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PEO - EOR - BPO Services

Expanding your Business into Turkey

As per the Labor Law (amended on the 6th May 2016 by Article 1 of the Law No. 6715), a temporary labor relation may be established if there is a holding or another workplace that is affiliated with the same group of companies. The service contract can be signed for a period of maximum four months. This contract may be renewed twice at most, provided that it will not exceed eight months in total. The employer who employs temporary workers shall not employ temporary workers again for the same work, unless there is a period of six months in between. Similarly, the authorized private employment agencies can establish the temporary labor relation with the same conditions.

Turkey, among the fastest growing economies, is definitely one of the best places to grow your business. With its booming economy, geopolitical advantage, remarkable growth opportunities, high quality infrastructure availability, hard-working and skilled workforce, the country captivates foreign investors.

If you are considering starting a project without creating a legal entity in Turkey to expand your growth, you should consider Turkey’s legal environment and country specifics about co-employment regulations.

Contents

The meaning of PEO in Turkish Regulations

The Turkish government has always prioritized systematic reforms to give legal certainty for the foreign companies to invest in Turkey. Turkey has been adopting new regulations to meet the political and economic criterions of the EU. Despite the reforms, Turkey has its own country-specific regulations as well as the other countries.

As per the Labor Law (amended on the 6th May 2016 by Article 1 of the Law No. 6715), a temporary labor relation may be established if there is a holding or another workplace that is affiliated with the same group of companies. The service contract can be signed for a period of maximum four months. This contract may be renewed twice at most, provided that it will not exceed eight months in total. The employer who employs temporary workers shall not employ temporary workers again for the same work, unless there is a period of six months in between. Similarly, the authorized private employment agencies can establish the temporary labor relation with the same conditions.

Turkey enacted this law by taking the Directive of the European Parliament No. 2008/104/EC as an example. Likewise, the temporary work relation is regulated with “Arbeitnehmerüberlassungsgesetz” in Germany, and "Bundesgesetz über die Arbeitsvermittlung und den Personalverleih - Arbeitsvermittlungsgesetz, AVG" in Switzerland. Hereby, we would like to emphasize once again that, in order for the temporary work relation to achieve the aforementioned goals, it must be regulated by law, and its term and conditions must be clearly set out. The limit of 4 months period is an important restriction to give as an example in this regard.

The updated law lead to severe financial and legal liabilities for foreign companies doing business in Turkey through a PEO. Therefore, it is crucial to have an intense understanding of its obligations and requirements prior to engaging staff onsite. As it is seen in the above, for indefinite term employments, it is not possible to consider temporary worker agreement as mentioned in the law. In other words, PEO agreement is not regulated in the Turkish legislation. Therefore, an outsourcing company cannot enter into a “co-employment” relationship with a client just for to act as HR arm or managing some activities like payroll, benefits, social security. The provider must handle some business activities such as managing employees’ working conditions, travels, leaves. To sum up, the outsourcing service provider must manage some functions of the project related to the employee.

PEOs are generally for companies that need to compound their HR functions and use the PEO as a long-term business partner. PEO carries out a co-employer role, if you are looking for an international expansion you need to set up your presence in the chosen country.

Employer of Record (EOR) service in Turkey

Regarding the global definition, EOR is a third-party organization who acts as a business partner. EOR usually has a registered local entity in the target country. Thanks to EOR partnership, the client is able to avoid dealing with the local authorities in terms of compliance requirements. EOR coordinates all tasks for its employees. It is a legal employer who is fully responsible for staff administration and compliance with the regulations. There is no need to provide office space, equipment, training or sign any agreements with the new employees, it’s all done by EOR. Due to temporary labor relation regulations, EOR services has similar restrictions as PEO. In other words, EOR cannot be used for the periods which is more than four months as stated in the law.

As it is seen in the above, for indefinite term employments, it is not possible to consider temporary worker agreement as mentioned in the law both for PEO and EOR in Turkey.

Why “Self – Employment System” Is Not Applicable in Turkey? Can an Independent Contractor & Freelancer Provide Service in Turkey?

According to continuity principle in the Turkish Taxation Law and relevant regulations, when a person provides a service continuously (meaning that the service is provided more than once or twice a year as an "incidental income"), the person has to follow one of the below three options in order not to face tax incompliancy. These are:

  1. Establishing a sole proprietorship (or an LLC company with individual shareholder)
  2. Being an employee in a company (registered to payroll of a certain company)

Subcontracted Labor Service Model

Sub-contracting practices are common in Turkey.

