What is severance pay?
In general terms, severance pay is a type of compensation paid by the employer to the employee after the employment contract ends, in return for the seniority the employee has accrued through the length of service at the workplace. The main rule for entitlement to severance pay is that the employee must have worked at the workplace for at least 1 year and the employment contract must have been terminated for just cause.
Can an employee who quits receive severance pay?
There is a common misconception that an employee who leaves the job voluntarily, meaning the employee terminates the employment contract, cannot be entitled to severance pay. If the employee leaves for just cause, in other words terminates the employment contract unilaterally for just cause, the employee can of course be entitled to severance pay.
In which situations can an employee terminate the employment contract unilaterally for just cause and be entitled to severance pay?
Failure by the employer to pay the employee's employment entitlements in full
Where the employee's monthly wage is not paid in full and on time, overtime pay is not paid, or work performed on national holidays and public holidays is not compensated, the employee may terminate the employment contract for just cause on the grounds that the employer has not paid the employee's entitlements as required, and in that case is entitled to severance pay. On the other hand, if the employer pays all of the employee's entitlements in full and on time and the employee nevertheless leaves voluntarily or resigns, the employee is not entitled to severance pay.
In working life, overtime pay in particular is often underpaid by employers, especially for shift workers. For this reason, it is important to determine whether the working hours match the overtime payments shown on the payroll.
Social security premiums not paid on the actual wage
At workplaces employing more than 5 employees, wages must be paid into a bank account. In practice, to pay lower social security premiums, employers may, for example, deposit only an amount equal to the minimum wage into the bank and pay the rest in cash. Similarly, some payments such as overtime pay are made in cash. In this situation as well, the employee may leave for just cause and be entitled to severance pay. In such a case, a social security determination lawsuit can also be filed so that the premiums paid on the lower amount are corrected as if they had been paid on the actual wage.
Psychological harassment (mobbing) of the employee by the employer or other employees, or a crime committed by the employer against the employee
Conduct at the workplace by the employer or other employees such as persistently pressuring, isolating, ridiculing or intimidating the employee, or engaging in sexual harassment or molestation, is considered workplace harassment (mobbing). In working life, mobbing is used particularly against long-serving employees to force them to resign so that severance pay does not have to be paid. For example, deliberately sending an employee to work at branches very far from their home for no reason at all is also considered mobbing. In these and similar situations, the employee will be entitled to severance pay even if the employee resigns.
In addition, if the employer insults, sexually harasses or threatens the employee, or commits another crime against the employee, the employee may terminate the employment contract unilaterally and be entitled to severance pay.
Marriage of a female employee and military service of a male employee
A female employee who marries while employed may be entitled to severance pay if she leaves the job, provided that she has completed 1 year at the workplace. For a female employee, marriage is a just cause for termination. By contrast, the marriage of a male employee does not give him the right to terminate for just cause. Likewise, a male employee who leaves in order to perform his military service is entitled to severance pay without having to give any other reason, provided that he has completed 1 year at the workplace.
Termination of the employment contract for just cause on health grounds
If the employee's health deteriorates for a reason arising from the work the employee is responsible for performing, the employee may terminate the employment contract unilaterally for just cause and be entitled to severance pay. The important point here is that the employee's health has deteriorated because of the work performed. For example, if a factory worker whose job requires standing all day develops varicose veins in the legs after a while, the worker may terminate the employment contract unilaterally on health grounds and is entitled to severance pay. On the other hand, if the employee becomes unable to work because of another illness not caused by the work covered by the employment contract and has to leave, the employee is not entitled to severance pay. For example, if a doctor employed at a private hospital loses an arm in a traffic accident unrelated to work, can no longer practice as a doctor at the hospital and has to leave for that reason, the doctor is not entitled to severance pay.
Unilateral material change to the employment contract by the employer
The employment contract concluded between the employee and the employer sets out matters such as what work the employee will do, where the work will be performed, the wage, other benefits in addition to the wage such as meals and a transportation allowance, and the working hours. These are the essential terms of the employment contract. If, while the employment continues, the employer unilaterally changes these essential terms to the employee's detriment, the employee may terminate the employment contract unilaterally for just cause and be entitled to severance pay. For example, the following are considered material changes to the employee's detriment and give the employee the right to terminate for just cause: seeking to move an employee hired as a manager to a lower-level position, reducing the employee's wage for any reason, no longer providing meals at a workplace where meals were provided, discontinuing the shuttle service, relocating the workplace to a very distant location, or switching a workplace that operated during the day to night shifts.
Some changes, however, fall within the employer's right of management and are not considered changes to the essential terms of the work. For example, where meals are provided at the workplace, the employer may discontinue meals and pay a meal allowance instead, or discontinue shuttle transportation and pay a transportation allowance instead. The employer may also set the days of weekly rest and change them. In these and similar situations, the employee cannot terminate the employment contract for just cause. If the employee leaves on these grounds, the employee is not entitled to severance pay.
