Foreign Corporation Labor Standards Act Coverage: The First Standard You Must Check in Practice
A foreign corporation established in Korea that hires even one Korean employee is subject to the full Labor Standards Act.
Regardless of the headquarters' nationality, if the workplace is located in the Republic of Korea, the same regulations apply whether the parent company is American, Japanese, or Chinese.
This article organizes, from a practical standpoint, the Labor Standards Act coverage that foreign corporations encounter first when hiring in Korea — including the 5-employee threshold, applicability to foreign workers, and treatment of personnel dispatched from headquarters.
Basic Principles of Labor Standards Act Coverage for Foreign Corporations
Territoriality Comes First
The Korean Labor Standards Act follows the territoriality principle.
If the work is performed in Korea, the Labor Standards Act applies regardless of whether the employer is a foreign corporation or a foreign individual.
Even if headquarters is in Tokyo and the subsidiary is in Seoul, Korean law applies to employees working at the Seoul office.
In practice, the most common stumbling block is attempting to apply foreign headquarters' HR policies directly to Korean employees.
For matters such as annual leave, severance pay, and dismissal rules, the Korean Labor Standards Act takes precedence over foreign headquarters' policies.
Applies Regardless of Corporate Form
Stock corporations, limited companies, Korean branches of foreign enterprises, and liaison offices are all subject to the Act once they hire employees in Korea.
Even without corporate registration, an entity is treated as an employer if it effectively runs a business.
A Liaison Office cannot conduct sales activities but can hire staff, and the Labor Standards Act applies in full to those hires as well.
For the exact statutory text, we recommend reviewing the original Labor Standards Act on the Korean Law Information Center.
The Decisive Difference Created by the 5-Employee Threshold
Scope of Obligations: Under 5 vs. 5 or More
The Labor Standards Act does not apply uniformly across the board.
The applicable provisions change depending on the number of ordinary employees, and the 5-employee threshold is the most frequently overlooked point in practice.
| Category | Fewer than 5 employees | 5 or more employees | Notes |
|---|---|---|---|
| Written employment contract | Applies | Applies | Mandatory at all workplaces |
| Minimum wage | Applies | Applies | Includes foreign workers |
| Weekly holiday allowance | Applies | Applies | 15+ hours per week |
| Severance pay | Applies | Applies | After 1+ years of service |
| Paid annual leave | Does not apply | Applies | 5+ employees only |
| Overtime/night/holiday premiums | Does not apply | Applies | 50% added to ordinary wage |
| Remedy for unfair dismissal | Does not apply | Applies | Labor Relations Commission |
| Layoff allowance | Does not apply | Applies | 70%+ of average wage |
The first thing to check is exactly how your company's ordinary employee count is calculated.
The benchmark is not simply the number of registered employees, but the total person-days used over one month divided by operating days.
Dispatched workers, part-time workers, and foreign workers are all included in the calculation.
Common Pitfalls in the 5-Employee Calculation
The CEO is typically excluded from the count.
However, even registered executives may be included if their actual role is closer to that of a worker, and judgments can go either way.
A foreign executive dispatched from headquarters who is nominally a director but routinely performs day-to-day work for the Korean entity may be recognized as a worker and counted toward the five.
Disputes are especially common in this area when the corporate registry diverges from the actual working arrangement.
Caution: The 5-employee calculation is not a simple headcount. The result changes completely depending on how dispatched personnel and the worker status of executives are treated, so you must work through it with an actual staffing roster in hand.
Does the Act Apply Equally to Foreign Workers?
The Standard Is Workplace, Not Nationality
Foreign workers receive the same Labor Standards Act protections as Koreans when working in Korea.
This applies regardless of visa type — E-7, E-9, D-7, D-8, F-2, F-5, and so on.
Even undocumented foreign workers can claim wages, severance pay, and workers' compensation for work already performed.
In practice, disputes often arise when foreign employees receive only an English-language contract and never get a Korean version.
