When an employee leaves a company in Korea, leave settlement splits into two separate questions. One is whether the company owes an allowance for unused annual leave. The other is whether the company can deduct pay for annual leave a departing employee used in excess of what they'd actually earned. The answer to both depends heavily on whether the company manages leave by hire-date or by fiscal year.
Employees who've worked at least a year with 80%+ attendance accrue 15 days of annual leave, rising by one day every two years after three years of service, up to a maximum of 25 days. Within 14 days of an employee's last day, the employer must pay an allowance calculated as daily ordinary wage multiplied by unused leave days, alongside severance and final wages. An exception applies if the company completed the legally required leave-use promotion process and kept written records — in that case, it's exempt from paying out leave that lapsed. But if an employee resigns before that promotion period ends, the unused portion must still be settled as an allowance.
The harder question involves leave granted in advance on a fiscal-year basis — where every employee receives their annual allotment on the same date each year (typically January 1), regardless of hire date. Under this system, an employee early in their tenure can receive more leave upfront than their actual service would otherwise justify. If they use it all and resign partway through the year, recalculating on a hire-date basis shows they've technically overused their leave.
Deducting that overage from wages or severance requires both of the following: the employment rules must explicitly state that leave will be recalculated on a hire-date basis at resignation, with any excess deducted; and the employee must have given prior written consent to the deduction itself. Korean law requires wages to be paid in full directly to the employee, and offsetting against wages requires the employee's freely given consent — a clause in the employment rules alone isn't enough; individual written consent to the deduction is mandatory.
If the employment rules don't already include a recalculation clause, the path is clear: retroactively deducting an already-departed employee's overage is prohibited, since it risks a wage-arrears dispute. Instead, companies should add a recalculation and deduction clause to their employment rules now — which requires hearing the majority opinion of employees, and consent if the change is unfavorable — and going forward, collect an advance-leave-use application plus a deduction-consent form upfront. Labor ministry interpretation also holds that without a recalculation clause, fiscal-year-granted leave stands as granted. Even companies that normally operate on a fiscal-year basis should recalculate on a hire-date basis at resignation and compare both figures: if the hire-date basis is higher, pay the shortfall as an allowance; if the fiscal-year basis is higher, deduction is only possible when both conditions above are met.
At its core, this issue is about system design and documentation. Many companies choose the fiscal-year basis for administrative convenience without preparing for the overuse scenario — the employment-rules clause and the written consent form. That gap becomes the company's problem the moment an employee resigns. HR and admin teams should check now whether their current leave policy, employment-rules clause, and consent-form templates are actually in place — and communicate clearly at hiring time that early-granted leave is an advance that may later be recalculated, which sharply reduces dispute risk down the line.
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Only if two conditions are both met: the employment rules must explicitly state that leave is recalculated on a hire-date basis at resignation with any excess deducted, and the employee must have given prior written consent to the deduction itself.
Retroactively deducting an already-departed employee's leave overage is prohibited due to wage-arrears risk. Instead, add a recalculation and deduction clause to the employment rules going forward, and collect advance-use applications and deduction-consent forms from employees upfront.
Within 14 days of the employee's last day, calculated as daily ordinary wage multiplied by unused leave days, paid alongside severance and final wages — unless the employer completed the legal leave-use promotion process with written records.
Hire-date basis grants leave according to each employee's individual work anniversary, while fiscal-year basis grants leave to all employees on the same calendar date regardless of hire date, which can create an overuse situation for early-tenure employees who resign mid-year.
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