I- Gross Salary:
Under Turkish Labor Law, gross salary is defined as the salary earned by employees. However, this is not the take-home amount for employees since gross salary is subject to mandatory government deductions and tax liabilities. Such deductions are made from the gross salary and paid to the related authorities by employers on employees' behalf. As a rule, employees are responsible for paying these deductions; however, to simplify the payment and collection process, employers act as intermediaries by making deductions at the source. These deductions consist of income and stamp taxes, employee's share of social security premiums and unemployment insurance.
• Gross Salary = Net Salary + Social Security Premium (Employee's Share) + Unemployment Insurance (Employee's Share) + Income Tax + Stamp Tax
II- Net Salary:
Net salary is the gross salary after deductions, and it represents the total sum that an employee takes home.
• Net Salary = Gross Salary - Social Security Premium (Employee's Share) - Income Tax - Stamp Tax - Unemployment Insurance (Employee's Share)
As employers are liable to pay for the deductible elements such as their share of social security premiums and unemployment insurance for their employees, the cost of employing an employee is not equal to the gross salary and must be calculated so as to reflect the extra burdens. Simply put, this difference depends on the employer's share of mentioned deductions.
III- Total Cost of Employee to Employer:
• Total Cost of Employee to Employer = Gross Salary + Social Security Premium (Employer's Share) + Unemployment Insurance (Employer's Share)
IV-Social Security Premium:
In deducting the social security premiums gross salary is used as the base and both the employer's and employee's share are considered as the total social security premiums, which correspond to 34,5% of employee's gross salary. Employer's and employee's shares are calculated as 20,5% and 14% of the gross salary, respectively, and both amounts are paid by the employer until the end of the following month. In addition, employers are able to benefit from a discount offered by the Treasury, which is applied at 5% on the employer's share of social security premiums, provided that the employer makes its SSI premium payments on time and that all of its employees are insured. When determining the variable applicable for the calculation of premiums, the minimum and maximum amounts declared by the government are compared with the employee's gross salary. In the event that the gross salary level is below the declared minimum, the minimum amount should be considered instead of the gross salary, and conversely, if the gross salary is above the maximum, the latter must be considered in calculating the premium.
• Social Security Premium (Employee's Share) = 14 % of Gross Salary
• Social Security Premium (Employer's Share) = 20,5 % of Gross Salary
• Social Security Premium (Total) = 34,5 % of Gross Salary
IV- Unemployment Insurance:
Unemployment insurance is calculated based on the gross salary. Employee's and employer's shares correspond to 1% and 2% of the gross salary, respectively and account for the total 3 % unemployment insurance amount. The employer is liable to pay the unemployment insurance deduction along with the above stated social security premiums no later than the end of the following month. Unemployment insurance premiums are calculated the same way as social security premiums.
• Unemployment Insurance (Employee's Share) = 1 % of Gross Salary
• Unemployment Insurance (Employer's Share) = 2 % of Gross Salary
• Unemployment Insurance (Total) = 3 % of Gross Salary
V- Income Tax:
Income tax is imposed by the government on financial income generated by businesses and individuals. In the case of employees, income is defined as wages earned (gross salary). Therefore, employers need to deduct income tax from the remainder of the gross salary after the employee's share of social security premiums and unemployment insurance are deducted (since these are exempt from income tax), and to pay the amount to the tax office on behalf of the employee no later than the 20th of following month. The payment period can be reduced to quarterly periods, allowing employers to make payments every 3 months provided that the employer has 10 employees or less.
• Income Tax Base Amount = Gross Salary - Social Security Premium (Employee's Share) - Unemployment Insurance (Employee's Share)
According to the tax table of the Revenue Administration, the income tax rates vary in respect to the cumulative salary brackets. Hereunder, income tax is applied at the rate of 15% for cumulative salaries up to 11.000 TL.
As the cumulative salary enters into next bracket, the standard tax rate is applied for the upper limit of the previous income bracket and a different tax rate is applied for the exceeding part of salary. The highest applicable income tax rate is 35%.
• Income Tax = Income Tax Base Amount * Income Tax Rate (%) VI- Stamp Tax:
Stamp tax, calculated at the rate of 0,759 %, is deducted from employee's gross salary. Stamp tax payments along with a declaration can be made at the same time as income tax payments, subject to the same deadlines.
• Stamp Tax = Gross Salary * Stamp Tax Rate (0,759 %)