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Different Options Regarding
Compensation and Benefits in Türkiye

Salary, which is the main benefit of working, may consist of various elements.
According to local legislation in Türkiye, bringing these elements together in a
conscious way can make a difference in terms of both cost and motivation.

Salary and Similar Payments

According to the Article 32 of the Labor Law, the general definition of the salary is: "The cash or non-cash benefits provided by the employer or third parties and paid with money in return for the work." Here, the "work" refers to an action performed by physical and mental human activity and its return is salary. Although the definition in the law is like above, salary refers to the sum of the cash and non-cash benefits that can be measured with the money and money paid to a person in return for the work performed in accordance with the instructions of the employer and in a certain period of time.

On the other hand, in accordance with the Article 61 of the Income Tax Law; it is stated as follows: "Salaries are money and goods given in compensation for services to those who work subject to an employer and in association with a specific place of business, as well as benefits derived which are capable of representation in terms of money. The nature of salary is not changed by the fact that it is paid under such titles as subsidy, compensation, cash compensation (compensation for cashier's responsibility), allocation, raise, fees, per diem, premium, bonus, expense compensation, etc., or by the fact that the earnings are established in the form of a particular percentage (provided they are not in the nature of a partnership)."

The significant point in the Turkish law the fact that whether the salary is paid in cash or non-cash/in-kind is an earning that must be taxed with certain exemptions.

Minimum Wage: It is the name given to the salary paid to employees for a regular working day to meet their essential needs at the minimum level at current prices in a sufficient way, which can be counted as housing, food, clothing, health, transportation, and culture.

Bonus, Additional Payments, and Similar Payments

Bonus: It is a payment added on top of the salary as incentives in cases where the work is done by the employee in a certain period is deemed successful according to various criteria. In order to talk about bonus, these criteria must be measured and evaluated. Bonus payment can be diversified through the employee's performance, per piece as a percentage of the work and according to other certain criteria. Agreement on bonus payment must necessarily be included in the employment contract or in its annexes. Bonus in Türkiye is considered as salary, and subject to the taxes by adding it on top of the base salary. Although there are various exceptions, the SSI premium should also be calculated.

Additional Payment: As it is understood from description of salary above, all payments that provide an earning to the employer are considered as a salary, albeit under different names. For example, making one additional salary payment to employees per year or an additional payment based on the turnover made by a sales manager and a calculation made in proportion to the company's total annual income, does not change its nature of being a salary. Therefore, it is added on top of the base salary and subject to tax. Likewise, SSI premium should be calculated over these payments.

Private Insurances

The concept of insurance, which can be defined as the elimination of risks that are likely to occur in the future and the damage of which are is impossible to predict, is subject to a differentiation between mandatory and private in terms of an employment relationship between the employer and the employee. Mandatory insurance appears as a system that meets the essential needs of an employee to benefit from health services provided by the state for the continuity of income during the retirement period and in case of interruption of the salary due to occupational or social risks. In Türkiye, pension payment to be made and health care to be provided to employees are predetermined according to what circumstances and quantities to be made, and long and short-term insurance premiums are collected under these conditions. The social security system, which is regulated by the Social Insurance and General Health Insurance Law No. 5510 is presented without the consideration of the one-to-one benefit/cost balance different than the private insurances as a condition of the social state.

In practice, private insurances appear mostly as health insurance and private pension insurance. In addition, life insurance and personal accident insurance applications are sometimes included in the benefit packages of the organizations.

Private Health Insurances: In order to cover the various health risks of an employee, employer or employee may take out private health insurance. There are many regulations regarding the taxation of private health insurance premiums in Türkiye. Private health insurance is one of the benefits commonly preferred by employees to benefit from health services and hospitals that are not covered by the mandatory insurance.

Private Pension System (BES): Private pension system, which basically aims to increase personal savings, is divided into two groups. While the first one can be the benefits provided by employees for themselves and/or by employers on behalf of the employee, the second one is the mandatory private pension system (automatic enrollment), which has been introduced by the Law No. 6740 on Amending the Law on Individual Pension Saving and Investment System that entered into force as of 1st January 2017. The system, also called automatic or mandatory private pension (Otomatik BES in Turkish), is a state-subsidized saving system that aims to ensure that employees maintain their living standards both during their active service term and retirement. Failure of the employer to fulfill its obligations in full and on time within this framework will result in administrative fines. Employees can exit the system by using their right of withdrawal within 2 months following the payment of their first contribution.

