Here you can access most recent articles on legislative updates regarding Personal Data Protection Law, Social Security Law, Taxation Law, Occupational Health and Safety Law, Code of Obligations, Labor Law, Turkish Commercial Code, Law on Protection of the Value of Turkish Currency, Foreign Exchange Legislation, and Immigration Law in Türkiye.
You can access the dates of the most recent international bilateral social security and double taxation treaties made between Türkiye and other countries and relevant documents here.
In order to make payroll calculation; calculate the payroll from gross to net and net to gross in Türkiye,
this complex algorithm has to be interpreted correctly.
You can find below a sample calculation process from gross salary to net salary;
The tax rate of the employees will increase throughout the year as their cumulative income tax base increases. As the cumulative income base of the employee change, the tax bracket of the employee changes as well. The income tax bracket for January can be 15%, and in February, the tax bracket would be increased and can be 20% due to an extra bonus payment.
Salary is a benefit that can be represented, is provided with money, and in-kind benefits given to the employee in return for her/his service working at a specific workplace for an employer. Whether or not the salaries can be paid without being subject to social security premiums or income taxes from payments made under any name is a subject which is a confusing for foreigners in general about Türkiye’s legislation. Apart from certain exceptions, it is generally essential to deduct social security (SSI) premium and income tax from in-kind or cash payments. While the social security premium withheld has a ceiling, the income tax is applied progressively, and is calculated by considering the cumulative income.
Gross Salary Concept: In Turkish Labor Law, the definition of gross salary is the salary earned by employees. However, this amount is not fully received by the employees due to the state's compulsory deductions based on the social security and tax liabilities of the employees. These deductions are applied over the gross salary and paid to the relevant authorities by the employers on behalf of the employees. Although employees are actually responsible for the payments to be made for these items subject to deductions, a deduction is made at a resource mediated by the employers to facilitate the payment and collection of these amounts for the employers and government. These deductions include income and stamp taxes, SSI employee premium, and unemployment insurance.
Gross Salary = Net Salary + SSI Employer Premium + Unemployment Insurance (Employee Contribution) + Income Tax + Stamp Tax
Net Salary Concept: The net salary represents the amount of gross salary remaining after deductions and the total amount received by the employee.
Net Salary = Gross Salary – SSI Employee Premium – Income Tax – Stamp Tax – Unemployment Insurance (Employer Contribution)
Total Employer Cost = Gross Salary + SSI Employer Premium + Unemployment Insurance (Employer Contribution)
The total employer cost of the employee is higher than the gross salary since the employer is obliged to apply deductions for the SSI employer premium and unemployment insurance items. In short, this difference arises from the employer contribution of the specified deductions.
Payment in Different Ways
That the payment of the salary is performed as allowance, compensation, cash indemnity (financial liability indemnity), fund, raise, down payment, due, attendance fee, premium, bonus, reimbursement or under any other names; or assessing the payment in the form of a certain percentage of the earning if it is not of a partnership nature, shall not change its nature.
Payment Conditions of the Salary
The salary is paid in money to the employee's bank account. It cannot be paid as bond, property, or in any other similar means. If it is determined in foreign currency type, it can be paid in Turkish currency according to the foreign exchange buying rate of the payment day. The period of payment can be arranged at least as once a week and at most once a month. The limitation period for salary receivables is five years.
Reserved Part of the Salary
More than ¼ of the monthly salaries of the employees is non-seizable and cannot be conveyed or alienated to another person. Execution deductions must be deposited into the relevant executive office account within 7 days of the salary payment date unless otherwise specified. There is no limitation for alimony debt determined by the discretion of judges regarding dependent family members.Payment in Foreign Currency
Social Security System and Premiums in General
Social security laws in Türkiye aims to assure individuals in terms of health care and retirement. The conditions to benefit from these rights are set forth in relevant laws and regulations. Pension rights are earned with different premium systems and conditions with changing laws and practices accordingly. Eligibility of the retirement differs as per the premium payment days in terms of the service period, starting date, age, and gender. The continuity of the premium paid is one of the important conditions to benefit from the opportunities related to the public health service.
Social Security Institution (SSI) Premium Deductions
The social security deduction is calculated over the total gross salary by considering certain exceptions.
SSI Premium Distributions
|Long Term||Old Age, Disability and Death||9||11|
|Short Term||Occupational Accident (work injury), Occupational Disease, Old Age and Death||0||2|
|Short Term||General Health Insurance||5||7,5|
|Long Term||Unemployment Insurance Premium||1||2|
|Long Term||Old Age, Disability and Death||7,5||22,5|
|Short Term||Up to the Degree of Danger||2|
While applying the Social Security Premium deduction, the gross salary is taken as a basis and the total amount of this deduction, which corresponds to 34,5% of the gross salary, consists of the employee and employer contributions. The employee and employer contributions, which are the components of the total SSI premium, are calculated as 14% and 20,5% of the gross salary respectively and are paid by the employer until the last day of the following month. The employer can benefit from the treasury discount applied at a rate of 5% over the employer contribution of the SSI premium, if all the employees are insured and the employee and employer make their SSI premium payments on time. It is necessary to compare the minimum and maximum based amounts determined by the government with the gross salary to determine the variable to be taken as basis in calculating the premium to be paid. If the gross salary is less than the minimum base amount, a minimum amount must be taken; and correspondingly, if the gross salary is above the maximum level, the maximum base amount must be considered in the calculation.
