Severance pay (“kıdem tazminatı”) is a vital part of the employment system in Turkey. It serves as a financial safety net for employees who have completed at least one year of continuous service and are terminated under qualifying conditions. In 2025, a notable update was made to the severance pay ceiling, which has significant implications for both employers and employees.
This article explores the recent update to the severance pay cap, how it is calculated, who qualifies, and what employers need to do to stay compliant in 2025.
1. What Is Severance Pay in Turkey?
Severance pay in Turkey is regulated primarily by the Labor Law No. 4857 and relevant court precedents. It is a monetary compensation paid to employees who are:
- Dismissed by the employer without just cause
- Retired or resign due to retirement eligibility
- Called for military service (for men)
- Female employees who resign within one year of marriage
- Deceased while under employment
- Resign with rightful reason (as defined by the Labor Law)
To qualify, the employee must have worked for the employer for at least one full year.
2. Severance Pay Cap for 2025
The severance pay ceiling is updated twice a year in Turkey – in January and July – based on the salaries of highest-ranking civil servants and inflation metrics.
As of January 1, 2025, the severance pay cap was raised to:
- TRY 46,655.43 gross per year of service (up from TRY 41,828.42 in July–December 2024)
- This means an employee who has worked for 5 years is entitled to a maximum of TRY 233,277.15 in severance.
✅ Important: This ceiling applies regardless of the employee’s actual monthly gross salary. If their earnings exceed the cap, the severance pay is calculated using the capped value.
3. How Is Severance Pay Calculated?
The formula to calculate severance pay in Turkey is:
[Last Gross Monthly Salary] x [Number of Years Worked]
However, if the gross salary exceeds the legal cap, then the calculation is limited to the capped amount per year.
Example:
- Employee gross salary: TRY 60,000/month
- Duration of service: 3 years
- Severance cap: TRY 46,655.43
Calculation:
3 years × TRY 46,655.43 = TRY 139,966.29
If the salary had been below the cap, the actual gross salary would have been used instead.
4. What’s Included in the Severance Pay Base?
The severance base salary includes more than just the basic wage. It also accounts for:
- Regular bonuses
- Meal and transportation allowances (if paid regularly)
- Commissions or premiums (averaged over time)
One-time payments, discretionary bonuses, and travel reimbursements are typically not included.
5. Taxation of Severance Pay
In Turkey, severance pay is exempt from income tax up to the statutory ceiling. However:
- If severance exceeds the cap (e.g., due to legal rulings or contractual terms), the excess portion may be subject to tax.
- Stamp tax (currently 0.759%) is deducted from the entire severance amount.
6. Employer Responsibilities in 2025
a. Accurate Calculation
Employers must calculate severance pay correctly, ensuring they:
- Use the correct cap for the relevant period
- Account for all income components that must be included in the base
- Apply social security rules if employment status or legal disputes affect the claim
b. Timely Payment
Severance must be paid:
- On the day of termination, or
- Within a reasonable and agreed time frame (usually within one month)
Delays can lead to legal action and interest penalties.
c. Documentation
Employers should provide:
- A written breakdown of severance calculation
- Updated employment certificate (hizmet belgesi)
- Clear termination documentation outlining reason and legal basis
7. Disputes and Legal Precedents
Severance pay is one of the most litigated issues in Turkish labor courts. Common disputes include:
- Wrongful dismissal claims (to qualify for severance)
- Disagreements over wage elements included in the calculation
- Misapplication of the cap or using outdated figures
Courts often rule in favor of employees, particularly when documentation is insufficient or inconsistent.
8. Implications of the New Cap for Employers
The new cap of TRY 46,655.43 presents both financial and administrative challenges:
a. Financial Impact
For companies with long-serving, high-paid employees, severance liabilities can be significant. Businesses are advised to:
- Estimate severance provisions annually
- Include provisions in financial planning and budgeting
- Evaluate contract termination risks before initiating layoffs
b. HR and Payroll Adjustments
The increase requires payroll teams to:
- Update HRIS and payroll systems
- Recalculate existing liabilities
- Review termination clauses in contracts
9. Special Cases: Public vs. Private Sector
In public institutions, severance pay practices may follow different structures based on civil servant regulations.
In private sector employment, Labor Law No. 4857 is the main legal framework. However, certain collective labor agreements or employment contracts may stipulate better severance terms than the law requires — but they cannot be worse than the law.
10. Severance Alternatives: Mutual Termination
Many employers now opt for mutual termination agreements (ikale sözleşmesi), which allow parties to negotiate exit terms without triggering full severance obligations.
However, these are closely monitored by courts. If the mutual agreement is seen as coerced or unfair, the courts may still enforce severance payment.
11. Recommendations for Employers in 2025
- Stay Updated: The severance cap is revised every 6 months. Keep track of changes (typically in July and January).
- Keep Contracts Clear: Ensure contracts clearly define wage components and benefits.
- Seek Legal Advice: Especially for high-level or long-term employee terminations.
- Plan Ahead: For organizational restructuring, consider the cost of severance obligations as part of your strategy.
- Document Everything: Proper records can protect you in case of legal disputes.
The 2025 update to the severance pay cap is a reminder of the importance of staying compliant with evolving labor regulations in Turkey. While the cap protects employers from unbounded liabilities, it also ensures a fair level of compensation for departing employees.
In today’s economic climate, companies must balance fiscal prudence with legal compliance and employee well-being. HR and payroll teams should proactively monitor legal updates, train relevant staff, and maintain transparent communication with their workforce.
By understanding the rules, accurately applying the cap, and preparing for future updates, employers can manage severance obligations responsibly and avoid costly legal entanglements.
