1. introduction: Tectonic shifts in labor markets and the redesign of social safety nets
1.1 Purpose and background of the report
this report is an in-depth analysis of a historic turning point in the South Korean labor market. for the past 30 years, since the first introduction of the employment insurance system in 1995, South Korea's employment safety net has been based on a physical measure of "hours worked". this was a design that reflected the industrialization era of manufacturing, where workers would show up at a set time and provide labor for a set number of hours. However, the transition to a digital economy in the 21st century, the rapid rise of platform labor, and the prevalence of N-jobbers are proving that the traditional time-based employment insurance system is no longer valid.
the amendments to the Employment Insurance Act and the Employment Accident Insurance Premium Collection Act, announced by the Ministry of Employment and Labor in 2025 and passed by the Cabinet, are a response to the needs of the times. the government has decided to completely shift the criteria for employment insurance coverage from the existing "prescribed working hours" to "actual remuneration (income)" and reorganize the system to manage members based on real-time income information from the National Tax Service. this report aims to comprehensively analyze the legal, administrative, and economic implications of these changes, and to detail the impact on companies' HR strategies and workers' entitlements.
1.2 Scope and Methodology
this study was conducted by synthesizing the Ministry of Employment and Labor's announcements, amendments to the law, media reports, and analysis from relevant experts. in particular, the discussion is centered on the following key themes
paradigm shift: the philosophical and practical shift from time-based to income-based administration.
integration of administrative infrastructure: mechanisms for linking income data from the National Tax Agency with the employment insurance administration system.
rationalization of benefit calculation: the economic impact of expanding the base period for calculating job search benefits (unemployment benefits) from three months to one year.
creating an inclusive safety net: Multi-employer income aggregation and strategies for closing blind spots.
strengthening maternity protection: Increasing parental leave benefits and improving the system.
2. shifting the criteria for employment insurance coverage: from 'hours' to 'earnings'
2.1 End of the 30-year system: the limits of the "15-hour workweek" threshold
since its introduction in 1995, the employment insurance system has required workers to work at least 15 hours per week. this threshold is a product of a time when "commercial work" was considered the standard form of work and short-time work was considered exceptional. under the current law, ultra-short-time workers, those working less than 15 hours per week, were in principle excluded from employment insurance coverage (although there were exceptions, such as those working continuously for more than three months).
however, labor market flexibility has led to the formalization of the "hours" criterion.
fragmentation of working hours: employers often use split-shift contracts to avoid the obligation to provide employment insurance, e.g., 14 hours per week.
limitations in enforcement: Even when labor inspectors went out on site, it was nearly impossible for them to detect every case where the actual hours worked differed from the contractual hours.
diversification of labor forms: With the proliferation of jobs with irregular or unspecified working hours, such as delivery riders, tutors, and freelancers, the hourly standard no longer reflected the true nature of labor.
2.2 The introduction of new standards: "actual remuneration" and "earnings
the core of the amendment is to change the measure of employment insurance enrollment from "how much you work" (hours) to "how much you earn" (income). specifically, the term "prescribed working hours" will be removed from the Employment Insurance Act, and "remuneration" will replace it.
2.2.1 Definition and scope of 'remuneration'
under the new system, "remuneration" means taxable earned income under the Income Tax Act, i.e., the total amount received by an employee in exchange for labor minus any non-taxable income.
formula: Remuneration = (earned income under the Income Tax Act) - (non-taxable income )
implications: This means that employment insurance administration moves from the realm of labor law judgment (measuring hours worked) to the realm of tax law judgment (verifying income data). objective data reported to the National Tax Administration will be the basis for enrollment, not the hours in the labor contract, which can be arbitrarily adjusted by the employer and employee.
2.3 Applicable threshold amount: what 800,000 won per month means
under the new system, regardless of whether you work 1 hour or 10 hours a week, you will be required to enroll in employment insurance if your monthly income exceeds a certain threshold. currently, the most likely threshold being discussed between the government and expert groups is 800,000 won per month.
this amount is intended to be equitable with the enrollment threshold for "labor providers" (special type workers), who are already covered by employment insurance (monthly compensation of 800,000 won or more). if the threshold is set at KRW 800,000 per month, it would require approximately 80 hours of work (approximately 18-19 hours per week) at the minimum wage (KRW 10,030 per hour as of 2025), which is much lower than the threshold for highly paid professional freelancers or short-term high-income part-time workers. therefore, abolishing the 'hours' threshold has the dual effect of imposing an enrollment obligation on high-income short-time workers and providing a shield for low-income long-time workers (if they exist).
3. multiple workers (N-jobbers) and income aggregation innovations
3.1 Barriers to entry into the employment safety net for N-jobbers
under the existing system, N-jobbers were left out of the employment insurance net. for example, suppose a worker works 10 hours a week at a convenience store A and 10 hours a week at a cafe B. The total number of hours worked by this worker is 20 hours a week, which meets the requirement for employment insurance (15 hours). however, because the current law determines working hours on a "per establishment" basis, the worker is determined to be ineligible for coverage at both A and B establishments. as a result, the worker would not be eligible for unemployment benefits if she lost her job.
