Taxation of Employees
Turkish Labour Code, Act No. 4857, enacted in 2003, regulates the working conditions and work-related rights and obligations of employers and employees working under an employment contract. The Code forbids discrimination, including any that is based on language, race, sex, political opinion, philosophical belief or religion.
An employment contract is an agreement whereby one party (the employee) undertakes to perform work in subordination to the other party (the employer) in return for remuneration. The contract is not subject to any special form, unless specified by the Act. A written form is required for employment contracts, with a fixed duration of at least 1 year. Such written documents are exempted from stamp tax and other fees.
The parties are free to draw up the employment contract in a manner commensurate to their needs, without prejudice to the limitations brought up by legislation.
Employment contracts can be made for a definite (fixed-term) or indefinite (open-ended) period. In terms of the manner of working, these contracts may be concluded on a full-time or part-time basis, or with a trial (probation) period, or in various other forms.
If the parties have agreed to include a trial clause in the employment contract, the duration of the trial term cannot exceed 2 months, during which both parties are free to terminate the contract without observing the notice period/paying compensation. The employee’s entitlement to wages and other rights for the days worked is reserved.
Termination of employment contract
Before terminating a continual employment contract made for an indefinite period, notice to the other party must be served by the terminating party. Table 3 shows the minimum duration of notification periods, which may be increased by contracts between the parties.
Table 3. Notification periods for termination of employment contracts.
|Duration of service||Duration of notification period|
|0–6 months||2 weeks|
|6–18 months||4 weeks|
|18–36 months||6 weeks|
|>36 months||8 weeks|
The party who does not abide by the rule to serve notice must pay compensation to cover the wages corresponding to the appropriate term of notice. The employer may terminate an employment contract by paying in advance the wages corresponding to the term of notice.
In addition to notice payment, employers are liable to pay severance payment in case employer terminates the employment contract. One month gross wage must be paid to employees per one working year as a severance payment in this case.
An employer who terminates the contract of an employee engaged for an indefinite period, who is employed in an entity with ≥30 workers and who meets a minimum seniority of 6 months, must have a valid reason for such termination, connected with the capacity or conduct of the employee or based on the operational requirements of the entity or service. The notice of termination must be served in writing, clearly specifying the reason(s). The worker must be given an opportunity to defend against allegations of poor conduct or performance. However, in cases of employee misconduct or malicious/immoral behaviour, the employer has the right to break the employment contract.
Any employee who considers that their employment contract was terminated without valid reason can lodge an appeal with the Labour Court within 1 month of receiving the notice of termination. The court must apply fast-hearing procedures and conclude the case within 2 months. If the decision is appealed, the Court of Cassation must issue its definitive verdict within 1 month.
If the court or arbitrator concludes that the termination is unjustified because no valid reason has been given or the alleged reason is invalid, the employer must re-engage the employee within 1 month or be liable to pay 4–8 months’ wages by way of compensation (the appropriate amount to be paid can be designated in the court’s verdict).
The employee can be paid up to 4 months’ wages and other entitlements until the finalisation of the court’s verdict. If advance notice pay or severance pay has already been paid to the reinstated employee, this is deducted from the compensation. If term of notice has not been given and advance notice pay has not been paid, wages corresponding to the term of notice can also be paid to the employee not re-engaged in work.
For re-engagement in work, the employee must make an application to the employer within 10 working days of the date of the final court verdict. If the employee does not apply within the given period of time, the termination will be deemed valid, in which case the employer will be held liable only for the legal consequences of that termination.
As a rule, wages can be paid in Turkish Lira at the business entity (only if total number of employees are less than 5) or can be deposited into a specially opened bank account. If the wage has been decided in terms of a foreign currency, it can be paid in Turkish Lira according to the exchange rate on the date of payment.
Wages are paid on a monthly basis at the latest; this can be reduced to 1 week by employment contract or by collective agreement. Upon expiration of the contract the employee’s wages, together with any other benefit claims based on the employment contract and law, must be paid in full.
Wage payments made at the business entity or through a bank must be accompanied by a signed/stamped slip clearly indicating the date of payment, the pay period, the wage account, all supplements to basic wages (e.g. overtime earnings, payments for weekly rest days and national or general holidays) and all deductions (e.g. taxes, insurance contributions, reimbursement of advance payments, payments for alimony and sequestrated deductions).
With the object of regulating the economic and social conditions of all employees working under an employment contract, either covered or uncovered by Turkish Labour Code, the minimum wage will be determined at least every 2 years by the Ministry of Labour and Social Security through the Minimum Wage Fixing Board.
Working hours and overtime
The typical working week is ≤45 hours, divided equally across the days of the week unless otherwise agreed (6 days * 7,5 hours). Any working hours that exceed this limit count as overtime, which must be justified by national interest, the nature of the operation or the need to increase output. Overtime wages are remunerated at 1.5 times the normal hourly rate – or the employee can choose to take the equivalent time off in lieu (1.5 hours per extra hour worked) within 6 months. Overtime wages must be remunerated at 2 times the normal hourly rate in case employee works in national holidays announced by government authorities.
