Severance pay is a compensation that should be paid by the employer in case of termination of employment contract under certain condition.
Severance payment is arranged in article 14 (still in effect) of Former Labor Law no. 1475.
An employee who has worked at least one year is entitled to severance pay under the following conditions;
- Where employee terminates the contract for just cause, such as for reasons of health, immoral or dishonorable conduct by the employer and force majeure
- Where Employer terminates the contract without a valid reason (the reasons other than for malicious, immoral or dishonorable conduct or other similar behavior specified in Labor Act)
- Leaving the workplace due to the compulsory military service (for males)
- Leaving in order to receive an old age pension, pension fund or disability insurance pension or to receive a lump-sum payment from the statutory institutions or retirement funds
- Leaving voluntarily in order to receive partial pension (after completing 3,600 premium days and 15 years of insurance period - a document must be submitted to employer from the social security agency stating that he has worked for the period).
- Where the female employee terminates the contract voluntarily within one year following the date of marriage
- In case of death of the employee
HOW TO CALCULATE SEVERANCE PAY?
- Qualified employee shall be paid a severance pay equal to last 30 days’ gross wages for each full year of employment.
- For a portion of a year, pro rata payment should be made.
- In calculation of the last 30 days’ wage, the wage paid and the some contractual and statutory benefits in kind provided by employer shall be taken into account. Also periodical (annually, quarterly etc.) payments such as premium and bonuses will be added in monthly basis.
- Unused annual leave periods should be paid as wage.
- There is a cap for severance pay and it is 4.426,13 TL/Year for the first half of 2017. However, this limit may be increased by provisions of employment contracts.
- However, there is no cap amount for severance pay for press employees. They will be paid a severance pay equal to last 30 days’ gross wages for each full year of employment.
- Severance payment is subject to stamp tax only, no income tax is applied.
CALCULATION OF GROSS WAGE IN SEVERANCE PAYMENT
An employee receives various types of payments and in kind benefits in addition to his base salary, so the term "gross wage" can be interpreted differently.
When it comes to the wage that will be a base for severance pay, all "vested employee benefits" should be taken into consideration. Following payments must be included in the calculation of gross wage;
- Gross base salary,
- Contractual and statutory benefits in kind provided by employer such as meal allowance, transportation fee,
- Periodical (annually, quarterly etc.) payments such as premium and bonuses (that will be added in monthly basis),
- In case the wage is determined as net in the employment contract, the net amount should be grossed up.
On the other hand ad-hoc payments are not into calculation.
SEVERANCE PAY IN FIXED-TERM EMPLOYMENT CONTRACTS
One of the most frequently asked question is related to severance pay of employees working under fixed-term employment contract.
An employee who has worked at least one year is entitled to severance pay whether he/she is working under a fixed-term or an open-ended contract. Labor Law doesn't make any distinction between these two types of contracts.
According to Supreme Court rulings, if the employer declares that employment contract will not be renewed, this will be deemed as termination by the employer and employee will be entitled to severance pay.
For Supreme Court ruling related to severance pay in fixed-term contracts, please visit our website.