Knowledge · HR & Labor

Unused Leave Pay Settlement

Payout for Unused Annual Leave

📂HR & Labor⏱2 min read📊Practical🔗8 related

What is unused leave pay settlement?

In one line
Cash payment for paid annual leave days that expired unused during the usage period. Days for which the employer lawfully completed the leave promotion procedure are excluded from this obligation.
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⚡ Summary in 3 lines
  • The payment is a wage claim that survives after the leave expires
  • Only days covered by a valid promotion are exempt from payment
  • Departing employees: recalculate from the hire date and settle within 14 days

Many employees treat unused leave pay like a year-end bonus, but the legal logic runs the other way. Leave is meant for rest, and the pay is a wage claim that remains after leave that could not be taken has expired. So settlement starts with dates, not amounts. First establish when the one-year window for taking leave ends and the right to claim it lapses, and how many of those days the company validly completed the leave promotion procedure for. Only then do you know the number of payable days.

The calculation multiplies the number of payable days by one day's wage. The base wage is the ordinary wage or average wage set by the rules of employment, and in practice most companies use the ordinary hourly wage multiplied by the contractual daily working hours. Payment is due on the regular payday right after the leave expires. For departing employees, the rule is to settle all amounts owed, including remaining annual leave, within 14 days of the departure date. A company that manages leave on a fiscal-year basis must recalculate at the time of departure based on the hire date and make up any shortfall in days.

The relationship with annual leave promotion comes down to one line. Promotion is not a way to avoid payment; it is a mechanism that releases the company from the compensation obligation only when it has done everything required. If either the first written notice or the second notice designating leave dates is missing or late, the whole promotion is void and the pay is still owed. If an employee came to work on a designated leave day and was given work, that day is also payable. Even if promotion was completed, an employee who leaves before the leave period ends is paid for the remaining days.

Three points most often go wrong in practice. Paying out leave allowances in advance as part of monthly salary and then preventing employees from taking leave blocks the right to leave and leads to disputes. Another common mistake is settling even the 15 days of second-year leave for someone who worked exactly one year and then left; that leave only arises if the employment relationship continues the day after the one-year mark. There are also cases where the ordinary wage is calculated on the old standard, so the hourly rate comes out too low. Unpaid allowances are treated as wage arrears, so when the answer is unclear, check the Ministry of Employment and Labor’s administrative interpretations.

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💡 In plain English
It is like exchanging an expired meal voucher for cash: if the restaurant properly told you twice to use it, it owes you nothing.
Why it matters in practice
For companies that track leave by fiscal year, the number of expired days is fixed all at once at year-end. That is when you decide how much to include in the January payroll and whether the leave promotion was valid.
🧮 Formula
Unused leave pay = one day’s ordinary wage (ordinary hourly wage × contractual daily working hours) × payable days (expired days − days validly covered by leave promotion)
With an ordinary hourly wage of KRW 15,000 (≈ US$11) and 8 hours a day, one day equals KRW 120,000 (≈ US$90). Of 9 expired days, subtract the 3 days for which the promotion was valid: 6 days × KRW 120,000 (≈ US$90) = KRW 720,000 (≈ US$540). (Hypothetical figures)
Origin and sources

Article 60 of the Labor Standards Act governs paid annual leave and the period for using it. Article 61 provides that the employer has no obligation to compensate for unused leave once the promotion procedure is complete. The act contains no formula for unused leave pay itself; the standard has been settled by court rulings and administrative interpretations from the Ministry of Employment and Labor.

Source · Labor Standards Act, Articles 60 and 61
An example

Consider a hypothetical case. Company A, a maker of logistics equipment, has 240 employees and tracks leave by fiscal year. At last year-end, unused leave totaled 1,380 days, and KRW 160 million (≈ US$119,700) was paid out in leave pay. The CEO asked why the company had to pay in full even though it had sent promotion notices.

  1. When the HR associate manager checked every promotion document, the first notice had gone to all 240 employees, but the second notice designating leave dates had been replaced by a single post on the company bulletin board.
  2. The company’s labor attorney replied, "Without an individual written designation, the promotion as a whole is not recognized," and the HR director confirmed all 1,380 days from last year as payable and put them into the January payroll.
  3. This year, in the first week of July, the company notified each employee of their remaining days by electronic document, and 188 people submitted a usage plan within 10 days. For the other 52, it designated leave dates and sent the notices before the end of October.
  4. When 14 employees showed up on their designated days in November alone, team leaders handed them a notice refusing to accept work reading "Today is a leave day" on the spot and blocked their access to work PCs.
  5. For the 9 departing employees, leave was recalculated from their hire dates. Three of them were owed 11 additional days in total, the shortfall against the fiscal-year basis, and were paid within 14 days of their departure dates.
  6. Unused year-end leave fell from 1,380 days to 410 days, of which 96 days were payable. Payout spending dropped from KRW 160 million (≈ US$119,700) to KRW 11.5 million (≈ US$8,600), and the leave usage rate rose from 62% to 88%.
Related terms
Paid Annual Leave · Accrual and ExpirationLeave granted with pay to employees who have worked for a set period; the number of days depends on attendance rate and years of service.Annual Leave Usage Promotion SystemA system that exempts the employer from the duty to pay for unused leave if, after the employer has urged leave use in writing and designated leave dates through the legally prescribed procedure, the employee still does not take it.Ordinary WageThe amount set to be paid regularly and uniformly to an employee in return for scheduled work; it is the basis for calculating overtime, night-work and holiday-work premiums.Average WageThe total wages paid during a set period before the date a calculation event arises, divided by the total number of days in that period; it is the basis for calculating severance pay and accident compensation.Wage Arrears · Complaints and RemediesThe state in which wages, severance pay and the like are not paid by the due date; employees can seek relief through a complaint, a criminal accusation or a civil claim.Retirement Benefit System · Severance PayBenefits paid when an employee who has worked continuously for a set period leaves; the employer must set up at least one of a severance pay system or a retirement pension system.Year-End Collective Leave · Agreements to Substitute Annual Leave · Procedure for Holiday Substitution and Leave Use AgreementsA system in which the whole company is closed for several days at year-end and the start of the new year, with those days treated as annual leave or public holidays swapped for other days. A written agreement with the employee representative is required; closing without one counts as a suspension of business for company reasons.Offboarding Process · Handover and Settlement After the Exit InterviewThe full process that runs from the point a resignation is confirmed through the last working day and beyond: handover, account revocation, issuing documents, and settling pay and severance. If the exit interview is where you hear 'why they are leaving', offboarding is the procedure for handling 'what stays and what gets cut off'.
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Last updated 14 Oct 2026 · Reviewed by John Kim

FAQ

Only days for which both the first notice urging leave and the second designation of leave dates were completed in writing, per employee, within the statutory deadlines are exempt from the payment duty. If either step is missing, or employees were actually made to work on the designated day, those days must be paid out.
As a rule, pay it on the regular payday immediately after the leave period ends and the leave expires. For employees who have left, settle within 14 days of the departure date; the parties may agree to a later date.
With the employee’s agreement, the leave can be carried over. However, if the company unilaterally carries it over or makes employees waive their claim to payment, its validity may be challenged, so it is safer to keep each employee’s consent in writing.
It is based on the ordinary wage or average wage set in the rules of employment, and most companies use the ordinary wage. Which items count toward the ordinary wage has shifted with court rulings, so check the latest case law and Ministry of Employment and Labor guidance, and have a labor attorney review anything unclear.