Generally, the sub-employer and the main employer working together in the same workplace and with the same supply chain causes various problems. The sub-employer forms a separate workplace in the workplace of the main employer and receives another social security workplace registration number for its employees.

The important point in the subcontractor agreement is that the employee works at the workplace of the main employer.

In addition to the customer's internal workforce, an outsourcing relationship may be built if the customer desires and uses the vendor’s employees for one of the following,

  • Additional tasks that are not part of the customer's core operations, such as shipping, cleaning or catering services,
  • Customer’s core operations that require special expertise such as in the operational or technological areas.

The authority constantly emphasizes that business administration is a social science and generally the main functions of organizations are as follows; Marketing, Finance, Production, Accounting, Human Resources.

Permanent Establishment Risk and BEPS

Thanks to the unprecedented growth of mobile communications, remote work is on the rise. Remote employees can execute their projects and surpass their goals wherever they please. With the significant advantages of the digital communication, it is easier than ever to outsource projects in another county. However, global expansion has its risks. Successful global expansion requires effective planning and diligent insights to understand the financial risks associated with doing business in a new country.

Under the OECD/G20 Inclusive Framework on BEPS (Base erosion and profit shifting), over 135 countries are collaborating to put an end to tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax.

Permanent establishment (PE) is a tax principle that varies depending on country, it means that a tax authority deems a business to have a stable and continuous presence in the country and is therefore subject to corporate taxes, withholding taxes and VAT.

In case a client purchases auxiliary and ancillary services, such as preparatory work, back office management, that does not generate revenue does not trigger PE status. Even so, the final authority on status is the local tax authority. The company shall be liable to demonstrate that its activities are auxiliary, and it does not warrant the PE establishment status.

Based on the above-mentioned scenarios (both for PEO and EOR), if a company (Client) is deemed to have PE, it will be subject to all the taxes it would pay for profits generated in the country, according to the local tax obligations. In addition, the company can be levied charges for interest on the taxes, and penalties regarding the period over which the company’s activities took place. Tax authority can consider all parties responsible in terms of unpaid tax duties.

Health and Safety and COVID-19 Risks

General Directorate of Occupational Health and Safety, Family, Labor and Social Services Ministry determined the measures that should be implemented in the workplaces during the COVID-19 pandemic. Most of the new regulations are permanent. The fundamentals of the new regulations are as follows:

  • An assessment should be made about where and how employees may be exposed to the COVID-19 virus. Therefore, the employer must know the current location of the employee
  • Depending on the location of the employee, employees under high risk should be identified based on city, building, area due to the nature of the job, and their business processes.
  • Individual risk factors, such as chronic illnesses, pregnancy should be determined, recorded and necessary measures should be evaluated to protect these employees.
  • Protective equipment should be provided to employees in the workplace, suitable for protection against COVID-19.
  • Employees should be informed about the updated emergency plan and they should be made aware of what they should or should not do under the plan.
  • The employer should instruct the employee to stay home for at least 14 days or any such longer period of time recommended by his/her health care provider or the applicable health department.
  • The employer must have information regarding employees’ travels and location in terms of affected or risky areas.
  • Employers must monitor all kinds of leaves and location of the employee.
  • All employees must follow the recommendations of the Employer along with the Ministry of Health and WHO.
  • Employees should inform the employer and workplace physician about their health conditions. In this regard, the employer must be in direct communication with each employee.

Important Obligations and Liabilities

First off, as mentioned above the vendor would enter into a ‘co-employment relationship. For this reason, there shall be shared responsibilities between the vendor and the client besides the responsibilities of the vendor. And, the vendor must be in direct communication with each employee as an employer of record. The vendor shall expect to be in cooperation with the client the either case.

