When an employer goes under or its property is auctioned, do unpaid wages and severance get paid first? Korea’s Labor Standards Act Article 38(2) says the last 3 months’ wages and accident compensation, and Employee Retirement Benefit Security Act Article 12(2) says the last 3 years’ retirement benefits, are paid out of all the employer’s assets ahead of claims secured by pledges or mortgages, taxes and public dues and other claims. That top-priority severance is counted at 30 days’ average wage per year of service (Art. 12(3)). Enter the wage, months unpaid and severance to split the top-priority share from the rest.
1. Last 3 months’ wages + accident compensation — ahead even of mortgages and taxes (LSA Art. 38(2)).
2. Last 3 years’ severance, counted at 30 days’ average wage a year (RBSA Art. 12(2)–(3)).
3. Other wages and severance come after secured claims but before taxes and ordinary claims (each para. 1).
Calculator
Updates as you type. Our simplifications: the unpaid months are the final months before leaving, at the same monthly wage; part years count pro rata in the severance cap; amounts under 1 won are dropped. Defined-contribution and IRP contributions (1/12 of annual wages, Art. 12(4)) are not included.
The two articles
| Type | What the source says | Worth noting (ours) |
|---|---|---|
| LSA Art. 38(1) | Wages, accident compensation and other employment claims are paid out of all the employer’s assets except claims secured by a pledge, mortgage or security right under the Movable and Claim Security Act, ahead of taxes, public dues and other claims; taxes ranking ahead of that security are excepted | “Ordinary” priority — after secured claims |
| LSA Art. 38(2) | Notwithstanding para. 1, (1) the last 3 months’ wages and (2) accident compensation rank ahead of secured claims, taxes, public dues and other claims | “Top” priority — ahead even of mortgages |
| RBSA Art. 12(1) | Severance, DB benefits, unpaid DC, SME fund and IRP contributions with late interest (“retirement benefits”) rank ahead of taxes and other claims except claims secured by a pledge or mortgage | Unlike Art. 38, no mention of Movable and Claim Security Act rights |
| RBSA Art. 12(2) | Notwithstanding para. 1, the last 3 years’ retirement benefits rank ahead of secured claims, taxes and other claims | — |
| RBSA Art. 12(3)–(4) | Severance and DB benefits: 30 days’ average wage per year of service; DC, IRP etc. contributions: one twelfth of annual wages | 3 years = 90 days (our sum) |
📌 LSA Article 38 lists security as “pledge, mortgage or security right under the Movable and Claim Security Act”, while RBSA Article 12 lists only “pledge or mortgage”. We don’t judge what this means in an actual distribution.
Three sums — our example
| Case (our example) | Top priority (our sum) | Other priority |
|---|---|---|
| 3,000,000 won a month, 5 months unpaid, daily average wage 100,000 won, 6 years, 18,000,000 won severance unpaid | Wages 9,000,000 + severance 9,000,000 = 18,000,000 won | Wages 6,000,000 + severance 9,000,000 = 15,000,000 won |
| 3,000,000 won a month, 2 months unpaid, daily average wage 100,000 won, 2 years, 6,000,000 won severance unpaid | Wages 6,000,000 + severance 6,000,000 = 12,000,000 won | 0 won |
| 2,500,000 won a month, 4 months unpaid, daily average wage 90,000 won, 2 years 6 months, 8,000,000 won severance unpaid | Wages 7,500,000 + severance 6,750,000 = 14,250,000 won | Wages 2,500,000 + severance 1,250,000 = 3,750,000 won |
The first row worked through: of 5 unpaid months, the last 3 — 3,000,000 × 3 = 9,000,000 won — take top priority, and the earlier 2 months, 6,000,000 won, ordinary priority. The severance cap is 100,000 × 30 × 3 = 9,000,000 won, so of 18,000,000 won unpaid (= 100,000 × 30 × 6), 9,000,000 won is top priority and 9,000,000 won ordinary. In the third row 2 years 6 months is taken pro rata as 2.5 years: 90,000 × 30 × 2.5 = 6,750,000 won (our sum).
“Last 3 months” and “last 3 years” — last of what?
Neither article spells out whether “last” is measured from leaving or means the final part of the unpaid period. The calculator assumes the unpaid months are the months just before leaving. If, say, earlier months were paid and only the last one wasn’t, results may differ. Actual distribution is set by the court or trustee, so treat this as a rough guide to the order (ours).
What the state pays first when an employer fails (last 3 months’ wages etc., capped) is in wage arrears substitute payment calculator; the severance amount itself is in severance calculator.
Checklist
- ☐ List the unpaid months one by one
- ☐ Confirm the daily average wage and years of service
- ☐ Note any unpaid accident compensation separately
- ☐ Check the deadline to claim in an auction or bankruptcy
Questions that remain
What if my pension is DC?
Article 12(4) counts unpaid DC, IRP and similar contributions at “one twelfth of the member’s annual wages”. The calculator covers only severance and DB (30 days).
Really ahead of taxes?
The top-priority share in para. 2 ranks ahead of secured claims, taxes and other claims by its wording. The ordinary share in para. 1 ranks behind taxes that outrank the security. We didn’t read the order under the Debtor Rehabilitation and Bankruptcy Act this time.
Sources
- Korean law database (law.go.kr) — Labor Standards Act Arts. 2, 38 — source (current text, effective 8 October 2026, Act No. 21533; checked 28 October 2026). Average wage; priority of wage claims (para. 1 ordinary, para. 2 last 3 months’ wages and accident compensation).
- Korean law database — Employee Retirement Benefit Security Act Arts. 8, 12 — source (current text, effective 18 September 2026, Act No. 21475; checked 28 October 2026). Severance of at least 30 days a year; priority of retirement benefits (paras. 1–4).
- Not read. Debtor Rehabilitation and Bankruptcy Act, Civil Execution Act distribution rules, case law.
- What we added. The “worth noting” column and the Korean everyday gloss.
Where to check further
- Ministry of Employment and Labor · COMWEL — arrears confirmation, substitute payment.
- Korea Legal Aid Corporation — claims in distribution and bankruptcy.
Written on 28 October 2026. The content is from the source; the glosses are ours.
