Contractor Management 0 min

How to hire and pay independent contractors in South Korea

Written by Pedro Barros
May 15, 2024
Pedro Barros

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If you’re trying to expand your business globally, hiring international contractors is a great option. In that regard, South Korea is a promising market to explore in East Asia. It has a highly developed economy with a robust workforce, and is a world leader in technological advancements. All these factors make South Korea a great place to hire independent contractors.

While hiring in South Korea, it’s critical to maintain compliance with local labor laws. Failure to do so could lead to fines, penalties, legal issues, and reputational damage. 

In this article, we will explain the country’s employment and tax laws, the hiring and paying processes, and how to avoid misclassifying independent contractors as employees. Read on to know more.

Independent contractor vs. employee in South Korea

Before you hire independent contractors in South Korea, it is imperative to understand how their classification differs from that of an employee. The misclassification of independent contractors can lead to legal issues.

Here are the most important differences between an independent contractor and an employee:

  • Level of instruction. An employee works under the direct supervision of the employer while a contractor has the freedom to choose when and where they work. 

  • Access to benefits. Employees are provided statutory and other benefits while contractors do not receive the same.

  • Method of payment. An employee can expect regular, scheduled payments, whereas an independent contractor sets their own rate and will often be paid on commission or by project.

  • Specialist skills and resources. Independent contractors are often hired for a unique skill set. They also use their own tools, equipment, and resources to carry out the job. This is why it might be profitable for you to hire contractors over employees for particular assignments.

What are the unique considerations for managing independent contractors in South Korea?

South Korean labor laws stipulate strong protections for its workforce. That being said, independent contractors don't usually qualify for benefits like paid leave, social security, or health insurance. 

Another thing that you have to keep in mind while hiring independent contractors is the pay. As per the laws, all workers are entitled to the national minimum pay, irrespective of their employment status. The minimum hourly wage is KRW 9,860 (South Korean won) as of 2024. 

When hiring independent contractors, outline these details in a well-negotiated freelance agreement. Other important matters you should include include data protection clauses, intellectual property (IP) rights, and chain of reporting. The freelance contract must be signed by both parties.

link to How to manage independent contractors: an expert guide

How to manage independent contractors: an expert guide

Learn how to manage remote contractors at every stage — from hiring and onboarding to payment — with our in-depth guide.

What are some key labor laws in South Korea?

The Ministry of Employment and Labor of South Korea sets ‌labor standards in the country. These laws are stringent and any non-compliance can incur hefty penalties. Thus, you need to have a good understanding of them before hiring contractors. 

South Korea's labor laws cover a wide array of topics related to employment, wages, worker safety, statutory benefits, termination processes, and tax compliance. Not all of these, however, apply to independent contractors in South Korea. Contractors are responsible for managing and filing their taxes themselves. 

The standard work week for employees is 40 hours. Anything beyond that is considered overtime. Overtime hours are capped at 12 hours a week and are paid at a higher rate than the usual hourly wages. However, contractors get to negotiate rates for their hours.

Employees are entitled to benefits like paid leave, sick leave, social security, and health insurance. You are not obligated to give the same benefits to your independent contractors. However, you may choose to provide some of these in order to make a lucrative offer.

Independent contractors usually work on fixed-duration projects, as specified in the freelance agreement. But, if you have to terminate them earlier than expected, you must follow the terms of the agreement. You will also have to furnish justifiable reasons for termination.

Certain aspects of the law apply to all workers, irrespective of whether they are employees or contractors. For example, as an employer, you are obligated to provide a safe and healthy working environment for all your workers.

Additionally, you need to make sure that the workplace is devoid of any kind of discrimination on the grounds of race, religion, sex, or disability. 

What are the compliance and tax practices for hiring contractors in South Korea?

Independent contractors in South Korea are legally required to manage and file their own taxes. While you would be required to withhold taxes for any South Korean employee, you are under no such obligation for your contractors. The independent contractors have to maintain accurate records of their earnings and business expenses and withhold taxes accordingly. Individuals usually file their tax returns from May 1 to May 31 of the next financial year.

As the hiring authority, you just need to communicate this expectation to your contractors on time. In some cases, you may need to provide support and relevant resources to help contractors comply with South Korean tax laws.

Considerations for US-based employers

If you are a US-based employer looking to hire independent contractors in South Korea, you may have to comply with specific tax prerequisites laid down by the Internal Revenue Service (IRS). This depends on the payments and the status of the contractor. 

