A multinational client of Shield GEO is a global medical technology company with employees in South Korea. We handle all of the employment, payroll and immigration needs for their employees, as well as calculating statutory withholding from the pay check each month.
Recently our clients had a question about National Health Insurance (NHI) in South Korea and how it is managed for expat workers on assignment when they are terminated or resign. Specifically, they noted that the ‘settlement of health insurance’ following termination would be different for each employee, sometimes an increase and sometimes a decrease.
They wanted to know what the rules were and how we arrived at the settlement amount in our final invoice to them.
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Re-computing NHI Premiums in South Korea
Our answer to them explained that under Article 39 of the National Health Insurance Act, when employees are terminated in South Korea, the employer must settle the NHI premiums based on the actual income in the taxable year, which may be higher or lower than the prior year earnings used to compute the NHI premiums.
The employee pays 50% of 6.12% of annual income as withholding for NHI (the employer pays the other 50%). If they are terminated, their premiums will need to be adjusted based on the actual number of months employed and any changes in salary since the contribution rate was last computed. That adjustment is called ‘settlement of health insurance’.
Contributions for all employees in South Korea are adjusted every April to account for changes in salary or bonuses. So, if an employee is terminated prior to a recalculation, that will have to be done in the settlement of insurance to ensure a fair and accurate contribution rate. If the employee’s earnings up to the termination date were more than the prior year, the contribution rate would be too low and require additional payment. If earnings were lower, then the employee would be due a refund due to excess premium payments.
How Does Shield GEO Assist Clients with Calculating Insurance Withholding?
One of the crucial aspects of the Shield GEO employment service is accurate withholding of all statutory payments, such as taxation, pensions and health insurance. Our local partner, as employer of record, is well versed in host country payroll and tax laws, and can make the right calculation for each employee based on local rules.
In this case in South Korea, Shield GEO was able to show the client why the settlement of insurance was different with each terminated employee, how the local partner used that guideline, and then invoiced the client for the amount due to the employee, or made a final deduction. This is one of the reasons that Shield GEO is the preferred service for employing workers abroad, as we have the network of local partners in global destinations that can make sure that your employees are payrolled and employed in accord with local regulations.
If you'd like to know more about how we can help with your employment needs in South Korea, please get in touch.