3.2 Mechanism of Income Aggregation
to solve this problem, the amendment introduces an "income aggregation system". this is a groundbreaking measure that allows workers to qualify for unemployment insurance even if their income from an individual workplace falls below the threshold (e.g., 800,000 won), as long as their income from multiple workplaces is aggregated and exceeds the threshold.
the enrollment process:
earnings accrual: The worker works at multiple workplaces and earns income.
individual determination: Each workplace falls below the threshold and is not required to report enrollment.
application for aggregation: Worker applies to the labor welfare organization to aggregate income.
eligibility: The Welfare Organization verifies the aggregated amount through the National Tax Service income data and grants coverage.
the system will be an important stepping stone for various types of labor providers, including platform workers, part-time tutors, delivery riders, and others, to have their rights as "working people" recognized.
4. unification of administrative infrastructure: National Tax Agency information linkage and collection system
4.1 Unification of the Income Identification System (Real-Time Income)
the success of the employment insurance reform depends on 'accurate income verification'. to this end, the government will fully introduce the National Tax Service's income verification infrastructure into the employment insurance administration. the mandatory monthly income declaration (e.g., interim payment slips), which was expanded from 2024, was a preliminary step toward this.
under the amendment, from 2026, employers will no longer be required to file a separate 'total remuneration report' with the Labor and Welfare Service. instead, income data reported monthly to the National Tax Service will be linked to the Ministry of Employment and Labor in real time and used to charge premiums and manage enrollment.
4.2 Activation of Assessment by Authority
the National Tax Service data linkage overcomes the limitations of 'declarationism'. previously, it was difficult for the KSS to know about the existence of workers unless the employer reported it, but now, as soon as income is recorded by the National Tax Service, it is captured in the KSS system as 'eligible for enrollment'.
automatic identificationof unenrolled workers: If a worker is identified who is not enrolled in employment insurance despite earning more than the threshold, the KIC can encourage the employer to enroll or process the enrollment ex officio.
eliminateblind spots: This will dramatically reduce the number of unenrolled workers due to deliberate underreporting by employers or administrative errors.
4.3 Insurance premium method: from 'average monthly compensation' to 'actual compensation'
the current premium method is based on 'estimated income'. the premium is charged monthly by calculating the average monthly compensation based on the total compensation of the previous year, and then settled (paid more or refunded) in March of the following year by comparing it to the actual income. this has led to a "health insurance premium/employment insurance premium bomb" in March for workers with large fluctuations in income.
the amendment changes this to a"current year's actual compensation " basis .
this method improves the timeliness of premium payments and relieves both employers and employees of the burden of recurring settlement work every year. in particular, it will greatly improve the predictability of premium payments for sales and production workers with variable wages.
5. rationalization of the calculation criteria for job search benefits (unemployment benefits)
5.1 Expansion of the calculation period: from 3 months to 1 year
another key part of the amendments to the Employment Insurance Law is a change to the calculation period for the "base date" for determining the amount of job search benefits. previously, it was based on the average wagefor the three monthsprior to the job change, but the amendment will be based on the average compensationfor the one yearprior to the job change.
category current (before the change) proposed (after change) base Period 3 months prior to separation 1 year prior to separation baseline Wage average Wage (Labor Standards Act) average Remuneration (Employment Insurance Act/Tax Act) verification documents change of employment confirmation letter (based on wage register) national Tax Service income declaration data
5.2 Economic and Administrative Implications of the Changes
these changes are not simply an extension of the period, but a measure to strengthen the fairness and stability of the unemployment benefit system.
5.2.1 Preventing seasonal variability and moral hazard
the three-month standard had the potential to distort workers' usual earnings.
distortion case 1 (seasonality): If a worker's income only spikes during certain seasons due to seasonal factors, such as construction or agriculture, they will receive much higher unemployment benefits than usual if they leave during those seasons. conversely, leaving during the off-season is penalized.
distortion 2 (moral hazard): It is possible to engage in "benefit design" behavior by planning ahead for retirement and working overtime or extra shifts in the last three months to artificially boost benefits.
the one-year average compensation standard smoothes out this short-term volatility, ensuring that workers receive a fair level of pay that is commensurate with their contributions over the course of a year.
5.2.2 Streamlining the administrative process and speeding up payments
previously, workers had to fill out and submit a "Change of Employment Verification Form" to their employer in order to apply for unemployment benefits. however, with the change to the "remuneration" standard, a year's worth of income data reported to the National Tax Service will be automatically linked, allowing the agency to calculate the amount of benefits immediately without the need to submit a separation certificate. this will shorten the time it takes to pay unemployment benefits and contribute to the livelihood stability of the unemployed.