If the contract specifies a working week of <45 hours, overtime is remunerated at 1.25 times the normal hourly rate – or the employee can choose to take the equivalent time off in lieu (1.25 hours per extra hour worked) within 6 months.
The maximum overtime hours cannot exceed 270 hours in a year. In addition, following employees are not allowed to do overtime:
- Employees who are under 18 years of age,
- Employees who are pregnant, just gave a birth,
- Employees who are working with definite term employment contract,
- Employees who are proving they are lack of sanitary conditions.
The employee’s consent is required for overtime work.
Annual paid leave
Employees engaged in seasonal or other occupations which, owing to their nature, last <1 year do not qualify for annual paid leave. Employees who have completed ≥1 year of service, including the trial period, are entitled to paid annual leave (see Table 4). This right cannot be waived.
Table 4. Annual paid leave allowances according to length of service.
|Years of work||Minimum paid annual leave|
|1–5 years||14 days|
|>5 to <15 years||20 days|
|≥15 years||26 days|
Employees aged <18 or >50 years must have ≥20 days’ annual leave; this can be increased by employment contracts and collective agreements.
Social security system
The social security system in Turkey was revised considerably in 2007, resulting in a more efficient system that streamlines the three insurance funds under the central control of the Social Security Institution, which has been fully operational since 2008. This institution is a public legal entity with administrative and fiscal autonomy, and is subject to the provisions of private law.
Social security premium payments
Social security premium,s as a percentage of an employee’s gross earnings are payable by both employers and employees. Rates for employees working in specific sectors may vary depending on the risk category of the work performed.
Foreigners making social security contributions in their home country do not have to pay Turkish social security premiums if there is a reciprocal agreement between the two countries.
Unemployment insurance premium payments
Employees, employers and the state are required to make a compulsory contribution to the Unemployment Insurance Plan at the rates of 1%, 2% and 1%, respectively, of the employee’s gross salary. Like the social security premium payments, unemployment insurance premiums must be paid by the employer monthly and can be deducted from taxable income. On the other hand, an employee’s contributions are deductible from their income tax base.
A foreign individual who remains covered under the compulsory social security system of their home country that has a social security agreement in effect with Turkey is not liable for insurance payments to the Turkish social security. Proof of foreign cover must be filed with the local social security office. If the employee is not subject to a foreign social security, full contributions will generally be imposed. Unemployment insurance premiums are declared and paid to the Social Security Institution together with social security premium contributions.
Social security tax
Salary payments are subject to withholding tax at a source of relevant progressive rates, which range from 15% to 37,5%. Social security premiums are calculated as a percentage of gross salary and are payable at premiums of 14% for the employee and 20.5% for the employer. There is also an unemployment contribution, with premiums of 1% for employee and 2% for the employer. Employer share may decreased to 15,5% with 5% discount if accrued taxes paid on time.
Income tax for wages and salaries
Income tax is a progressive tax; rates vary from 15% to 35% (see Table 5).
Table 5. Income tax rates applicable to yearly gross earnings from 2019.
|Income scales||Tax rate|
|≤ 18.000 TRY||15%|
|From 18.000 TRY till 40.000 TRY is (For wages 18.000 TRY is 2.700 TRY)||20%|
|From 40.000 TRY till 148.000 TRY is (For wages 40.000 TRY is 7.100 TRY)||27%|
|> 148.000 TRY is (For 148.000 TRY is 36.260 TRY)||35%|
Employers must meet certain criteria in order to employ a foreign employee. Some of these criteria are as follows;
- Legal entity must employed at least 5 local employees to employ 1 foreign employee.
- Legal entitiy’s paid capital must be > 100.000 TRY or gross sales must be > 800.000 TRY or last year’s export sales must be > 250.000 USD.
- First two critearia will not be considered in the application of work permits for foreigners who will be employed by state owned foreign airline company representative offices, companies which operates in education business and normal home services.
In addition to above criteria, the Ministry of Labour, Social Services and Family determines minimum wages to be paid to foreign employees (see Table 6).
Table 6. Minimum wages to be paid to foreign employees.
|Occupation||Minimum Wage Amount|
|Senior executives, pilots, engineers and architects requesting preliminary permit||> 6,5 times NMW|
|Branch or unit managers, engineers and architects||> 4 times NMW|
|Teachers, psychologists, physiotherapist, musician, artist and persons work in jobs require expertise and proficiency||> 3 times NMW|
|Maids, salesmans, marketing staffs and others||> 1,5 times NMW|
|Masseurs and masseuses, SPA therapists and occupations require expertise in tourism business||> 2 times NMW|