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28 June 2024

What is Severance Payment? How is Severance Payment Calculated?

Author Civan Güneş, Kerem Akdağ, Category Work Life

What is Severance Payment? How is Severance Payment Calculated?

    What is Severance Payment?

    Severance payment is an important type of compensation provided to protect the job security and economic rights of employees. This compensation, calculated based on the employee's length of service, is given when the employment contract between the employee and the employer is terminated under certain conditions. It is regarded as a reward for the employee's years of service and plays a critical role in ensuring the employee's financial security for the future. In this article, we will discuss what severance payment is, under what conditions it is granted, and how it is calculated according to the Labor Law No. 4857.

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    How is Severance Payment Calculated?

    When calculating severance payment, a 30-day gross wage with benefits is considered for each full year of service. The calculation includes the employee's last gross wage as well as additional payments like meal allowance, travel allowance, bonuses, and premiums. The proportional calculation includes the months and days beyond full years of service. For example, for an employee who worked for 5 years, 3 months, and 12 days, the calculation is as follows:

    • Full Years: A 30-day gross wage is calculated for each full year of service.
    • Excess Months: Months are proportionally calculated for periods less than a full year. For example, 3 months is calculated as (3/12) * 30 = 7.5 days.
    • Excess Days: Days are proportionally calculated based on the annual number of days. For example, 12 days is calculated as (12/365) * 30 = 0.98 days.

    Example of Severance Payment Calculation

    For an employee with a last gross salary of 40,000 TL who worked for 5 years, 3 months, and 12 days, the severance payment is calculated as follows:

    Full Years: 5 years * 40,000 TRY = 200,000 TRY

    Excess Months: 3 months: (3/12) * 40,000 TRY = 10,000 TRY

    Excess Days: 12 days: (12/365) * 40,000 TRY = 1,315.08 TRY

    Total Severance Payment: 200,000 TRY + 10,000 TRY + 1,315.08 TRY = 211,315.08 TRY

    Severance Payment Cap for 2024

    The severance payment cap is restricted by an upper limit determined each year. For 2024, the severance payment cap means that the 30-day gross wage for each full year of service cannot exceed a certain amount. This cap ensures that the severance payment does not exceed a specific limit even if the employee has a high salary.

    In the second half of 2024 (01.07.2024 - 31.12.2024), the severance ceiling amount has been set at 41,828.39 TRY. This means that the maximum severance pay a worker can receive for each full year of service is 41,828.39 TRY.

    Conditions for Receiving Severance Payment

    To be eligible for severance payment, an employee must have worked at the same workplace for at least one year and one of the following termination conditions must occur:

    • The employment contract is terminated by the employer without just cause, except for reasons related to immoral behavior and similar reasons specified in Article 25/II of Labor Law No. 4857.
    • The employment contract is terminated by the employee for just cause.
    • The employee leaves the job due to compulsory military service.
    • The employee leaves the job to receive old age, retirement, disability pension, or lump-sum payment.
    • The employee leaves the job after fulfilling the insurance period and premium day requirements for retirement except for the age requirement.
    • A female employee leaves the job within one year of getting married.

    In addition, if the employee dies, severance payment must be paid, and the payment is made to the heirs.

    Statute of Limitations for Severance Payment

    The statute of limitations for severance payment is 5 years. Employees must claim their severance payment within 5 years from the date of termination of the employment contract. Employees who do not claim their severance payment within this period lose their rights.

    Is There a Tax Deduction on Severance Payment?

    Severance payment is exempt from income tax according to Article 25 of Income Tax Law No. 193. Therefore, no income tax deduction is made from the severance payment paid to the employee. Only stamp tax is deducted from the gross severance payment, and the remaining amount is paid to the employee.

    Can an Employee Who Resigns Receive Severance Payment?

    Whether an employee who resigns can receive severance payment depends on certain conditions and specific situations specified in the labor law. Generally, employees who resign are not entitled to severance payment. However, if the employee proves the resignation is for just cause as specified in Article 24 of Labor Law No. 4857 (such as not being granted annual leave, mobbing, non-payment of overtime wages), they may be entitled to severance payment.

    How Much is the Severance Payment for Minimum Wage?

    The severance payment for an employee earning the minimum wage is calculated based on a 30-day gross minimum wage for each full year of service. For 2024, the gross minimum wage is set at 20,002.50 TRY. Therefore, the severance payment for an employee earning the minimum wage is calculated as follows: 1 year x 20,002.50 TRY = 20,002.50 TRY

    Where and When is Severance Payment Paid?

    Severance payment becomes due on the date the employment contract ends and should be paid on the termination day. If the employer does not make the payment within this period, the employee can take legal action to claim their severance payment. The employer is responsible for making the severance payment, usually through bank transfer, which is a safer and more documentable method for both parties. If severance payment is not paid on time, the highest interest rate applied to deposits must be applied from the date of termination.

    In conclusion, severance payment is an important right aimed at ensuring the economic security of employees. It is crucial for employees to understand this right correctly and seek legal action when necessary. Obtaining expert consultancy services on severance payment calculations and application processes will ensure healthier management of termination processes.

    Should you have any queries or need further details, please contact us.


    Contents provided in this article serve to informative purpose only. The article is confidential and property of CottGroup® and all of its affiliated legal entities. Quoting any of the contents without credit being given to the source is strictly prohibited. Regardless of having all the precautions and importance put in the preparation of this article, CottGroup® and its member companies cannot be held liable of the application or interpretation of the information provided. It is strictly advised to consult a professional for the application of the above-mentioned subject.

    For each concrete situation, it is strongly advised to seek guidance from a professional advisor. If you are a customer of ours, please consult with your customer representative before taking any action related to the announcement. If you are not a customer, seek advice from an expert.

    About The Author

    Civan Güneş

    Digital Marketing Specialist

    Kerem Akdağ

    Business Development & Marketing Consultant

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