Termination of the employment contract due to retirement
If the employee leaves the job upon reaching retirement age and retiring, the employee may be entitled to severance pay. Severance pay is also due in the case of the retirement known in practice as "retirement with 3,600 premium days." To retire in this way, the employee must have been registered with social security before September 8, 1999, must have completed 15 years of insurance coverage and must have completed 3,600 premium days. An employee who meets these conditions and terminates the employment contract is entitled to severance pay.
Death of the employee
If the employee dies while the employment contract is in effect, the employee's heirs are entitled to severance pay. It does not matter whether the employee died in a workplace accident or for another reason. For example, if the employee has a heart attack at home or dies in a traffic accident while the employment contract continues, severance pay is still due. If death occurs in a workplace accident, the fact that the employee was at fault in the accident does not bar severance pay either.
How is severance pay calculated?
Severance pay is calculated by multiplying the gross wage including benefits that the employee received in the last month of employment by the total length of service.
What does gross wage including benefits mean?
The gross wage including benefits is the amount obtained by adding all cash and in-kind payments to the employee's last gross salary. If meals are provided or a meal allowance is paid at the workplace, or if a shuttle service is provided or a transportation allowance is paid, these payments are added to the gross wage when calculating the gross wage including benefits. In addition, amounts such as bonuses regularly paid to the employee, clothing, food and heating allowances, food packages given during Ramadan, bonuses given on religious holidays, and any other regular bonuses paid to the employee are also added to the gross wage in this calculation. Since benefits given during Ramadan and religious holidays are not provided every month, they are totaled and divided by 12 to find the amount attributable to 1 month.
SAMPLE CALCULATION: Mr. Ali worked at a workplace as a sales representative from January 1, 2005 to June 15, 2015. In the last month before his employment contract ended, he received a gross wage of 4,000 TL. Mr. Ali was paid a monthly meal allowance of 400 TL and a transportation allowance of 300 TL. In addition, he was paid a bonus of 250 TL every month for product sales. Every year he received a food package worth 200 TL during Ramadan and a holiday bonus of 200 TL on each of the two religious holidays. On this basis, how much severance pay must the employer pay Mr. Ali, whose employment contract was terminated for just cause on June 15, 2015? Here, the payments made every month are added together, while the Ramadan food package and holiday bonuses given once a year are totaled and divided by 12 to find the amount attributable to 1 month.
Gross wage including benefits = 4,000 TL gross wage received in the last month (+) 400 TL meal allowance (+) 300 TL transportation allowance (+) 250 TL bonus (+) 50 TL Ramadan package and holiday bonuses
In our example, Mr. Ali's monthly gross wage including benefits used to calculate his severance pay is 5,000 TL. Having worked at the workplace from January 1, 2005 to June 15, 2015, Mr. Ali has a total length of service of 10 years, 5 months and 15 days. Accordingly, Mr. Ali will be paid 5,000 TL for each year of service, 5,000 / 12 = 416.6 TL for each month of service and 416.6 / 30 = 13.8 TL for each day of service. Since Mr. Ali worked a total of 10 years, 5 months and 15 days, the calculation is as follows:
- For 10 years: 10 x 5,000 = 50,000 TL
- For 5 months: 5 x 416.6 = 2,083 TL
- For 15 days: 15 x 13.8 = 207 TL
In total, Mr. Ali will be paid 52,290 TL in severance pay.
From what date does interest on severance pay run, and what type of interest applies?
Unlike other receivables, interest on severance pay starts to run from the date of termination. For example, in our case above, if Mr. Ali's employer does not pay his severance pay and Mr. Ali files a lawsuit, no matter when the case concludes, interest on the severance pay awarded at the end of the case is calculated from the date of termination. Interest on severance pay is calculated at the highest interest rate that banks pay on deposits.
What is the statute of limitations for claiming severance pay?
The statute of limitations for severance pay depends on the date on which the employment contract was terminated. The limitation period for severance pay used to be 10 years, but a statutory amendment reduced it to 5 years for contracts terminated after October 25, 2017. In other words, for an employee who left before October 25, 2017, the limitation period for severance pay is 10 years from the date of leaving. This means the employee must file the lawsuit within 10 years of leaving, otherwise the claim will become time-barred. Likewise, an employee who left after October 25, 2017 must file the lawsuit within 5 years of leaving. In the example above, Mr. Ali, who left on June 15, 2015, has the right to file a lawsuit until June 15, 2025. By contrast, an employee whose employment contract was terminated on June 1, 2020 must file the lawsuit within 5 years, that is, by June 1, 2025 at the latest.