New Zealand Embassy Seoul, South Korea

Contracts

Nature of Contracts in Korea

Koreans see business less as a rational, legally based interaction than as a relationship. Consequently there is a much weaker sense of law in Korean business relations than in international business. For many Koreans, a contract is part of the symbolism involved in beginning a relationship, and 'beginning' is the important word. The contract, thus, is only as binding as the personal relations.

It is not surprising, therefore, that foreign instructors in Korea occasionally have contract disputes with their employers. The employer may, indeed, consider the contract a simple working agreement, subject to change depending upon the circumstances- and usually after the foreigner has arrived in Korea. Most Koreans do not view deviations from a contract as a "breach" and few Koreans would consider taking an employer to court over a contract dispute.

Instead, Koreans tend to view contracts as always being flexible and subject to further negotiation. Furthermore, the written contract is not the real contract; the unwritten, oral agreement that one has with one's employer is the real contract. The contract should be signed with these factors in mind.

Basic Features of Most Teaching Contracts: Contracts for teaching positions normally include some, but not necessarily all, provisions for the following: salary, housing, hours, class size, severance pay, taxes, and medical insurance and ticket home. (If these items are not included, one should negotiate until they are specifically included in the contract.) Information on these topics is given below. Remember - when in doubt, ask.

Salary: Most contracts provide for either a set monthly salary or for a salary based on the number of hours taught. In any event, a guaranteed monthly remuneration should be included in the contract.

Housing: Few contracts provide for housing in Seoul but many will include a housing allowance of between 200,000 to 500,000 won. This can be a serious problem as housing in Seoul is among the most expensive in the world. Housing options include key money (yearly deposit), monthly rent, shared housing, dormitories, lodging houses, and inns. If your institute does not provide housing, they should at least be able to help you in finding housing, and in negotiating the appropriate rent and utility payments.

Key Money System (Chunsee): Key money (chunsee) means you give the owner of the property the equivalent of a year's rent up front when you move into the house, and pay no monthly rent. At the end of the contract period, the renter receives the chunsee back. In return for the use of the money for the contract period, the owner of the house returns the principal back to the renter. The renter pays no monthly rent while the owner earns interest on the key money.

This is quite risky because ownership may change in the middle of the contract period, or the owner may simply decide that the foreigner is in no position to fight for the chunsee. One can reduce this risk by having the employer agree to pay the chunsee. Chunsee payments run from a minimum of 2 million won for a small studio in a less desirable part of town to 50-80 million won for a decent apartment in one of the more prestigious neighbourhoods.

Wolsee is a variation of chunsee. A renter pays a certain amount per month, and a certain deposit which he receives when he moves out. The same caveats apply as with chunsee. Monthly rents can run as high as 1.1-2.8 million won a modest apartment. Shared housing is a popular alternative but, of course, one should be careful in choosing roommates, and financial responsibilities should be spelled out in advance.

Dormitories, Lodging Houses (Hasuk) and Inns (Yokwans): Yonsei, Ewha, Seoul, Hanyang, and Konkuk universities and Hankook University of Foreign Studies all have dormitory accommodation available. In addition, the Korean Research Foundation runs the International House for foreign students. Sometimes, these dormitories can accommodate foreign instructors, but they usually only accommodate their own faculty.

Lodging houses (hasuk) are popular with young Koreans in college or those just starting out in their professional careers. Single rooms run about 500,000 won per month, and include Korean-style breakfast and dinner, and sometimes include laundry service. The disadvantage is the lack of privacy.

Another option is staying with a local family. This can be an excellent opportunity to experience Korean life and culture directly, but again the lack of privacy can be a disadvantage. Most instructors who live in such homestays eventually move into more private accommodations.

Finally, some people rent rooms in yokwans (inns) on a monthly basis. This is similar to staying in a lodging house, at about the same cost with no food provided, but offers far less security and less privacy as well. Some yokwans cater to dubious short-term (hourly) clients so staying in a yokwan may result in some Koreans treating you with a lack of respect.

Working Hours: Most institutes will require foreign instructors to teach five to six hours per day, Monday through Friday, and some also ask instructors to teach Saturday morning as well. Universities will usually require 15 to 25 hours per week, and participation in student activities and editing school newspapers. Research centres usually require 40 hours per week, with occasional overtime without compensation.