6. HR Practice Guide: Understanding 'Remuneration' and Managing Non-Taxable Income
6.1 The practical importance of calculating 'remuneration'
for human resources (HR) professionals, the reform requires a rethinking of payroll management systems. as both employment insurance contributions and unemployment benefits are calculated based on 'remuneration', it is important to clearly distinguish which items are taxable and which are not. remuneration is defined by the Income Tax Act as earned income minus non-taxable income.
6.2 Breaking down the main non-taxable income items
the following are the main non-taxable items that are excluded (not included in remuneration) when calculating employment insurance contributions. reporting them correctly can reduce the premium burden for both the employee and the business.
meal Allowance:
no more than 200,000 won per month.
conditions: Meal allowance for workers who are not provided with food, such as in-house catering.
driving Subsidy:
up to KRW 200,000 per month.
conditions: Employee-owned vehicle used directly for work and paid in lieu of actual travel expenses (must be specified in the company policy).
childcare Allowance:
up to KRW 200,000 per month (up from KRW 100,000 in 2024, reflecting changes to the tax law).
eligibility: If you have a child 6 years old or younger.
overtime, night, and holiday work allowance for production workers:
up to 2.4 million won per year.
conditions: workers in production and related occupations with a monthly salary of KRW 2.1 million or less and a total salary of KRW 30 million or less in the previous tax period.
job invention reward:
reimbursable salary:
HR managers should match the codes for these non-taxable items with the National Tax Service notification form when designing the payroll ledger, and should be proactive to avoid errors in the employment insurance system, which will be automatically linked from 2026.
7. the parallel transformation of childcare support systems: responding to the low birthrate and protecting mothers
7.1 Significant increase in the upper limit of parental leave benefits
the reform of employment insurance is in line with the strengthening of the maternity protection system to overcome the birthrate crisis. the proposed increase in parental leave benefits, which will take effect in 2025, focuses on increasing the income replacement rate to encourage actual use of leave.
current: 80% of the monthly regular wage (upper limit of KRW 1.5 million, lower limit of KRW 700,000).
proposed (effective January 1, 2025):
months 1-3: 100% of monthly regular wage (capped at KRW2.5 million).
months 4-6: 100% of monthly regular wage (capped atKRW 2 million).
after 7 months: 80% of your regular monthly wage (capped at$1.6 million).
this is designed to encourage men (dads) to participate in parental leave by minimizing the impact of income loss in the early months of parental leave.
7.2 Elimination of post-payment and reduction of working hours during the parental leave period
previously, there was a "post-payment" system where 25% of the parental leave salary was set aside and paid only after the employee returned to work for at least six months. this was intended to encourage employees to return to work, but it was criticized for reducing the effectiveness of income preservation during the leave period. the amendment abolishes this system and replaces it with full payment during the leave period.
in addition, the upper limit of the threshold for the "reduced working hours for parental leave" will be raised from the current 2 million won to 2.2 millionwon, providing more support for workers who choose to work reduced hours instead of taking a full-time leave.
8. implementation roadmap and future outlook
8.1 Legislative and implementation timeline
based on the government's roadmap and media reports, the expected timeline is as follows
july 2025: Ministry of Employment , Labor , and Welfare completes legislative preview of amendments to the Employment Insurance Act and Premium Collection Act.
second half of 2025 (October-December): National Assembly Environment and Labor Committee deliberations and plenary vote targeted.
january 2026: Settlement of monthly income declaration by employers under the revised Income Tax Act and piloting of the NIS-industry data linkage system.
mid-2026 (January or July): Full implementation of the income-based employment insurance enrollment and collection system.
8.2 Anticipated Issues and Challenges
administrative burden on small businesses: For small businesses that have not yet established monthly income reporting, the obligation to report to the NTA may be a burden. tax support or a grace period will be an issue.
financial health: The increase in enrollment and the increase in parental leave benefits could increase the financial burden on the Employment Insurance Fund. to address this, there is likely to be discussion of increasing the premium rate (currently 1.8%).
blind spots in earnings capture: Improving earnings capture remains a challenge for some of the silent labor markets that still pay in cash.
9. conclusions and recommendations: Toward a universal employment insurance era
the 2025-2026 employment insurance reform is not just a tweak to the system. it means that South Korea's social safety net will be reorganized around the real values of people and income, away from the spatial constraints of "workplace" and the physical constraints of "time".
key takeaway:
inclusiveness: The weakest segments of the labor market, such as jobbers and casual workers, are brought into the system.
equity: The principles of pay-as-you-earn and pay-as-you-contribute are reinforced.
efficiency: Reduce administrative costs and increase convenience for citizens by linking data from the National Tax Agency .
businesses will need to adapt their payroll management systems to the changing tax collection system, and workers will need to demand transparency in income reporting, recognizing that their income records directly translate into benefits from the social safety net. if the reforms are successful, South Korea will be on its way to becoming a true welfare state, where all working citizens are protected from unemployment and childbirth crises, regardless of the type of work they do.