In Summary

Headcount calculation

The headcount is generally determined using the one-month period preceding the relevant event. If the workplace operated with fewer than five employees on at least half of its operating days, it is treated as a workplace with fewer than five employees.

Introduction

As Korea’s economy and labor protections have developed, employment compliance has become increasingly extensive and complex. The Korean Labor Standards Act, however, applies only certain provisions to workplaces that regularly employ fewer than five workers, thereby reducing some of the compliance burden on very small workplaces. These exemptions remain in effect as of July 2026. However, the Korean government has announced plans to discuss and gradually expand the application of the Labor Standards Act to workplaces with fewer than five employees, so businesses should continue to monitor legislative developments. This article explains the key provisions that do not apply to workplaces with fewer than five employees and how the applicable employee headcount is determined.

Key Exemptions for Workplaces with Fewer Than Five Employees

• Working-Hour Limits

In a workplace that regularly employs five or more workers, working hours generally may not exceed eight hours per day or 40 hours per week, excluding breaks, and overtime is generally limited to 12 hours per week. However, these general limits do not apply to workplaces that regularly employ fewer than five workers. For example, for an adult employee who is not subject to special working-hour protections, an employment agreement providing for 10 working hours per day and 50 working hours per week is not invalid merely because it exceeds the general eight-hour and 40-hour limits. Such employees may also agree to work more than 12 hours beyond 40 hours in a week. However, separate restrictions apply to employees under 18, pregnant employees, and employees within one year after childbirth. All hours worked must still be compensated at the applicable wage rate, and statutory break requirements remain applicable.

• Premium Pay for Overtime Work, Night Work, and Holiday Work

In workplaces with five or more employees, overtime work and night work performed between 10 p.m. and 6 a.m. are generally subject to a premium of at least 50% of the employee’s ordinary wage. Holiday work is subject to a 50% premium for the first eight hours and a 100% premium for hours exceeding eight. In a workplace with fewer than five employees, these statutory premiums are generally not required. However, the employee must still be paid at the applicable hourly rate for all hours actually worked.

• Paid Annual Leave

Employees who have worked for less than one year are generally entitled to one day of paid annual leave for each month of full attendance. Employees who have completed one year of service and attended at least 80% of the scheduled working days during that year are generally entitled to 15 days of paid annual leave. Beginning in the third year of service, one additional day is added for every two additional years of service, subject to a maximum of 25 days. These statutory annual-leave requirements generally do not apply to workplaces with fewer than five employees. However, paid leave may still be required if it is provided for in an employment agreement, company policy, or other binding arrangement.

• Dismissal

In a workplace with five or more employees, an employer generally may not dismiss an employee without just cause. By contrast, the statutory just-cause requirement and the Labor Relations Commission’s unfair-dismissal remedy generally do not apply to workplaces with fewer than five employees. However, unless a statutory exception applies, the employer must still give at least 30 days’ advance notice of dismissal or pay at least 30 days’ ordinary wages in lieu of notice.

• Shutdown Allowance Due to Causes Attributable to the Employer

In a workplace with five or more employees, if operations are suspended for reasons attributable to the employer, the employer must generally pay each affected employee at least 70% of the employee’s average wage for the shutdown period. Examples may include a planned renovation, financial difficulties, or an equipment failure attributable to the employer. This statutory shutdown-allowance requirement generally does not apply to workplaces with fewer than five employees.

• Public Holidays and Substitute Public Holidays

If an employee is normally scheduled to work from Monday to Friday and a public holiday or substitute public holiday falls on a Monday, a workplace with five or more employees must generally treat that Monday as a paid holiday. If the employee works on that paid holiday, statutory holiday-work premium pay is generally required. A workplace with fewer than five employees is generally not required under the Labor Standards Act to treat public holidays and substitute public holidays as paid holidays. If an employee works on such a day, the employee must still be paid for the hours worked, but the statutory holiday-work premium generally does not apply. The weekly paid holiday and Labor Day are governed by separate rules and may still be paid holidays even in a workplace with fewer than five employees. An employment agreement or company policy may also provide more favorable holiday terms.

Headcount Calculation

• When Is the Headcount Calculation Needed?

For purposes of the Labor Standards Act, the five-employee threshold is not determined simply by the number of employees appearing on the payroll. Instead, the Act generally applies a statutory calculation based on the employees used during the preceding month and the number of days on which the workplace operated. The headcount must generally be determined whenever an event arises that requires the application of a relevant provision—for example, when overtime is performed, a shutdown occurs, a public holiday falls, or an employee is dismissed.

• How the Headcount Is Determined

The calculation period is generally the one-month period immediately preceding the date on which the relevant legal issue arises. The Enforcement Decree formally provides a two-step calculation. First, the aggregate daily employee headcount during the calculation period is divided by the number of operating days during that period. Second, the employer must count the operating days on which fewer than five employees were used. If fewer than five employees were used on at least half of the operating days, the workplace is generally treated as a workplace with fewer than five employees for the relevant purpose. If fewer than five employees were used on less than half of the operating days, the workplace is generally treated as having five or more employees. For example, if a workplace operated for 20 days during the calculation period and employed fewer than five employees on 11 of those days, it is generally treated as a workplace with fewer than five employees for the relevant purpose. In practical terms, the second step determines the final outcome even when it reverses the result of the arithmetic average calculated in the first step.

Special calculation rules apply when determining eligibility for certain annual-leave provisions. Unlike most other provisions, entitlement to 15 days of statutory annual leave generally requires the workplace to have maintained a headcount of five or more employees for the preceding 12 consecutive months.

• Other Headcount Considerations

A sole proprietor is generally not included in the employee headcount.

A part-time employee generally counts as one employee on each day the employee works; the headcount is not converted into a full-time-equivalent basis.

The label or form of the contract is not decisive. A person should be included if, in substance, the person qualifies as an employee under the Labor Standards Act, including where the person provides labor for wages in a subordinate relationship under the employer’s direction and supervision.

If an employer operates two or more locations that are not organizationally and operationally independent, the locations may be treated as a single business or workplace and their employees may be aggregated for the headcount calculation.