Payroll & HR Insights From a Global Payroll Outsourcing Provider
This guide is a must read before you either outsource your Turkey payroll or build a local HR and Payroll function. As a Global Payroll Provider, Mercans can guarantee your full compliance with all the applicable regulations.
Full Name : Turkish Republic
Capital : Ankara
Major Religion : Islam
Official Language : Turkish
Local Currency : Turkish Lira
Number of Pay Periods : 12
Fiscal Year : January 1st – December 31st
Population : 80 Million
International Dialing Code : +90
Main Exports : Clothing and textiles, fruit and vegetables, iron and steel, motor vehicles and machinery, fuels and oils.
Internet Domain: : .tr
Investing in Turkey
There are many strong advantages for investing in Turkey. Some of them are as follows:
- Economic Outlook: Turkey was ranked the 17th largest economy in the world, with a GDP of USD 851 billion (in 2017). Turkey’s economy is open to foreign trade, which represents 47% of GDP (World Bank, 2017).
The automobile and textile industries spearhead the Turkish foreign trade, followed by gold, jewelry, food, steel and equipment industries as well as machinery. The main imported products are vehicles, hydrocarbons, medicine and chemical products. The European Union is by far Turkey’s largest customer, followed by the United States, China, Russia and Iraq.
- Centrally Located: Turkey has a strategic geographical location that allows it to be a regional hub between Europe, Asia and the MENA economic zone. A natural bridge between both East-West and North-South axes, thus creating an efficient and cost-effective outlet to major markets.
- Population: Turkey has the largest youth population compared with the EU and half of the population in Turkey is under the age of 31.7. Because of its demographic vitality, Turkey has a developing young middle class population with increased purchasing power and orientation towards consumption.
- Customs Union: Turkey has Customs Union with the EU since 1996 and Free Trade Agreements (FTA) with 21 countries and accession negotiations with the EU.
- Low Taxes and Incentives: A program of tax incentives was launched in Turkey with the aim of stimulating investment. Corporate Income Tax reduced from 33 percent to 20 percent (22 percent for 2018, 2019 and 2020)
Establishing a Business in Turkey
When establishing a company in Turkey, one needs to adhere to the following rules and regulations:
The first step is drafting the articles of association signed by the company directors. These documents will also need to be notarized in Turkey. The minimum share capital can then be deposited in a bank account opened for the company. After the capital is deposited and the investors have the necessary receipt, they can begin the registration process. A registration fee is payable to the Commercial Registry Office, together with the necessary documents.
The Turkish Commercial Registry issues a registration certificate and the incorporation of the company is published in the Turkish Gazette.
Please also note that corporate entities require an office address to be registered with the tax office on the same day or before the registration date. A tax registration number is received and legal books are certified by a Public Notary.
The companies also have to submit their declaration of establishment to Social Security Institution.
If you require further information, please check the link below for the Investment Office of the Presidency of the Republic of Turkey:
SSI Registration for New Employee
Normally, the employer must notify the authorities of new starters immediately by submitting a notice of employment. The declaration must be submitted online to the authorities one day before the start date at the latest.
- Copy of identity card
- Graduation Certificate
- Disabled/non-disabled information
- Criminal Record Certificate
SSI Deregistration for Leaving Employee
In case of employee’s leaving of employment, SSI should be informed by filling the form online in its website within 10 days.
Labor Law Contracts & Termination
Although there are several types of employment contracts owing to the nature of work, regular staff of a company is usually employed under an (open-ended) employment contract for an indefinite period which has a start date but no specified duration or an end date.
Authorized private employment agencies can establish a temporary employment relationship by transferring its employees to the employer with a temporary employment contract in the following circumstances;
- During the suspension period of a continuing work contract of
employees who cannot perform their works for the employer because of pregnancy, military service, annual leave or sickness
- In seasonal agricultural works
- In domestic jobs without any time limit
- In some particular works, that are deemed as out of establishment’s everyday main work routine, performed in short time and with intervals, for 4 months at the most.
Termination of Employment Contracts
According to the relevant provisions of the Labor Law no. 4857, employers and employees are required to give specified notification periods prior to the termination of an employment contract, as shown in the following table.
