Average Wage
Average Wage
What is average wage?
- Total wages for the last 3 months ÷ total days (calendar basis)
- Overlooking excluded periods and bonus proration leads to under-calculation
- If lower than the ordinary wage, the ordinary wage applies
Average wage comes not from a pay rate the company sets, but from the three months of pay the person actually took home. So even with the same grade and tenure, someone who leaves during a peak season packed with overtime gets different severance pay than someone who leaves in the off-season. In other words, how the wage ledger was kept ends up determining the severance amount, and for production and sales staff with a large variable-pay share, a one-month difference in departure date can swing the payout by several million KRW. For HR managers, this figure is less a formula than a question of how well wage records are managed.
Deciding what counts toward total wages is half the practical work. Regular bonuses paid annually are included at only 3/12 of the prior 12 months, and unused annual leave pay earned for the previous year’s work is likewise counted for three months only. Conversely, condolence payments, business-trip expenses that merely reimburse actual costs, and goodwill bonuses the company gives at its discretion are not wages and are left out. Some periods must also be removed from the calculation period entirely: probation, employer-caused business suspension, recuperation from a work-related injury or illness, parental leave, lawful industrial action, and so on. In those cases the math works only if you subtract both the days and the wages of that period.
The most common mistake in practice is treating total calendar days as working days. Three months span 89 to 92 calendar days, so plugging in 65 working days inflates the daily figure by more than 30%. Conversely, if you calculate without subtracting the days of the recuperation period, months with no wages get counted in full and the figure collapses. The rule that if the average wage comes out lower than the ordinary wage, the ordinary wage is treated as the average wage is also often forgotten. A miscalculated severance payment can be claimed again at any time within the 3-year statute of limitations, and once 14 days pass after the termination date, late-payment interest applies too. The calculation method and exclusion grounds can change with legal amendments, so for large settlements, check the latest statute and have a certified labor attorney review it.
Inwoo LeeExpert in leadership, communication and performance management
Hwi KimCEO of HRDIST & Talent Development Systems ConsultantUnder the Labor Standards Act, average wage is defined as the total wages paid to a worker during the three months before the date the reason for calculation arose, divided by the total number of days in that period. If the average wage is lower than the ordinary wage, the ordinary wage is used as the average wage (Articles 2 and 4, among others).
At Company A, a machine-parts maker with 180 employees and KRW 42 billion (≈ US$31,423,000) in annual revenue, a production foreman with 15 years of service resigned. Shortly before leaving, he injured his wrist at a press and spent 60 days recovering under industrial accident insurance, then submitted his resignation a month after returning. As usual, HR totaled only the last three months of pay and ran the numbers. (Hypothetical example)
- HR manager Park's first-pass daily average wage came to KRW 92,000 (≈ US$69). The 60 days of industrial-accident recuperation had been left in the calculation period as is.
- The retiree objected that 'I get KRW 20 million (≈ US$15,000) less than a colleague who left last year,' and the labor relations team lead reopened the excluded-period provisions of the Enforcement Decree of the Labor Standards Act.
- After removing both the 60 recuperation days and that period’s wages, and dividing by the remaining 31 days, the daily average wage rose to KRW 138,000 (≈ US$105).
- They then added KRW 1.8 million (≈ US$1,350) (3/12 of the KRW 7.2 million (≈ US$5,390) in regular bonuses over the prior 12 months) plus three months' worth of the prior year's unused annual leave pay, and finalized the figure at KRW 146,000 (≈ US$110).
- After recalculation, severance pay rose by KRW 24.3 (≈ US$1) million, from KRW 41.4 million (≈ US$31,000) to KRW 65.7 million (≈ US$49,200), and payment was completed within 14 days of departure, so both late-payment interest and a labor complaint were avoided.