The rule is that employment contracts must be delivered in a language the foreign employee can understand, and it is safest to provide a native-language version in English, Chinese, Japanese, or otherwise alongside the Korean original.
Special Considerations for E-9 Visa Workers
Foreign workers who enter under the Non-Professional Employment (E-9) visa are subject not only to the general Labor Standards Act but also to the Act on the Employment of Foreign Workers (the Employment Permit System Act).
Additional obligations apply, including restrictions on changing workplaces, mandatory use of a standard employment contract, and enrollment in departure-guarantee insurance.
E-7 professional personnel are not subject to these special rules and are governed solely by the general Labor Standards Act.
If you are planning to hire under E-9, check the latest procedures at the Ministry of Employment and Labor's Foreign Worker Employment System.
Application of the Labor Standards Act to Headquarters-Dispatched Staff
First, Distinguish Dispatch from Transfer
The treatment of staff sent from headquarters to the Korean entity varies by arrangement.
Who counts as the employer depends on whether the directing authority and wage-payer is headquarters or the Korean entity.
| Category | Wage payment | Direction and command | Korean Labor Standards Act |
|---|---|---|---|
| Business trip | Headquarters | Headquarters | Generally does not apply (short-term) |
| Dispatch | Headquarters or Korean entity | Korean entity | Applies |
| Transfer | Korean entity | Korean entity | Fully applies |
| Dual employment | Both | Both | Applies to Korean portion |
In particular, when an executive working in Korea continues to receive headquarters salary into a home-country account, the mismatch between form and substance creates problems on both the tax and labor sides.
Risks of Dual Contract Structures
It is common to maintain the headquarters contract while also signing a separate employment contract with the Korean entity.
However, disputes easily arise over how to calculate severance pay, annual leave, and the scope of social insurance enrollment.
Whether to include headquarters tenure in the Korean severance calculation can hinge on a single clause in the contract.
For accurate costs and procedures, please verify through a professional consultation.
📞 Request a Free Consultation → 02-363-2251 / KakaoTalk: alexkorea
Obligation to Draft Work Rules and Employment Contracts
Workplaces with 10+ Employees Must File Work Rules
Workplaces ordinarily employing 10 or more workers must draft work rules and file them with the Ministry of Employment and Labor.
When foreign corporations simply translate their headquarters' HR policies into Korean and submit them, filings are frequently rejected because of clauses that conflict with Korean labor law.
Grounds for dismissal, disciplinary procedures, the method of granting annual leave, and the basis for calculating severance pay must all be redrafted under Korean law.
Required Items in the Employment Contract
The obligation to draft and deliver an employment contract applies even to workplaces with fewer than 5 employees.
Failure to draft or deliver one results in administrative fines on the employer, and foreign employees must additionally be provided with a translated version in their native language.
- Wage components, calculation method, and payment method
- Contractual working hours
- Holidays
- Paid annual leave
- Place of work and duties
These five items must be specified in writing, and omission of any of them is separately punishable.
Practical Tip: Many companies use the foreign headquarters' English-only template without preparing a separate Korean version. When a dispute arises, the absence of a Korean version works against the employer.
Application of Wages, Severance Pay, and the Four Major Insurances
Principles of Wage Payment
Wages must be paid in currency, directly, in full, at least once a month, and on regular dates.
A scheme in which headquarters deposits foreign currency into a home-country account risks violating the direct payment and currency payment principles.
The proper structure is payment in Korean won into an account held in the name of the Korean entity.
There have been increasing cases recently of foreign-affiliated startups handling payroll via headquarters remittances and ending up facing unpaid-wage complaints, so payroll structure should be reviewed from the design stage.
Severance Pay and the Retirement Pension
Severance pay obligations arise for any employee with one or more years of continuous service.
For workplaces newly established after 2022, enrollment in a retirement pension plan became mandatory, and the same applies to foreign corporations.
| Item | Details | When it applies |
|---|---|---|
| Severance pay | After 1+ years of service | From the hire date |
| Mandatory retirement pension | Newly established workplaces | Within 1 year of establishment |
| Departure-guarantee insurance | E-9 foreign workers | Within 80 days of entry |
| Four Major Insurances | Mandatory enrollment including foreigners | From the hire date |
Among the four insurances, employment insurance is either mandatory or optional for foreigners depending on their visa type.