Class Size: This is usually not spelled out in the contract. Private institutions usually have classes of between 10 and 20 students, while universities can have as many as 100 students in a class.

Severance Pay (Twaechikum)

The Embassy receives many enquiries and complaints about severance pay issues. It is generally a good idea to approach this subject early in your employment, and to be prepared for resistance. By Korean law, discussed below, all full-time instructors (if you have a work visa, you are considered full-time), be they Korean or foreign, are entitled to receive severance pay of one month's salary for each year of employment. Employers cannot ask you to waive this. However they have been known to get around it by employing you on an 11-month contract so be careful not to sign such a contract.

The Ministry of Labour has jurisdiction over severance pay matters. Severance Pay Division can be reached at (822) 503-9727. The Ministry of Labour general number is (822) 500-5544. The Ministry of Labour or the Ministry of Education may, at your request, call employers to remind them of their legal obligations. If you have exhausted all other avenues and feel that you need to take legal action, the Embassy can provide you with a list of attorneys.

Severance pay rights are covered by the Labour Standards Act of the Korean Legal Code. English language translations of the code are available at the Kyobo Bookstore, located in the same building as the Embassy. The key provision of the Labour Standards Act as they relate to severance include the following:

  • Article 28: (Retirement Allowance System) 1. An employer shall establish a system by which average wage of not less than 30 days per year for each consecutive year employed shall be paid as retirement allowance to a retired employee. Provided, however, that this shall not apply in cases in where the period of employment is less than one year.
  • Article 5: (Equal Treatment) No employer may include any discrimination in the terms of labour conditions because of nationality, religion or social status.
  • Article 10: (Scope of Application) stipulates that the act applies to all enterprises except small family businesses, domestic servants, and those exempted by Presidential decree.

Korean Taxes

Another common complaint concerns taxes. Most foreign employees are required to pay Korean income taxes, which are generally withheld and paid by the employer. Korean income tax is 5-10%.

Article 20 of the Korean tax code states:
An individual who is a resident of a contracting State and who, at the invitation of any university, college, or other recognized educational institution, visits the other contracting State for a period not exceeding two years solely for the purpose of teaching, or research or both at such educational institution shall be taxable only in the first mentioned State on his remuneration for such teaching or research.

The tax office maintains a list of institutes that are tax exempt. In principle, this provision applies only to teachers employed at universities, research centres, or university-operated institutes. Teachers at hakwons and at private companies may have to pay taxes. The general affairs section of the university or research centre could apply for the exemption. If the institute wrongly withholds taxes, it is required to pay a refund.

For guidance on these matters, contact the Korean Tax Office as they have been helpful in arranging compliance with these provisions. They also publish an English Language Income Tax Guide for Foreigners. This guidebook comes out in April of each year and is available free at any tax office. The Korean tax year runs from 1 June to the following 31 May. Usually, one's employer files the appropriate tax forms, but if they do not file, the individual may be liable for not filing.

If you believe your employer is not complying with the Korean tax laws, and is illegally withholding income taxes from your salary, your first step should be to discuss the matter with your employer. If that does not work, you should discuss the matter with the Korean Tax Office, International Taxation Division, 720-4793 or 720-4222, or visit National Tax Service website or visit the nearest Korean Tax Office. Should the problem still not be resolved, then you may wish to consider contacting an attorney.

New Zealand Income Taxes: Depending on the length of your stay in Korea, you may or may not be liable for payment of New Zealand income tax on your income earned in Korea. You are encouraged to contact your nearest Inland Revenue office before your departure from New Zealand to determine your residency status as for New Zealand income tax.

Medical Insurance: In principle, foreign instructors are entitled to Korean medical insurance through their employer. This should be clarified at the time of acceptance of employment. It is important that you know and understand the nature and scope of coverage so be sure to ask your employer about the important details. Medical care in Korea is generally good, and while not as expensive as in New Zealand, can still be quite costly. Many practitioners and hospitals will not accept overseas health insurance and may demand payment before treatment. It is therefore very important for individuals to make sure that insurance or funds are available in case medical care is needed. The Embassy maintains a list of English-speaking medical and dental care providers in Korea.

Ticket Home
Some institutes will provide you with a ticket home on completion of your contract and will also promise to reimburse your costs for the trip to Korea. You should be aware that sometimes this commitment is not honoured.

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