You will need to collect Form W-8BEN from contractors working outside the US and submit the same to the IRS. Use Form W-8BEN-E to record the status of the foreign entities working as contractors. 

You may also have to file 1099-NEC to report any payments made to a contractor above $600 in a financial year that are not subject to withholding.

If you are a US-based company wanting to hire and pay contractors in South Korea, we can help you do that seamlessly. For this purpose, our platform invites contractors to fill out the relevant details and generate all the necessary tax documents for compliance. You can focus on your business while we take care of the important paperwork for you.

Learn more in our article below on how US tax compliance becomes easy with Remote. 

link to Remote Contractor Management: Tax compliance for US companies just got easier

Remote Contractor Management: Tax compliance for US companies just got easier

We’re excited to share the details of our new tax compliance feature for Remote’s Contractor Management platform, specifically designed to help HR and finance administrators meet IRS rules. 

South Korea has strict regulations in place to protect ‌workers against misclassification. If you misclassify an employer as an independent contractor, there are serious consequences such as fines or legal penalties, including back payments of unpaid benefits and wages.

Sometimes, misclassification also results in IP and data protection issues, and you can lose valuable work because of this. Data privacy can also be at risk in certain cases.

Therefore, make sure to remain compliant with the local laws and consult with legal professionals whenever necessary. As an employer, you must maintain accurate records of each independent contractor, including hours worked, the kind of work performed, and the payments you make to them. Being proactive in this manner will certainly help you minimize misclassification risks

Remote's employee misclassification risk tool is specifically designed to securely handle these issues. It tells you if you are at risk and provides you with scalable solutions to mitigate the same.

How do I pay an independent contractor in South Korea?

You can pay your contractors in various ways. The mode of payment will depend on the contractor's preferences, whether the payment is an international transfer, and the fees incurred while making the payment. The most commonly used modes for paying independent contractors in South Korea are as follows:

  • Bank or wire transfers

  • Mobile payment apps

  • Services like PayPal or Wise

  • Credit card payments

  • Checks

  • Cash payments

There may be restrictions, so be sure to verify that your chosen payment method works for your situation. For example, Wise lets you send up to KRW 5,000,000 per transfer and up to $50,000 (or equivalent) per year to an individual.

If you'd prefer, you can make use of the Remote global payroll service to pay your contractors in South Korea. Our solution allows you to hire and make payments in local currency. Additionally, our customer support team is always ready to assist you with your complex payroll needs for contractors and help you maintain compliance.

How do I convert an independent contractor in South Korea to an employee?

As your business grows, you might feel the need to hire more full-time employees. When you are ready for the change, you can opt to convert your independent contractors to employees. However, you must follow all the necessary legal steps to ensure a smooth transition.

The conversion process usually begins with a careful review of the existing freelance contract. At this stage, consider consulting with a legal professional to make the transition smooth for all parties involved. 

Once you determine the eligibility of the contractor as an employee, draft the new employment contract. Simultaneously, you need to register the employee with the National Pension Service (NPS) and health insurance schemes. You will also need to notify the South Korean social security and tax authorities of the change.

When all ‌due diligence is done, terminate the contractor agreement and onboard the employee through the standard orientation process. All employee benefits like paid leaves and statutory benefits will also become applicable from this point. 

Last but not least, maintain proper documentation of the conversion process in the employee personnel file for future reference.

What is the best way to hire and pay independent contractors in South Korea?

South Korea is an excellent market to grow your business globally. If you think hiring independent contractors is the right decision for your organization, you need to follow specific steps to enjoy a hassle-free hiring process. 

However, hiring and paying contractors in South Korea can take a lot of time, effort, and resources. In such cases, using Remote’s contractor management service can really help you with your business needs. With Remote, you can:

  • Onboard contractors quickly with custom-drafted agreements

  • Save time with an automated invoicing approval system

  • Make (and automate) payments in South Korean won, the local currency

  • Maintain compliance with local labor laws to avoid misclassifying contractors

Remote takes care of managing your independent contractors so that you get to focus on your business strategies. And what’s more, with our Fair Price Guarantee, you need to pay only for the contractors active in the system.

Get in touch with our team today to learn more about this and have all your questions answered.

And if you are ready to start onboarding contractors in South Korea, you can do that right away. Sign up here for free today and begin your global expansion journey.

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