SSI premium rates are applied differently for people working in the status of retired.
The Social Security Law provides some exemptions to specific allowances and compensation payments to reduce the employer’s cost that arises from the SSI premium calculations. The premium deduction made from these payments is reflected on the payroll with different calculation rules.
For example, these exceptions are applied at certain rates in the following situations:
What is the Transferred SSI?
Unemployment insurance is based on the gross salary. The employee and employer contribution of the deduction corresponding to respectively 1% and 2% of the gross salary represent the total unemployment insurance and consists of 3% of the gross salary. The employer is obliged to pay the SSI premium mentioned above along with the unemployment insurance deduction on the last day of the following month at the latest. The method of calculating unemployment insurance deduction is the same as the method used in SSI premium calculation.
The unemployment premium is not calculated for retired employees.
Income tax is applied to the financial income of business organizations and individuals and is collected on the salary income in the case of being an employee. For this tax, employers are obliged to apply deductions to the remaining part of the gross salary after deducting the SSI Premium and Unemployment Insurance deductions that are not subject to income tax and pay this amount to the tax office on behalf of the employee until the 26th of the following month.
The salary income in Türkiye is a valid progressive taxation system through the cumulative income. The tax base is calculated as follows.
Income Tax Base = Gross Salary – SSI Employee Premium – Unemployment Insurance (Employee Contribution)
According to the tax table of the Turkish Revenue Administration, the income tax rate varies according to the determined cumulative income brackets. The cumulative income tax base is monitored annually and reset at the beginning of each year.
According to the table, if the income level reaches a higher level, a standard tax is collected for the part of the income up to the upper limit of the previous level, and a different tax rate is applied for the remaining part. The highest rate subject to income tax application is 40%. The amount of income tax is calculated as follows.
Income Tax Amount = Income Tax Base x Income Tax Rate (%)
Income Tax Exemptions
It is aimed to increase the net salary obtained through various exemptions in paying the income tax of the personnel. Here, we are going to elaborate some items that provide deductions from income tax. Income tax deductions require extensive knowledge and mastery of complex calculation rules.
What is BES?
Private Pension System (shortly “BES” with the Turkish abbreviation) is a private pension system that facilitates employees to earn an income that they can maintain their living standards during retirement by directing their savings accumulated during their active working lives into long-term investments. Employees voluntarily participate in this system and create an additional income to the retirement income provided by the social security system.
The Difference Between Social Security and BES
BES, which entered into force in accordance with the Private Pension Savings and Investment System Law No. 4632, is based on collecting and evaluating savings and paying lump sum or salary to the person. This system does not provide health services or other services available in the Social Security Institution. BES is not an alternative, but a complement to the compulsory social security system.
Employer Contributed BES
Individuals can directly participate in the system on their behalf, and their employers can also add their employees to the system through a group pension contract. Employers who conclude a group pension contract can directly write an expense for the contributions they have paid on behalf of their employees (such that they cannot exceed 15% of the salary earned in the month of payment and the annual minimum salary annually). Benefits provided by the employer can be implemented in several ways.
Mandatory Pension Program
In accordance with the provisions of the Private Pension Savings and Investment System Law No.4632 on mandatory pension program that entered into force on January 1, 2017, employers are obliged to include their employees in the Mandatory Pension Program (shortly “OKS” with the Turkish abbreviation) under certain conditions. In this context, for the private sector, employers transfer at least 3% of their employees' earnings based on premium and for public institutions, they transfer at least 3% of the monthly wage based on pension premium to the system by making the deduction on the employee's payroll. Employees have the right to stay in this system as long as they wish.
Stamp Tax in Türkiye is regulated by Law No. 488. The responsible persons (taxpayers) of the stamp tax are the persons who sign the papers with a certain price. In other words, the parties signing the contract are responsible for the calculation and payment of the stamp tax. As stipulated in the Law; salary, wage, daily pays, attendance fees, dues, specialist pays, bonus, meal and rental allowance, subsistence, compensations, and any similar money received in return for service (including down payments), fall into the scope of stamp tax.
Stamp tax is calculated over the total of gross payments and deducted from this amount. The rate applied for the stamp tax is 0,759% (7,59 per thousand).
Stamp Tax = Total of Gross Salary x Stamp Tax Rate (0,759%)
For example, if the gross salary is TRY 20,000.00 and the gross of an additional payment made in that month is TRY 2,500.00 the stamp tax is calculated as below.
[(20,000.00 + 2,500.00) * 7,59] / 1000 = 170.78 TRY
The stamp tax deducted from the employee is paid by the employer to the tax office with declaration.
Other than salary payments, stamp taxes are applied at different rates depending on the nature of the transaction. For example, apart from the stamp tax calculated on the salary, a separate declaration stamp tax (fixed amount) is paid when the taxes to be paid are declared. If any commercial contract involves an amount, a stamp tax will be paid over this contract by calculating at current rates. Similarly, stamp tax is calculated in rental contracts, as well.
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.
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