Unused Annual Leave in Korea: The Cash You Still Owe After It Expires

Annual leave that a Korean employee does not take is normally paid to them in cash. The days expire; the money does not. Foreign employers who arrive with a use-it-or-lose-it policy from head office discover this either at year-end, when the payroll provider asks what to do with 340 accrued days, or eighteen months later, when a departed employee files a complaint with the labour office.

There is one lawful way to stop leave converting into wages, and it is set out in Article 61 of the Labor Standards Act. It works. It is also procedural to the point of pedantry, it has four steps rather than the two most companies run, and since a 2020 Supreme Court decision the fourth step is usually the one the case turns on.

How much leave does a Korean employee actually accrue?

Article 60(1) is the base rule: an employer must grant 15 days of paid leave to an employee who has attended at least 80% of the preceding year. Below that attendance threshold, and during the first year of employment before any full year has elapsed, Article 60(2) applies instead — one paid day for each month worked in full, to a maximum of 11 days across the first year.

Those eleven days sit on top of the fifteen. Before a 2018 amendment, first-year days used were deducted from the second-year entitlement; they are not any more. A new joiner who uses nothing in year one arrives at their first anniversary with eleven days behind them and fifteen days in front.

Long service adds days slowly. Article 60(4) grants one additional day for every two years of continuous service beyond the first, and caps the total at 25.

Two exclusions matter for a small office. The annual leave provisions sit inside the part of the Act that applies only to businesses regularly employing five or more workers, so a four-person entity has no statutory leave obligation at all. And Article 18(3) disapplies both the weekly holiday rule and the annual leave rule to anyone whose contracted hours average under 15 a week across four weeks. Part-time staff above that line accrue leave in proportion to their hours; below it, they accrue none.

The five-employee line is the one that moves without anyone noticing. It is measured on the number of workers the business ordinarily employs, not on headcount at incorporation, and a foreign-owned entity that opened with three people and hired two more in the spring has crossed it. The same threshold governs the 52-hour week and the overtime premium, so crossing it changes several things in the payroll configuration at once.

Why unused leave turns into wages

Article 60(7) says leave lapses if not taken within one year. Read alone, that sounds like forfeiture. It is not, because the money and the days are separate rights.

Invest KOREA puts the position in a single sentence: every employee has the right to claim wages as a substitute for unused annual leave days, and that right survives even where the right to claim the leave itself has terminated. The leave balance goes to zero and the liability moves to the payroll ledger.

This matters more than it sounds, because what has moved there is wages. Not a bonus, not a discretionary top-up, not something a company handbook can define away. It carries the interest and the criminal exposure that unpaid wages carry, it must be settled within 14 days of an employee leaving under Article 36, and it feeds into average wage — which means an unpaid leave allowance sitting in the twelve months before a departure also understates the statutory severance payment calculated from that average.

The Article 61 procedure has four steps, not two

Most companies that operate the procedure operate the first two steps, file the paperwork, and stop. Here is the whole thing, on the timetable of a company that runs leave on the calendar year — which is the common arrangement, permitted so long as no employee ends up worse off than they would be on their hire-date anniversary.

Step one is anchored six months before the leave period ends, and the statute gives a ten-day window rather than a deadline — for a calendar leave year that is 1 to 10 July. Step three is anchored two months before the end, so 31 October. Miss either window and the procedure fails for that leave year; there is no cure and no substantial-compliance defence.

The notices must be individual and in writing. A general announcement posted to a company noticeboard or sent as a single email to all staff does not satisfy Article 61, and this is one of the most common ways an otherwise diligent process fails.

Employees in their first year run on their own clock. Article 61(2) anchors on the day the first year of employment ends, regardless of the company’s leave-year convention, and splits the eleven days into two batches: the nine days accrued by that point are promoted three months before the first anniversary, the last two days one month before it. It does not apply at all to a fixed-term employee whose contract is shorter than a year, because there is no first anniversary for the timetable to hang on.

The step that decides the case

In February 2020 the Supreme Court dealt with an employer that had run the procedure properly and then let the employees work anyway. Its holding was that the exemption in Article 61 presupposes the employee chose not to take the leave. Where an employee comes in on a designated leave day and the employer, knowing this, does not clearly express a refusal to accept their labour — or gives them work to do — the non-use is not voluntary, and the allowance remains payable in full.

That is what step four is for. If someone appears at their desk on a day the company designated, the company has to hand them a written refusal-of-labour notice. The Ministry of Employment and Labor has accepted lighter mechanics than that phrase implies: leaving the notice on the employee’s desk, or configuring their computer to display it at login, is enough as long as it actually reaches them.

What is not enough is issuing the notice and then behaving as though the employee is at work. A manager who sends a task to someone on designated leave has, on the Court’s reasoning, accepted their labour — and the allowance is owed for that day regardless of the paperwork sitting on the desk.

The practical consequence is that a great many Korean employers have concluded it is cheaper to make people actually take their leave than to litigate whether they were told firmly enough not to come in. That is the right conclusion, and it is worth reaching before the audit rather than after it.

Leavers, fixed-term staff, and the balance you are carrying

Two edge cases produce most of the disputes.

An employee who resigns partway through the promotion timetable is paid for their unused days. The Ministry’s interpretation is explicit that the claim arises on the termination of the employment relationship and does not wait for, or depend on, where the employer had reached in the Article 61 sequence. Running the procedure does not create a window in which departures forfeit their balances.

Fixed-term employees on exactly one year get 11 days, not 26. The Ministry read Article 60 for years as giving such an employee both the eleven monthly days and the fifteen days that arise on completing the year. In October 2021 the Supreme Court disagreed: the fifteen-day entitlement accrues on the day after a completed year, on the premise that employment continues, so an employee whose contract simply expires never acquires it. If your Korean entity is still paying out 26 days on one-year contracts, it is paying more than it owes.

What it costs to get wrong

Failing to grant statutory leave is an offence under Article 110 — up to two years’ imprisonment or a fine of up to 20 million won. Failing to pay the allowance is the more serious of the two, because it is a wage offence: Article 109 carries up to three years or 30 million won, the same exposure as unpaid overtime.

Neither penalty is what usually lands. What lands is an accumulated balance, discovered during a labour inspection or when a departing employee files at the labour office, covering three years of claims and several people at once. Unused leave allowance is the kind of liability that compounds silently, because nothing in the monthly payroll run surfaces it and the leave tracker shows a tidy zero every January.

If you are running a Korean entity from overseas with a local admin handling leave in a spreadsheet, the two questions worth asking this week are whether Article 61 was run at all this year, and whether it was run on the statutory dates. Both answers are usually no. Our payroll outsourcing service handles the promotion cycle as part of the annual calendar alongside the four major insurances and year-end settlement, which is mostly a matter of putting the July and October windows somewhere they cannot be missed.

The honest caveat: if you have six employees, everyone takes their leave, and nobody carries a balance into the new year, none of this costs you anything and you do not need a procedure. Article 61 exists to extinguish a liability. Where there is no liability, there is nothing to extinguish.

Figures current as at 24 August 2026, verified against the Labor Standards Act as translated by the Korea Legislation Research Institute, Invest KOREA’s statement of the statutory leave entitlement, and the Ministry of Employment and Labor’s published interpretations. Nothing here is legal advice on a specific set of facts.