BES contribution is an amount that corresponds to 3% of the employees' earnings subject to social security premium and is paid monthly. Employees can contribute higher than this rate in line with their demands. The state subsidy is 25% of the contribution amount and the total of the state subsidy can be maximum 25% of the gross minimum wage for a (calendar) year.

Car Allowance

Cars allocated to employees and used for business purposes in Türkiye should be handled in two separate categories.

  1. Allocation of a car owned by or rented for the company, to the employee: In this case, a car registered in company's assets, or leased and billed monthly by the company, and, that is allocated to the employee by issuing an asset delivery form. In this process, if the car is allocated as a requirement of the work, there is no element related to the total earnings of the employee. Therefore, there will be no process affecting the payroll, income tax and insurance premium. When allocating the company car to the employee, one of the main points to be considered is tracking the private/personal use of the car within the scope of occupational health and safety. In addition, there are different opinions regarding to the private use. In case the employee uses the company car for personal purposes, the requirement to include fuel costs and depreciation amounts into the payroll by grossing up with the income tax bracket along with the value added tax for the relevant kilometer always comes as a matter of discussion. On the other hand, the use of the company car by the employee for personal purposes without a permission although it is clearly stated in the company procedures, provides the employer with the right to terminate the employment with a valid reason. The relevant decision of the Supreme Court is as follows: "In the second paragraph of the Article 25 of the Labor Law No. 4857, the situations like immoral, dishonorable or malicious conduct or other similar behaviors are listed and the employer has the right to terminate the employment contract in the presence of the specified situations. In addition, it is stated in the sub-paragraph of the mentioned paragraph (e) that, if the employee commits a dishonest act against the employer, such as a breach of trust, theft or disclosure of the employer's trade secrets, the employer has the right to terminate the employment contract in the presence of the specified situations. As it is seen, the cases in the Law are not limited in number, and in general, the words and behaviors that contradict the duty of loyalty, give the employer the right to terminate.
  2. Employee's use of his/her own car: In some situations, employers occasionally pay employees to rent a car rather than allocating cars for them. In this case since the expenses of this car will not be deemed as company expenses; both the cost paid for this car and the fuel cost should be considered as regular benefit to the employee and grossed up on the payroll. In other words, expenses of cars, which are not registered in the company's assets or not leased on behalf of the company, cannot be considered in determining the net profit and these payments are considered as salary. If the employee rents out his/her car to the company with a rental agreement, fuel and other expenses can be considered as expenses in determining the net profit along with the rental car. In this case, it does not need to be considered as salary. In case of renting a personal car, it should be noted that withholding tax should be calculated over the rental payments and reverse charge Value-Added Tax should be paid. Furthermore, the maintenance and insurance costs of the car will need to be covered in proportion to the work-related use in the rental of the employee's own car.

Meal Allowance

Within the scope of the Labor Law, it is not a legal obligation for the employer to pay for meal allowance; yet, if payment is to be made, this matter shall be specified in the employment contract. According to the Article 23 of the Income Tax Law No. 193 as amended with the Article 16 of the Law No. 4108, the benefits occurring from providing meal to the employee by the employer will be exempted from income tax. In this article, with the provision given in brackets, it is exempted from income tax within certain limits if it is done through a catering company (which is a taxpayer in Türkiye) who provides food service to the employee (this amount varies every year) and the amount staying above this exception limit is taxable. Also, this exempted amount is not subject to social security employee and employer premiums. If the employer pays the allowance to the employee in cash, except through a catering company, or by providing the meal in the workplace, the meal allowance is taxable. In-cash meal allowance is subject to social security employee and employer premiums with certain exemptions.