  • Employer is obliged to ensure the compliance of other Turkish regulations such as personal data protection, enforcement and bankruptcy, criminal law and relevant legislation in the context of employment relationship. It can only achieve this by having a close relationship with the employees.
  • The employer shall periodically provide trainings and information to employees about the protection of personal data and privacy, check the obedience to the policies and procedures given by the employer on related issues under the Turkish Data Protection Law No.6698.
  • The employer shall also inform employees about the processing of their personal data in detail and always be in an easily accessible position for the sake of employees’ applications related to processing of their personal data under the Turkish Data Protection Law No.6698.
  • The employer shall pay the amount of lien to the enforcement authorities in cases where there is a seizure of salaries, severance pay and other payment of employee until the employment relationship or the debt ends under the Turkish Enforcement and Bankruptcy Law No.2004.
  • The employer shall notify closest police department about the recruiting and identity information about the recruited employee pursuant to the Law on the Identity Disclosure No. 1774.
  • The employer shall ensure the usage of vested annual leave, marriage, death, paternity and other excused leave, maternity leave, administrative leave, sick leave and other compulsory leaves stipulated in the law.
  • If there is a wish to implement unpaid leave for employees in the event of incapacity to work due to COVID-19, the employer shall take a written consent of employees, this consent is also necessary for remote work.
  • The employer shall track the travels of the employees within the context of their duties regarding events that can create liability of employer such as work accidents.
  • The employer shall ensure the payment of employee's expenses resulting from their job.
  • Due to the COVID-19 circumstances, employees shall take an official assignment letter of their employer to travel cities which are banned from entry and exit.
  • The employer shall take all kinds of precautions to ensure occupational health and safety including providing information and training to employees, adapting the health and safety measures to changing conditions and improving the current situation.
  • The employer shall scrutinize the employee's suitability for the job in terms of health and safety while assigning tasks, to this end employer may monitor the employees’ health with periodic health checks in necessary conditions.

Fixed Term Employment Contracts According to Turkish Legislation

Employment contracts with a fixed term are a valuable instrument with respect to labor laws in many countries. Over time, many firms in Turkey have begun using this type of employment contract as a way to circumvent the grant of various legal rights that come with indefinite term contracts. Issues with the application of regulation persist despite the numerous court decisions and attempts to stop the usage of fixed term contracts to serve purposes other than those that they are intended to serve. Please read full article here.

Cott Hybrid Service Solution: A mixture of PEO, BPO and ASO

For multinational companies having employees in another country via sponsor company services, is a fast and simple springboard for testing their economic activity in a new market before undertaking implementation or development missions. Most of the companies do not need to establish a company thanks to Cott Hybrid Service Solution. It is also used to test the relevance of the market as well as the feasibility and success of a project.

The term “ASO” stands for Administrative Services Organization. Like PEOs, they provide outsourced Human Resource Services, such as payroll, full HR, leave management, benefits administration. The specific services provided vary by ASO.

An ASO does not sponsor employee benefit programs such as health insurance plans but can help the client company to find the best solutions, as well as handling the day-to-day administration.

Cott Hybrid Service approach is usually used for the solution of practical problems. For example, service areas that require different expertise, from areas outside the organization's core business. In general, foreign companies need an employee who has a definite or indefinite term contract which is beyond this context.

Since PEO agreement is not regulated in the Turkish legislation the business must be closely related to the long-term business strategy in Turkey of the client.

BPO or strategic outsourcing means that the clients can find a sub-contractor for activities that are not related to their own skills or core business. The following business functions can meet the requirements.

  • Back office management
  • Information Technology support
  • Accounting, finance, payroll, audit
  • HR tasks
  • Administrative affairs (file archiving, data entry, scanning services etc.)

In the light of aforementioned structures, parties need to cooperate in order to ensure legal compliance in all matters mentioned above. Also, the following items are quite important for the compliance.

  1. Employees’ data (including personal data) should be accurate and where necessary kept up to date,
  2. Granting access to the employee for our leave tracking system and in other necessary systems and environments,
  3. Providing e-mail through our domains for the employee to communicate with us,
  4. Providing occupational health and safety training immediately for the employee,
  5. Providing training on the protection of personal data and privacy and security,
  6. Ensuring the employee to check-in and check-out due to Covid-19 (time tracking),
  7. Providing a system / portal to the employee to report his / her travels.
Consulting

Consulting

Our business consultants provide you with a road map, clear directions, and regular feedback on performance. Our clients rely on our knowledge and expertise on business processes and legislative support.

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Outsourcing

Outsourcing

CottGroup® consultants offer practical solutions for payroll, human resources, corporate training programs and support for the operational processes of companies from all sectors to help them manage their operations in Turkey with customized outsourcing services.

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Technology

Technology

We provide SaaS (Software as a service) solutions to help your company automate processes, resulting in reducing paperwork, improving efficiency and saving time.

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Training

Training

At CottGroup we specialise in delivering high-quality employment law training, health and safety management training and training on all aspects of people management.

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Due to the Covid-19 Coronavirus pandemic to secure the health of our employees our business operations are held remotely until further notification. CottGroup® will have its business processes carried out efficiently and smoothly thanks to our BCP plans and strong technological infrastructure. As always, our customers and business partners will be able to reach us via our phones and e-mails.