Why You Should Never Ignore Interest and Criminal Liability for Unpaid Severance Pay
If you are delaying severance payments because “the company is facing financial difficulties” or “we are still discussing payment with the former employee,” you need to review your legal obligations immediately.
Once 14 days have passed after an employee's resignation, both statutory interest and potential criminal liability may begin to accrue.
When Must Severance Pay Be Paid?
Under Article 9 of the Korean Employee Retirement Benefit Security Act, severance pay must be paid within 14 days from the employee's date of retirement.
In exceptional circumstances, the payment deadline may be extended by agreement between the employer and the employee.
However, even where the payment deadline has been extended by agreement, legal liability may still arise.
Moreover, an agreement extending the payment date does not automatically resolve issues relating to delay interest, which requires separate legal consideration.
Interest on Unpaid Severance Pay Can Be Significant
If severance pay remains unpaid beyond the 14-day statutory period, delay interest accrues from the following day at an annual rate of 20% under Article 37 of the Korean Labor Standards Act and Article 17 of its Enforcement Decree.
This rate is approximately four times higher than the general statutory civil interest rate of 5% per annum.
Example
KRW 30,000,000
(Severance Pay Principal)
↓
+ KRW 6,000,000
(Delay Interest After One Year)
Even if the parties agree to extend the payment deadline, delay interest is not automatically waived, and the longer the dispute continues, the greater the financial burden becomes.
An extension agreement alone does not eliminate delay interest unless there is a separate legal basis supporting such waiver.
Can Employers Actually Be Criminally Prosecuted?
Yes.
Failure to pay severance pay may constitute a criminal offense punishable by up to three years' imprisonment or a fine of up to KRW 30 million under Article 44 of the Employee Retirement Benefit Security Act.
This is not merely an administrative violation—it may result in a criminal record.
When a complaint is filed, a labor inspector from the Ministry of Employment and Labor will investigate the facts. If the employer is found to have intentionally avoided payment or lacked any genuine intention to pay, the case may be referred to prosecutors for criminal proceedings.
Particularly where multiple employees at the same workplace have not received severance payments, authorities may view the conduct as intentional, increasing the likelihood of prosecution.
What Should You Do Now?
1. Pay Immediately If Possible
Even a partial payment may help demonstrate good faith and may be viewed favorably when assessing intent.
2. If Full Payment Is Not Possible, Execute a Written Installment Agreement
Verbal agreements are difficult to prove in the event of a dispute.
A properly documented written agreement can help reduce future conflicts and clarify the payment schedule.
3. Seek Legal Advice Early if a Complaint Has Been Filed or an Investigation Has Begun
Statements made during a labor investigation can directly affect subsequent criminal proceedings.
Establishing an appropriate legal strategy from the outset is critical.
Time Is Not on the Employer's Side
The longer severance pay remains unpaid, the more unfavorable the situation becomes for the employer.
Interest continues to accumulate, and disputes tend to escalate.
Obtaining accurate legal advice at an early stage can ultimately reduce both financial exposure and legal risk.
At Decent Law Firm, we assist employers with labor investigations, criminal complaints relating to unpaid severance pay, and dispute resolution strategies.
Before the situation worsens, consider obtaining legal advice as early as possible.