Transportation Allowance

Within the scope of the Labor Law, it is not mandatory for the employer to provide transportation allowance to the employee. This allowance should be agreed between the employer and employee and specified in the employment contract or procedures. In practice, it is seen that transportation allowance is applied in different ways. One of these methods is the provision of shuttle service by the employer. Another method is to provide it in the form of public transportation card, ticket or payment means to be used for this purpose. In case of providing transportation allowance in this way, tax is exempted in the amount of up to a daily transportation cost per working days, which is determined by the ministry every year. In case it exceeds the exemption amount, the exceeded amount should be processed as salary/additional benefit and income tax should be calculated over that. For example, if the employee is provided with "Istanbul Kart" (the public transportation card provided by Istanbul Metropolitan Municipality and can be used throughout Istanbul), the amount to be obtained by multiplying the daily number of exemptions announced by the ministry for the days worked will be exempted from income tax. It is also a common practice to pay transportation allowance to the employee in-cash. In this case, it should be included in the tax calculation without any tax exemptions. Transportation allowance payment in-cash is also subject to social security employee and employer premiums.

Bonus and Reward Payments, Benefits In-Kind, Supply and Food Benefit

By company policy, various additional benefits can be provided to reward the employee for his/her high performance, overachievement in a project or duty or for completing a certain work period. While these benefits can sometimes come as a rise in the salary, they can also come as in cash or in-kind benefits.

In accordance with the Article 80/b of the Law No. 5510;

  • Benefits in kind and funeral, birth and marriage benefits, duty travel allowances, mobile duty compensation,
  • Severance pay, dismissal pay or collective payment in the form of severance pay,
  • Investigation fees (for legal issues), retirement bonus, pay in lieu of notice or cash compensation, and food, child and family increments of which amount will be determined by the Ministry in years,
  • Private health insurance premiums and personal retirement contribution fees, not exceeding 30% of the monthly total minimum wage, paid by the employers to private health insurances and personal retirement system for insurance holders shall not be included in the earnings subject to premium.

All payments other than these exceptions, regardless of the name under which they are made, are subject to premium. To sum up, apart from the exceptional cases, all cash payments are subject to SSI premium, while in-kind payments are not. Although in-kind benefits such as fuel, supplies and furniture are subject to income tax, they are not subject to SSI premium.

If a reward is given to the employee in gold, it should be considered as a cash payment and both income tax and social security premium should be calculated on it. Therefore, it is important to consider the commentary that the delivery of valuable gifts (watch, gift card etc.) to the employee that can be converted into cash can be subject to social security premium, even if they are given as in-kind benefit. Since the main point in gifts is the sentimental value, the higher will be the material value, the stronger will become the comment that they will be subject to income tax. The reward should never be more than of a sentimental value.

For example, if an employee is to be rewarded with a tablet computer due to his/her superior performance, the entire amount paid for this device must be grossed up on the employee's payroll (including Value Added Tax). In other words, the income tax of this reward must be paid. However, since this is not a benefit in-cash, social security premium will not be calculated. The fact that these payments can be performed as net (without grossing up) in various countries, raises different questions. Apart from exceptional circumstances, practices in Türkiye do not allow gifts to be added on top of the payroll without grossing them up.

Leave Types

Annual Leave

The entitlement of annual leave is regulated by the Labor Law No. 4857. The conditions, durations and right of leave are specified in detail in the Law.

One of the fundamental rights of the employee is the right to have rest and vacation from the work. These rights are regulated by the law with rest breaks, annual leave, weekends, and other similar provisions. These rights are untransferable and inalienable. In other words, it is a legal requirement to use annual leave.

The employee is entitled to annual leave (including probationary period) one year after the employment. In practice, it is common that, employees, who have not yet completed their first year, are also given annual leave to be deducted from their entitlement in the form of advance leave.

The annual leave periods according to service term (seniority) are as follows.

Duration of Service Term in the Company Duration of Leave
1-5 Years (5th year is included) 14 Workdays
5-15 Years (15th year is not included) 20 Workdays
15 Years and more 26 Workdays

The statement "5th year is included" should be considered in the calculation in the following way: For example, an employee with a service term of 5 years and one day will be entitled to 14 workdays, while an employee with a service term of 6 years and a day will be entitled to 20 workdays.

The paid annual leave should not be less than 20 days for employees under the age of eighteen and over fifty. The duration of paid annual leave can be increased by employment contracts and collective labor agreements.

