Employee Rights: How Are Severance and Notice Pay Calculated?

Severance and notice pay are the first two concepts that come onto an employee’s agenda when an employment relationship ends. Although both bear the name "compensation," their calculation method, the conditions for entitlement and the periods are entirely different from one another. While severance pay is found through a calculation tied to the number of years worked and the last gross wage, notice pay is a sum arising from the contract being terminated without advance notice. The manner of leaving the job — is it a resignation, an employer termination, a just cause — directly determines whether these two rights arise.

In practice, employees generally act on a simplified assumption such as "I completed one year, so I will receive compensation"; however, the real calculation depends on more than one variable such as the all-inclusive wage, the reason for termination and the statutory ceiling. In this article we concretely address in which situation severance pay arises, how it is calculated, how notice periods operate and in which cases these rights cannot be benefited from at all.

What Is Severance Pay and Who Is Entitled to It?

Severance pay is a sum paid to an employee who has worked for at least one year with the same employer, in the event that the employment contract ends by one of the manners specified in the law. This right may arise not only in terminations made by the employer, but also in cases where the employee resigns for just cause or leaves in special situations listed in the law, such as retirement. What is decisive is the manner in which the contract ends, not merely the length of the working period.

The one-year seniority requirement is applied strictly; the total working period, including the probationary period, is taken into account, but whether intermittent periods worked with the same employer can be combined varies according to the concrete case. Since how the seniority period will be calculated in situations such as workplace transfer or company merger may be a separate matter for examination, employees with such a complex history obtain a healthier result by evaluating their documents as a whole rather than attempting to calculate the seniority period on their own.

The situations that give entitlement to severance pay are determined in a limited number in the law; employer termination, the employee’s resignation for just cause, military service, a female employee’s departure due to marriage within a certain period, and the fulfilment of retirement conditions can be counted among these situations. Since each of these situations requires its own separate burden of proof and documentation, the employee’s clarifying which category they fall into before termination facilitates the progress of the process.

By Which Method Is Severance Pay Calculated?

The basic formula for calculating severance pay is based on multiplying the employee’s last gross wage by an amount of 30 days’ wage for each full working year. Periods exceeding one year are also included in the calculation on a pro rata basis; that is, for an employee who has worked fifteen years and three months, the three-month portion is also reflected in the severance pay. The wage taken as the basis here is not merely the monthly salary but the "all-inclusive gross wage" that also includes regularly paid additional benefits.

The calculated amount is limited by the statutory ceiling determined each year; the portion exceeding the ceiling is not paid to the employee. Since this ceiling is updated at regular intervals, the ceiling figure in force on the termination date must be taken as the basis when making the calculation. In practice, it is a frequently encountered situation for the calculated amount to hit the ceiling for high-salaried employees, which is why the assumption "I receive full salary for as many years as I have worked" may not always give the correct result.

• Last gross wage. It is the starting point of the calculation; the gross amount is taken as the basis, not the net salary.
• All-inclusive wage elements. Continuous payments such as regular bonuses, meal allowance and travel allowance are added.
• Length of service. Full years and the increasing monthly/daily fractions are included in the calculation on a pro rata basis.
• Statutory ceiling. If the calculated amount exceeds this limit, the excess is not paid.
• Reason for termination. Whether it is a manner of ending that gives entitlement to severance pay must first be clarified.

How Does the Concept of the All-Inclusive Wage Affect the Calculation?

The all-inclusive wage expresses the gross wage amount reached by adding to the employee, not merely as a bare salary, continuous fringe benefits and payments. Items such as regularly paid travel money, meal allowance, bonus and premium can be included in this calculation; however, occasional payments that do not show continuity are generally not evaluated within this scope. Since the correct determination of the all-inclusive wage can directly raise the amount of severance and notice pay, it is one of the most critical points of the file.

In practice, when employers show only the bare salary on the payroll and pay the fringe benefits in separate items or off the payroll, it may become difficult for the employee to prove their real all-inclusive wage. Bank account statements, meal card loading records, bonus payment documents and the fringe benefit commitments in the employment contract carry important evidentiary value at this point. An incomplete calculation of the all-inclusive wage may result in the compensation also being claimed incompletely.

What Is Notice Pay and In Which Situation Does It Arise?

Notice pay is a sum that must be paid when the party terminating the employment contract for an indefinite term leaves without complying with the notice period foreseen in the law for the other party. That is, if the employer dismisses the employee without advance notice, they become obliged to pay the wage corresponding to the notice period as compensation; the same obligation may operate in favour of the employer if the employee leaves the job without notice. In short, notice pay is a kind of compensation sum given to the other party by the party who unjustly and suddenly ends the contract.

Notice pay does not come into play in terminations made for just cause; that is, if the employee immediately resigns for a just cause or the employer immediately terminates the contract due to a just conduct of the employee, no notice pay is paid to the other party. This distinction is frequently confused in practice, whereas the first question determining whether notice pay will arise is whether the termination is based on a just cause or on a notice with a term.