There are two types of termination for an employment contract:
- Termination with Notification
Both the employee and the employer may terminate an employment contract concluded for an indefinite period based on the notification periods indicated in the above table. The party who does not abide by the rule to serve notice shall pay compensation covering the wages which correspond to the notification period in order to terminate the employment contract.
- Based on Justifiable Reasons
Termination of an employment contract before the end of the contract period or before the notification periods stated above, based on justifiable and rightful reasons stated in the Labor Law.
These are as follows;
- Reasons of health
- Cases arising from immoral, dishonorable or malicious conduct or other similar behavior
- Force majeure
Severance payment is a type of compensation which is paid to an employee who has worked at least one year when the labor contract is terminated by the employer or employee for the following reasons:
- Marriage of a Female Employee
- Military Service
- 15 Years, 3600 Premium Days
- Death of Employee
- Health Reasons
Notice payment is a kind of compensation paid to the counter party when the labor contract is terminated by the employer or the employee without a legal notice.
In some conditions that the labor contract is terminated, the notice period is not applied. These conditions are as follows;
- Termination Within the Trial Period
- Military Service
- Marriage of a Female Employee
- Expiration of Fixed Term Labor Contract
There are many kinds of benefits and allowances in Turkish Companies; some of them are exempted from tax/social security premiums. Some of them are as shown below:
- Private Health Insurance Paid by Employer: SSI deductible from earnings subjected to premium up to 30% of monthly gross minimum wage. Tax deductible up to 15% of monthly wage with a cap of annual gross minimum wage.
- Life Insurance Paid by Employer: Subject to SSI premiums. Tax deductible up to 15% of monthly wage with a cap of annual gross minimum wage.
- Child Allowance: Not subject to SSI premiums. Exempt from income tax. This exemption is applicable for maximum two children and limited to the settled amount received by the government employees.
- Uniform and Costumes Provided for Employee to Wear in the Company: Not subject to SSI premiums. Exempt from income tax.
- Meal Allowance:
Money paid to employees for their meal: Subject to income tax.
Only daily 4,06 TL (for 2018) of this payment is not subject to SSI premium contributions.
Providing meal voucher/checks for virtually worked days: up to 17.28 TL daily (for 2018) is exempt from income tax; not subject to premium contributions.
Wage and Payslip
The wage should be paid in monetary terms to the employees. An employee’s wage should be paid regularly and after the completion of the job. Accordingly, a wage shall be payable at the latest within one month. According to Turkish Labor Law, wages, bonuses, premiums of employees in the workplaces employing 5 or more employees, must be paid through banks as of 1st June 2016.
There is no need for the signature of the employee on the payslip. However, in the case of a dispute, the employer is under the obligation to prove that it duly paid an agreed salary to an employee. The payslips individually have to include the name, surname, title and address of the employer, SSI registration number of the workplace, payroll month and year, number of SSI days, trade registry number of the company, the website, central registration system number, the net payment, the payment date, any additional payment such as overtime, any deduction.
Minimum Wage for 2019:
TL Gross : 2.558.40
TL Net : 2.020,91
Gross Salary – Social Security Premium Employee’s Share (including Unemployment Insurance) – Income Tax -Stamp Tax = Net Salary
- An Example for Payroll Calculations
- Working Hours
According to Labor Law, weekly work hour is maximum 45 hours. However, it may change between 40 to 45 hours a week depending on the business needs.
- Rest Day
The rest day is half-day of Saturday and Sunday.
Employees must open an account in Turkish Banks before starting to work. The banks work 5 days a week, taking the Saturday and Sunday as weekly rest days.
Upon Employer request, employee accepts and undertakes to work overtime and at holidays. Employee’s wage includes the cost of overtime and annually up to 270 hours of overtime cost, national holidays, general holidays, weekend holidays, whether or not it is in return for work.
Types of Leave in Labor Law
- Annual Leave
The employee deserves the annual leave after a 1 year working period including the trial period.
