With last month’s adjustment, the ceiling for severance pay increased by 5.75%, bringing the limit to 7,117 Turkish lira. As a result, the severance entitlement for employees whose gross salary exceeds 7,117 lira has risen accordingly.
Severance Pay Increased
As of last month, the severance pay ceiling rose by 5.75% to 7,117 lira. This change means that higher-paid workers will see a significant rise in the amount of severance they can receive. The Ministry of Treasury and Finance issued a circular covering financial and social rights for the July–December period. According to that circular, the maximum severance pay for workers in the second half of 2020 was set at 7,117 lira. Therefore, the higher an employee’s wage, the more an employer may be obliged to pay in severance above that amount. For the January–June 2020 period, the severance pay ceiling had been set at 6,730 lira. For the second half of the year, the ceiling was increased by 5.75%, reflecting the inflation rate in the first six months of 2020.
Consequently, a worker earning the minimum wage who qualifies for severance in the second half of 2020 and who has worked five years at the same workplace would be entitled to 14,715 lira in severance pay, excluding stamp tax. However, a higher-paid employee with a gross salary of 8,000 lira who has worked five years at the same workplace would theoretically be owed 40,000 lira; because of the severance pay ceiling, they would instead receive 35,000 lira.
The Severance Pay Rate
Severance pay remains a prominent topic, particularly given planned reforms and the move to a complementary pension system expected in 2022. Employees are concerned about protecting their severance rights under the new system, which has placed greater focus on how entitlements will be preserved. In this context, the formula based on 8.33% is commonly referenced.
Severance pay is calculated each year as 30 days’ gross wages for each full year of service. Employers are expected to set aside the equivalent of 8.33% of an employee’s gross monthly wage for severance pay, recorded in company accounts monthly. Considering the 2020 gross minimum wage of 2,934 lira, employers must allocate 245.15 lira per month, or 2,943 lira annually, per minimum-wage employee for severance. If an employee earns above the minimum—for example, a gross monthly wage of 3,500 lira—the employer should set aside 291.50 lira monthly and 3,500 lira annually for severance. This 8.33% calculation is the standard method for accumulating severance obligations.
How Severance Is Calculated
Severance pay is paid to employees for each full year of service based on 30 days of their “dressed” wage. The dressed wage includes bonuses, commissions, travel allowances and similar payments that the employee receives. Multiplying the gross wage by the number of years worked yields the total severance amount. For example, a minimum-wage worker with ten years of service would be entitled to 29,430 lira in severance. Under the newly announced ceiling, however, higher-paid employees cannot receive severance amounts exceeding 7,117 lira per year of service through the end of 2020, regardless of how high their wages are.