How Are Notice Periods Calculated According to Seniority?

Notice periods increase gradually according to the employee’s seniority at that workplace; as the working period lengthens, the notice period also lengthens. While a notice period of a few weeks is foreseen for short-term employees, for employees who have worked for many years this period rises to higher weeks. The amount of notice pay is calculated over the wage corresponding to this notice period, again taking the all-inclusive gross wage as the basis.

If one of the parties terminates the contract without complying with the notice period, they become obliged to pay the other party the amount of wage corresponding to the period they did not comply with. In practice, the employer mostly prefers the way of immediately dismissing the employee and paying the notice pay in advance; in this case the employee is not expected to actually continue working, and only the wage corresponding to the notice period is paid in cash. For the notice period to be calculated correctly, the clear determination of the date of commencement of employment is important.

In Which Situations Are Severance and Notice Pay Not Earned?

In the event that the employee resigns of their own will, without showing a just cause, as a rule neither severance nor notice pay arises. An employee who leaves merely by saying "I am quitting the job" cannot claim these compensations, no matter how long the working period is; what is decisive here is whether the resignation is based on a just cause. Similarly, in the event that the employer immediately dismisses the employee for a just cause such as conduct contrary to the rules of morality and good faith, the employee cannot become entitled to severance pay either.

On the other hand, if the employee resigns for just causes such as non-payment of their wage, failure to provide health and safety conditions, or the employer’s severe conduct contrary to the contract, in this case the right to severance pay may arise; however, notice pay generally does not come into play in such just terminations because a termination made for just cause already grants the authority to end immediately. The grounds on which and the language in which the resignation letter is written may be decisive in terms of proving this distinction at the subsequent stage.

Why Is the Difference Between Resignation and Termination for Just Cause Important?

One of the most confused topics in practice is the difference between an ordinary resignation and a resignation based on just cause. In an ordinary resignation, the employee leaves without showing any grounds, merely by complying or not complying with the notice period, and in this case severance pay does not arise. In a resignation for just cause, on the other hand, the employee sets out with concrete grounds that the employer has violated the obligations arising from the contract, and this situation keeps the right to severance pay alive.

The importance of this distinction emerges especially at the litigation stage; while the employee says "I left for just cause," the employer may characterise this as an ordinary resignation. In such a dispute, the employee’s ability to document the events that occurred before the resignation — correspondence, witness statements, records regarding unpaid wages — directly affects the course of the process. For this reason, it is generally recommended to gather the available evidence before the decision to leave for just cause is taken.

How Long Is the Statute of Limitations Period in a Severance and Notice Pay Lawsuit?

Severance and notice pay receivables are subject to a statute of limitations period that starts to run from the date on which the employment contract ended. In the event that a claim is not made within this period, the employer may raise the plea of limitation and the receivable may become legally unclaimable. In order not to miss the statute of limitations period, it is important that compensation claims after leaving the job are brought up within a reasonable period.

Since the commencement and operation of the statute of limitations period may vary according to the termination date and the correspondence of the parties within this period, the concrete flow of the file must be examined before making a precise date calculation. In some cases, a mediation application or mutual correspondence may affect the course of the process; therefore, taking an early step rather than postponing the application with the thought "I have time" reduces the risk of losing rights.

Is a Lawsuit Required for a Severance and Notice Pay Claim, or Does Mediation Come Into Play?

In employee receivables such as severance and notice pay, applying to mediation before filing a lawsuit is sought as a condition precedent. That is, before going directly to court, the employee is obliged to apply to a mediator, participate in the meetings and try to reach a result. If the parties agree during the mediation process, the receivable can be collected without the need to file a lawsuit; if agreement cannot be reached, the mediator draws up a record, and with this record the way to file a lawsuit is opened.

At the mediation stage, documents in the employee’s hand such as the payroll, bank records, employment contract and, if any, the termination notice are important for the meetings to progress healthily. When agreement cannot be reached and the litigation stage is moved to, the same documents are also submitted as evidence in court. For this reason, keeping the documents in order from the very beginning of the process makes the work easier both in mediation and in the litigation process.

The amount the parties agree on in mediation meetings may differ from the amount that can be claimed through litigation; the parties generally settle at a middle point by making mutual concessions. For the employee to be able to evaluate at this stage how close the amount offered comes to the real value of their file, having previously made the calculation of the all-inclusive wage and the length of service provides an advantage.

Although severance and notice pay appear on paper to be based on a simple formula, details such as the determination of the all-inclusive wage, the nature of the reason for termination and the statutory ceiling can significantly change the outcome. Since each file has its own concrete circumstances, evaluating the available documents together with the grounds for termination before entering the process of leaving the job generally produces a healthier road map. Within İzmir Avukatım, Av. Aydın offers a realistic assessment in the field of labour law by examining the concrete data of your file in severance and notice pay calculations. If you would like to meet on this matter in Konak/İzmir, you can reach the line at 0553 595 67 82 on a 24/7 basis.