Paid Annual leave entitlement is based on the length of service:
- 1-5 years (included): 14 days
- 5-15 years: 20 days
- More than 15 years (included): 26 days
However, employees aged 18 and younger, and aged 50 and older are entitled to a minimum 20 days.
- National Holidays
- The Republic Day: 28th October (Half day) + 29th October (1 day)
- National Independence and Children’s Day: 23rd April (1 day)
- Commemoration of Atatürk, Youth and Sports Day: 19th May (1 day)
- Democracy and Martyrs’ Day: 15th July (1 day)
- Victory Day: 30th August (1 day)
- New Year’s Day: January 1st (1 day)
- Labour and Solidarity Day: May 1st (1 day)
- Ramadan Feast: 3.5 days including Eve (Half Day)
- Sacrifice Feast: 4.5 days including Eve (Half Day)
According to the Labour Law, female employees are entitled to a total of 16 (sixteen) weeks maternity leave, 8 (eight) weeks before they are due to give birth and 8 (eight) weeks after birth, by providing doctor’s report. Employee may take up to 6 (six) months unpaid leave, once they have completed the post-natal maternity leave entitlement.
Male employees are entitled up to 5 (five) days.
Female employees are entitled to 1.5 (one and a half) hours/day breastfeeding leave in order to breastfeed their children under the age of one.
Employee is entitled to 3 working days when s/he gets married.
Flexible Working after Childbirth or Adoption
After the maternity leave, working women,(or the male or female adopter of a child under three years of age), may work half time up to sixty days on first childbirth, one hundred and twenty days on second and one hundred and eighty days for the third child, and non-worked hours will be compensated by the state.
Any one of the working parents will be allowed to work part time until the child begins school, and the same right will be granted to adopting parents. In case the mother dies in childbirth or after the child was born, the unused leaves related the post-natal period shall be used by the father. – Adopters, who adopted a child under three years of age, will have 8 weeks maternity leave starting from the date the child is handed over to them. In addition, the right of mother to have 6 months unpaid leave after childbirth will also be granted to one of the married couple or the adopter who adopted a child under three years of age.
Employment of Foreigners
As a general rule, foreigners are obliged to get permission before they start to work dependently or independently in Turkey.
Foreigners residing outside Turkey are subject to apply for a work permit from the representative offices of Turkey in their own countries. Pursuance to a working permit application by a foreigner, the employer should within 10 working days process both online and direct applications to the Ministry of Labor and Social Security in Turkey. Once the approval from the Ministry is granted, foreigners are required to apply for a work visa to the Turkish representative office within 90 days.
What Are the Most Common Documents Required?
In the process of application, some documents have to be uploaded. However, these documents can differ according to your work and the information you provide in your application.
The most common documents:
- Passport (if it is not written with Latin letters, it has to be translated and notarized)
- Labor Contract
- Foreigner’s ID number
- Power of attorney if the application is made by someone else on behalf of the company.
Valid working permissions will be now used as residence permits as well.
Income Tax Deductions for Employee
The tax system in Turkey is progressive. In other words, the higher your income, the higher the rate at which you will pay tax. The individual tax rates vary from 15% – 35%.
Turkey individual income tax rates in 2019 (employment income) are shown below:
Social Security Deductions for Both Employee & Employer
Currently, office-based employees pay 14% and employers pay 15,5% (Normally Employers’ contribution is 20.5%) Government incentive of 5% is given to companies due to recession).
Cap of monthly earnings subjected to premium deduction is TL 19.188,00 for 2019. Unemployment insurance premiums will be imposed on the employee and the employer at 1% and 2% respectively with a cap of TL 19.188,00. Additionally, the government will also be required to contribute 1% on behalf of the employee.
Payments to Authorities
Starting from October 2018, Income tax of employees withheld from their earnings by employer and the SSI premium contributions will be combined in a single form (Withholding Tax and Monthly Premium Service Document) and submitted online to tax offices.
Monthly employee and employer contribution documents should be submitted online by the 23th of the following month, and premiums should be paid at the end of following the month.
- Official Sites
About This HR & Payroll Guide
Please note that this article gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and Mercans accepts no liability for reliance on its contents.