Latest Attempt for Establishing Severance Fund in Turkey

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Arguments over severance payment system have a long background in Turkey; and it still constitutes the most controversial issue between labor and employer representatives.

Starting from 1975 a severance payment fund, intended to reconstruct the still prevailing system, occupied the agenda during the last 42 years.

When the Labor Law No. 4857 entered into force on 2003, its transitory article 6 stipulated that severance fund should be established to replace the current system, and article 14 of abrogated Law No. 1475, which arranges the severance payment stayed in force until now.

Till then, many severance fund schemes and draft laws are discussed and tried to be brought to Parliament without success due to disagreement between social partners. 

However, Government looks more decisive nowadays, the debates with the labor unions and employers are near to the end, and it is believed that the long standing controversial “fund” will be carried into effect this time.

Current Severance System

  • Severance payments of the entitled employees are paid by employer.
  • In Turkish Labor Law there are many types of entitlement conditions, such as retirement, military service for men, marriage for women, being dismissed for unjust causes and so on.
  • Employee should work at least one year in the same workplace to entitle severance payment. In case the employee resigns, changes his workplace, or is dismissed by employer for valid reason, he/she cannot receive any severance pay, and his length of service that taken as a base in calculation of severance is set to zero.
  • Qualified employee is paid a severance pay equal to last 30 days’ gross wages for each full year of employment, and pro rata payment for a portion of a year.

 Outlines of Proposed Severance Fund

For the time being, there is not a prepared draft, and nothing much shared with the public. The following points are the ones discussed in the media and business world.

  • The newly-hired persons will be compulsorily included in new system, but the current employees may continue with the previous one,
  • The acquired rights will be reserved and existing funds will be transferred to new employee's individual account
  • Severance will be paid through a Fund that will be established for each individual employee,
  • All employees who even left the work by their own wish (resignation) or are dismissed for just cause, and whatever their length of service, will be able to receive their severance pay from their individual severance pay account,
  • Contribution: Only the employer will contribute to employee's severance account. The amount of contribution is planned to be 8,33% of salary; 30 days gross salary for a year ratio will be preserved.
  • Employers who are not paying their contributions will not benefit from the incentives, and other legal actions may be taken.
  • Premium and tax support for the employer may be granted to employers to lighten their burden.
  • In some cases may be less than 30 days gross salary per year ratio.

We will be following this revolutionary arrangement closely and keep you updated on the matter.

Sources: Media; turkishlaborlaw.com 

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