Severance pay is the monetary benefit that is paid collectively by the employer to the workers whose employment contract ends in one of the situations defined in the Labour Code No 1475. For each full year from the date of commencement to the date of exit, the employee is paid severance pay over 30 days’ gross wage (the last wage). Payments are made at the same rate for periods increasing from one year.
In Turkey, the severance pay of workers is applied according to the articles of the Act No. 1475, which are still in force. Accordingly, one of the situations in which severance pay may be awarded is the resignation of an “insured person who has completed the conditions other than age for retirement”. Likewise, according to the Article 14 of the Act No. 1475, the worker is entitled to severance pay in case the employment contract is terminated by the worker in order to receive old age, retirement or invalidity pension or lump sum payments from social security institutions or funds.
Severance pay has a legal ceiling. If the gross wage of the worker is above the severance pay ceiling on the date of termination requiring severance pay, the employer will have fulfilled its legal obligation if it pays over the severance pay ceiling. It should be noted here that the provisions of the employment agreement and the collective bargaining agreement to which the employee is subjected to regarding “collective payments in the form of severance pay” under other names such as “end of employment compensation”, “job security compensation” are reserved.
In the calculation of the ceiling amount of the severance pay to be paid to the workers, the maximum amount of retirement bonus paid to the highest civil servant in Turkey for one year of service is considered as the limit. In this calculation, while the Undersecretary of the Prime Ministry was taken into account as the highest civil servant in the Parliamentary System, the Head of Presidency Administrative Affairs is considered as the highest civil servant in the Presidential Government System, which is currently valid.
The maximum amount of severance pay is determined and announced twice a year by the Ministry of Treasury and Finance, separately for the “January-June” and “July-December” periods.
This amount calculated for the second period of 2022 is 15 thousand 371 Liras and 40 Kurus. This amount shall be updated as of 1st of January, 2023.
It is possible for severance pay payments to be recorded as expense in the official books and deducted from the base for income tax and corporate tax payments to be paid by the employer.
While writing expenses, the Ministry of Finance has different opinions on whether to write expenses as of the date on which the severance pay is accrued or as of the date it is paid. Our recommendation is not to write an expense before the severance pay is paid (yet at the accrual stage), and in case of partial payment, the amount equal to the paid amount could be processed into expenses.
