What Is Severance Pay?
Severance pay is a lump sum paid to an employee who has been continuously employed by the same employer for a certain period, as compensation for the labour contributed to the workplace during that period, when the employment contract ends in one of the circumstances specified by law. The core legal basis of this entitlement is Article 14 of the former Labour Law No. 1475, which remains in force pursuant to Article 120 of the current Labour Law No. 4857. This article regulates who is entitled to severance pay, under which conditions, and how the compensation is calculated.
Severance pay is, as a rule, a consequence of the contract ending due to the employer's action or for one of the just/special reasons listed in the law — not because the employee resigned voluntarily. For this reason, not every departure from a job gives rise to severance pay; payment requires both that a minimum period of service has been completed and that the manner in which the contract ended is one of the circumstances that entitles the employee to compensation.
Conditions for Entitlement to Severance Pay
For an employee to be entitled to severance pay, the following conditions must generally be met together:
- Being an employee within the scope of the Labour Law: The person must be working within an employment relationship to which the severance pay provisions apply.
- At least one year of service: The employee must have worked for the same employer for at least one year. As a rule, periods of employment shorter than one year do not give rise to a right to severance pay.
- Termination of the contract for a qualifying reason: The employment contract must have ended through one of the circumstances listed in the law, such as termination by the employer other than for just cause, termination by the employee for just cause, military service, retirement, termination by a female employee due to marriage (within one year of the marriage date), or the employee's death.
Conversely, where the employee resigns without valid justification, or where the employer terminates the contract for just cause under Article 25/II of the Labour Law (breach of morality and good faith rules), severance pay is not, as a rule, payable. The true reason for and the procedure followed in the termination are therefore of great importance.
How Is Severance Pay Calculated?
Two core factors determine the calculation of severance pay: length of service and gross "dressed-up" salary. The general rule is that, for every full year from the date the employee started work until the date the employment contract ended, a payment equal to 30 days (one month) of gross dressed-up salary is made. Periods exceeding a full year are also taken into account proportionally, calculated on a daily basis at the same rate.
The "Dressed-Up" Gross Salary
The calculation is not based on the bare (base-only) salary, but on the gross "dressed-up" salary, which includes all money and money-equivalent benefits provided to the employee on a continuing basis. This may include regularly paid bonuses, transport and meal allowances, heating allowance, and regular premiums that have a recurring character. One-off and occasional payments are, as a rule, not included. For this reason, even where two employees have worked for the same length of time, their compensation amounts may differ if their dressed-up salaries differ.
The Severance Pay Ceiling
The amount payable for each full year of severance pay is not unlimited; the law provides for an upper limit (the severance ceiling). This ceiling is tied to the maximum retirement bonus paid to the highest-ranking civil servant for one year of service, and is updated twice a year (in the January and July periods). Even where the employee's one-year dressed-up gross salary exceeds this ceiling, compensation for that year is calculated on the basis of the ceiling amount. For higher-earning employees this limit can significantly affect the actual compensation amount; the calculation must therefore use the ceiling figure that was in force at the time the contract was terminated.
Tax and Deductions
Severance pay is a payment exempt from income tax; only stamp duty is deducted from it. In this respect it results in a higher net amount for the employee compared with many other types of payment. The figure calculated by this tool is an approximate gross amount; for the net amount, the stamp duty deduction should be taken into account.
Interest on Severance Pay
If severance pay, which becomes due and payable on the date the employment contract ends, is not paid on time, the employee may claim interest for the delay. Unlike most other employee receivables, interest on severance pay is set at the highest interest rate applied to bank deposits, and as a rule runs from the date of termination. This high interest rate is intended to discourage delays in the payment of severance pay. The start date and the applicable rate of interest directly affect the outcome of any resulting litigation, making this an important element of the calculation.
Common Mistakes
- Calculating on the bare salary: Calculating compensation only on the base salary is one of the most frequent mistakes. Where transport, meals and regular supplementary payments are not included, the resulting amount comes out lower than it should be.
- Ignoring the ceiling: Failing to apply the severance ceiling for higher-earning employees leads to an expectation of an amount that cannot actually be paid.
- Incorrect length of service: Where the effect of unpaid leave, military service or part-time work periods on length of service is overlooked, the period is calculated incorrectly.
- Overlooking the resignation/termination distinction: Where an employee resigns without a valid just cause, severance pay may not arise; the manner of departure must always be assessed carefully.
- Missing the limitation period: The severance pay receivable is subject to a specific limitation period; once this period has elapsed, the right to claim is weakened.
A Short Example Scenario
Assume an employee has worked at the same workplace for 5 full years and their dressed-up gross monthly salary is 30,000 TL. Assuming this salary remains below the severance ceiling in force at the time, one month of gross salary is used for each full year, giving an approximate calculation of 5 × 30,000 = 150,000 TL gross severance pay. Only stamp duty is deducted from this amount; income tax is not withheld. Had the employee's salary been above the ceiling, the calculation for each year would have been capped at the ceiling amount and the result would have changed accordingly. This example illustrates the method only; the actual amount depends on correctly determining the dressed-up salary, the ceiling in force on the termination date, and a detailed calculation of the service period.
Assessment
Severance pay is an important entitlement representing a concrete return for an employee's labour, but it involves many technical details such as the conditions for entitlement, how the salary is "dressed up", application of the ceiling, and the calculation of interest. The tool and explanations on this page are provided for information purposes and do not guarantee a specific legal outcome or amount. Particularly where the manner of termination, an underreported salary, or a disputed length of service is at issue, it is advisable to seek support from a lawyer for a correct calculation and litigation strategy tailored to your specific circumstances.