits represented 41.1% of reported unpaid wages, equivalent to 829.9 billion won. Keeping severance funds with an outside institution is intended to reduce the risk that workers lose access to promised payments when an employer experiences financial difficulty.

Officials also expect professional management of the funds to improve investment returns, while the government says it will clarify the responsibilities of fund operators to protect workers.

Finance Minister Lee Hyoung-il said labour and financial regulators would coordinate implementation and work with the National Assembly on the legislative steps needed. The announcement therefore describes a government plan, not a law already in force.

The phased approach would give smaller employers more time to prepare for the administrative and financing requirements. The precise implementing rules and any transitional arrangements will depend on subsequent legislation and regulatory decisions.