Annual leave cannot be paid as a salary, but if the employment contract of the employee is terminated, the unused leaves will be added on top of the payment.

You can review all detail about the annual leave regulation in Türkiye by clicking the link.

Unpaid Leave and Other Leave Types

Unpaid leave rules of the employees are regulated by the Labor Law under certain criteria. There are no specific provisions set forth in the Labor Law regarding employees' use of unpaid leaves due to any needs.

It is regulated by the law that employees who will spend their annual leave far from the workplace can be given unpaid leave for travel of up to four days. On the other hand, after the legal maternity leave, it is required to give unpaid leave of up to six months upon the request of the employee. Other leaves given by the employer are specified in the Article 55 of the Labor Law.

You can find the leave types effective in Türkiye sorted out in the following table.

LEAVE TYPES CONDITIONS DURATION
01 (PAID) ANNUAL LEAVE From the day they start working at the workplace, employees who complete their one-year working period, including the probationary period, are entitled to paid annual leave. Employees gain annual leave rights when their employment term within the company reaches one full year.

Annual leave entitlements based on the employment term:
a. 1-5 years of employment; minimum 14 days of paid leave/annually.
b. 5-15 years of employment; minimum 20 days of paid leave/annually.
c. 15+ years of employment; minimum 26 days of paid leave/annually.

*Employees aged 18 years or younger and those who aged 50 or over cannot have less than 20 days of paid annual leave.
02 MATERNITY LEAVE As of the 32nd week of the female employee's pregnancy, she has a right to have her maternity leave. The beginning of the leave can be delayed until the 37th week with the doctor's approval. Maternity leave period is 16 weeks in total. (8 weeks prior to the birth and 8 weeks after the birth). In multiple pregnancy cases, the pre-birth leave period is set as 10 weeks.
03 MARRIAGE LEAVE Employees gain marriage leave rights following their marriage. 3 days of paid leave is provided.
04 PATERNITY LEAVE Male employees gain paternity leave rights if their spouse gives birth. 5 days of paid leave is provided.
05 DEATH LEAVE Employees gain death leave rights in cases where first-degree relatives (mother, father, spouse, children, sibling) pass away. 3 days of paid leave is provided.
06 SHARED PARENTAL LEAVE FOR DISABLED CHILD Employees gain rights to this leave type in cases of having a 70% disabled child or in cases of having a child with a chronic disease. Only 1 parent shall be able to have the right of leave within the scope of this leave. 10 days (at once or spread over time) of paid leave are provided.
07 MATERNITY HEALTH CONTROL LEAVE Pregnant employees have the right to take leave for physician controls regarding maternity health during the pregnancy period. Time period is not provided within the scope of the leave. Paid leave shall be provided to the employee by the employer when required.
08 BREAST-FEEDING LEAVE Female employees gain the right to take leave for breastfeeding purposes. The leave entitlement is valid until the child/children reach(es) 1 year of age. 1.5 hours of nursing leave per working day shall be provided to the actively working employee.
09 CHILD ADOPTION LEAVE The employee gains right of leave in cases of child adoption. 3 days of paid leave is provided.
One parent of the adopted child is given 8 weeks of leave under the name of "maternity leave" when the child is at or below the age of 3; as of the date when the adoption process is legally finalized.
10 JOB SEEKING LEAVE Employees who are serving their notice period have the right to seek new employment. 2 hours for each workday is provided.
Upon the request of the actively working employee, the employer shall provide the leave period as a bulk.
11 CASUAL LEAVE Casual leave rights that are given to the employees through the employer's initiative. The employer is not legally obliged to provide casual leave rights, though these can be arranged through the contracts and agreements with the employees.
12 ½ DAY PARENTAL LEAVE This leave is provided to the employees, in cases of when their maternity leave period is over. Upon the demand of the either one of the parents of the adopted child, who is younger than the age of 3. The length of this leave is dependent on the number of the children:

-60 days for the birth of the first child,
-120 days for the birth of the second child,
-180 days for the birth of the third child,

shall be given to the employee.

The most commonly used unpaid leave in Türkiye is the maternity leave and you can review all details about the maternity leave by clicking the link.

Notification!

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.

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