For detailed coverage rules, please review the visa-specific guidance from the National Pension Service and the Korea Workers' Compensation & Welfare Service.
Costs vary case by case, so we provide precise figures during a free consultation.
Sanctions on Foreign Corporations for Labor Law Violations
Criminal Penalties and Administrative Fines, Both at Once
Unpaid wages, failure to draft an employment contract, and unfair dismissal expose the employer to criminal liability.
Foreign CEOs are no exception, and departure from Korea may be restricted.
In particular, unpaid-wage cases — if not settled — can lead to criminal prosecution of the representative personally, with direct consequences for visa extension and change reviews.
The Biggest Impact Is on Visas
Foreign representatives holding D-7 or D-8 visas with a history of labor law violations such as unpaid wages face disadvantages in visa extension reviews.
Visa extension reviews on HiKorea directly query the workplace's social insurance enrollment status and unpaid-wage history.
If this record is weak, the very status of residence can be shaken even when the business itself is sound.
Frequently Asked Questions (FAQ)
Q1. Does the Labor Standards Act apply if a foreign corporation hires just one Korean employee?
Yes, it does.
Regardless of the number of ordinary employees, written employment contracts, minimum wage, weekly holiday allowance, and severance pay apply from a single-employee workplace.
Once the workforce reaches five, annual leave, premium pay, and remedies for unfair dismissal are added.
Q2. Do foreign executives dispatched from headquarters also receive Labor Standards Act protection?
If they are substantively workers, yes.
Even registered executives can be recognized as workers if they take direction from the CEO and perform defined duties.
The determination turns on actual working arrangements, not on the wording of the contract.
Q3. Is it acceptable to draft only an English-language employment contract?
The employment contract itself may be valid, but it must be delivered to the foreign worker in their native or a comprehensible language.
For Korean employees, delivery of a Korean-language version is the rule; providing only an English version is treated as non-delivery and is subject to administrative fines.
Q4. Does Labor Standards Act application differ between E-9 and E-7 workers?
The Labor Standards Act itself applies identically.
However, E-9 workers are additionally subject to the Employment Permit System Act, which imposes separate obligations such as a standard employment contract, restrictions on changing workplaces, and departure-guarantee insurance.
E-7 has no such special rules.
Q5. What problems arise if headquarters deposits salary in foreign currency to a home-country account?
This risks violating the direct payment and currency payment principles for wages, and a complaint for unpaid wages can be filed in Korea.
It also leads to missed withholding, triggering tax penalties, and the omission from the wage base for the four major insurances can result in later back-collection.
The proper structure is payment in Korean won from the Korean entity's account.
Q6. If a foreign corporation's representative is reported for unpaid wages, how does it affect their visa?
It disadvantages them in D-7 and D-8 visa extension and change reviews.
If the unpaid amount is large or no settlement is reached, a departure ban can be imposed, and a criminal record will also affect future changes to F-2 or F-5.
Along with the workplace's social insurance enrollment status, it is one of the first items reviewed.
Need a Professional Consultation?
For foreign corporations, Labor Standards Act application creates many friction points between headquarters' HR policies and Korean law, and if the labor structure is not sorted out from the early establishment stage, the problems surface at the visa extension stage.
Vision Administrative Affairs Office handles everything from foreign corporation establishment to labor management and visa extension in one place.
Vision Administrative Affairs Office Services
- Foreign corporation establishment and foreign-invested enterprise registration
- Drafting and review of employment contracts and work rules for foreign officers and employees
- E-7, D-7, and D-8 visa applications, extensions, and changes
- Advisory on unpaid wages and unfair dismissal responses
- Four Major Insurance enrollment and foreign worker employment reporting
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Costs vary case by case, so we will provide precise figures during a free consultation.
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