Does a Performance Bonus Count Toward Severance Pay? What Korea's 2026 Supreme Court Rulings Decided

Severance pay is calculated from average wage

Severance pay is based on your average wage over the three months before you leave. What counts as average wage makes a big difference in the final amount, and case law says an item must meet three conditions to qualify: it must be compensation for work performed, paid continuously and regularly, and something the employer is obligated to pay. A base salary or a fixed allowance easily clears this bar. A bonus that swings with company performance is where things get contested case by case.

What the 2026 rulings settled

In a ruling on February 12, 2026 (case 2021da219994), the Supreme Court focused on whether the employer was actually obligated to pay the management performance bonus in question -- and found it wasn't. The court reasoned that metrics like operating profit or EVA (economic value added) are shaped by market conditions and management decisions, not by an evaluation of the quantity or quality of an employee's work. As long as this reasoning holds, a bonus whose payment and amount fluctuate with company results is likely to be excluded from average wage.

Not every performance bonus is automatically excluded

What the ruling turns on is whether an obligation to pay existed -- not simply whether the bonus was tied to performance. If a company's work rules, collective agreement, or employment contract spell out specific payment criteria and amounts, and the company has actually paid it out repeatedly and regularly as a matter of practice, an obligation to pay can still be found, keeping the bonus inside average wage. On the other hand, if the board decides whether to pay and how much fresh each year through a board resolution, the obligation is more likely to be found absent. In short, the outcome depends heavily on the specific company and bonus scheme.

How to check whether your bonus qualifies

Start by checking whether your work rules, salary contract, or bonus payment policy spell out who gets it, when, and how it's calculated. Next, look at your actual payment history to see whether it's been paid at a consistent time each year on a consistent basis. If both of these are clear-cut, there's a case for including it in average wage; if payment itself was uncertain each year or the calculation basis was never disclosed, that argument gets harder to make. Requesting the bonus payment policy document from HR directly is the most reliable way to check.

Documents to gather before you leave

If you're planning to leave your job, it's worth securing your last three months of pay stubs along with several years of bonus payment records and the underlying policy documents ahead of time. Companies don't always hand over records willingly once a dispute starts, so keeping your own copies of pay stubs and internal notices while you're still employed will help if a fight over average wage comes up later. If you believe a bonus was wrongly excluded from severance already paid, you can dispute it through a labor office complaint or a civil suit, but keep in mind that wage claims carry a 3-year statute of limitations. If your employer is stalling on payment or demanding a settlement, it's also worth checking whether your case falls under the exception that removes the victim-consent defense for repeat wage-theft offenders.

What companies should sort out too

This line of rulings matters for HR practice as much as for employees. If a company wants to keep discretion over performance bonuses, its payment policy should clearly state that "payment and amount are decided separately each year at the company's discretion," and actual practice needs to match that language to reduce dispute risk. Conversely, a company that has effectively paid on a regular schedule while keeping a discretionary clause on paper only may find that its actual practice becomes the basis for a ruling against it -- so aligning the paperwork with the real practice matters.

Worth checking alongside this

While you're sorting out pay documents ahead of leaving, the average-wage calculation itself has its own traps -- like how regular bonuses get prorated over 3/12 of the year -- so it's worth checking how to calculate your own severance pay to estimate what you're actually owed. If your departure is delayed or wages go unpaid in the process, it's worth checking the terms for the 1% livelihood loan for unpaid wages as well.

Steps in order

1. Check whether your work rules or salary contract spell out payment timing and calculation criteria for your bonus.
2. Compare that against your actual payment history for the last several years to see if it was regular and repeated.
3. If an obligation to pay is clear, that's your basis for arguing it belongs in average wage.
4. Keep copies of pay stubs and bonus payment records while you're still employed.

Whether a bonus is included in average wage depends on each company's specific bonus policy and payment practice. For your specific situation, consult the Ministry of Employment and Labor or a licensed labor attorney/certified labor consultant.