Mutual rescission is a method of terminating an employment contract arranged between the employer and the employee by reaching a mutual agreement, with the parties’ declaration of will. The main purpose here is to partially or completely break the employment contract at quiet.
As mutual rescission is not regulated by the Turkish labor law, the termination is based on mutual agreement of the employee and employer, by determining the compromise clauses with reference to the freedom of contract of the Obligations Law. Provided that the request for remittance comes from the worker or the employer, the fixed or indefinite term employment contract can always be terminated when mutually agreed. For termination, the date of the contract or a future date can be determined. Parties should have reasonable benefits in the protocol. Reasonable benefits vary depending on which party has made the request.
Since mutual rescission is not regulated by the labor law, there is no specified code among the SSI layoff codes. In case of mutual rescission, the “22-Other Reasons” code is used. If an employment is terminated on mutual rescission, it is not possible to benefit from unemployment allowance under the Unemployment Insurance Law.
In mutual rescission agreements, it should be clearly stated which payments will be allowed. This specification in payment details is important in terms of tax and insurance premium exemptions. Whether these payments will be subject to both income tax and insurance premium is specified in the relevant law articles below.
Income Tax Exemption Application
With the addition made to the 25th article of the Income Tax Law No. 193, “… payments and benefits under various names such as compensations paid under the mutual termination agreement or mutual rescission employment contracts, job loss compensation, end-of-work indemnities, job security compensation” were added to the exemption. According to Income In the General Communiqué of Tax (Serial No: 303), the details regarding the exception are determined, and after the 27 March 2018, the sum of the maximum severance pay amount paid to the service worker and the additional pay due to the mutual rescission agreement, taking into account the term of employment of the service officer, the portion not exceeding the retirement pension (severance pay ceiling) of the highest rank public officer, should be exempted from income tax, therefore, no tax deduction should be made on this amount. Any additional compensation payments exceeding the exemption limit mentioned above should be taxed as wages.
Based on this criteria, the sum of all compensations within the scope of the mutual rescission, should be exempted from income tax as long as the maximum amount of severance pay does not exceed the severance pay ceiling and the exceeding amount is subject to income tax.
Insurance Premium Exception Application
Whether the payments are covered by premium-based earnings is specified in item (b) and (c) of Article 80 of Law No. 5510.
Item (b) states that aids in-kind and death, maternity and marriage benefits, travelling allowances, mobile duty allowance, severance pay, after-work compensation, meal, child and family hikes to be determined by the Institution for years, and the amount of private health insurance premiums and private pension contributions paid by the employers to the private health insurance and private pension system for the insured, whose monthly total does not exceed 30% of the minimum wage, is not subject to premium earnings.
For this reason, if the amounts determined to be paid by the mutual rescission are among the allowances mentioned above, the amount should be excluded from the earnings based on insurance premium. If the payments made are not covered by the exceptions specified, they should be added to the income subject to insurance premium and insurance premium deduction should be applied.
Stamp Tax Application
All payments made within the mutual rescission agreement are subject to stamp tax.
Due to the absence of any exemption clause in both the Stamp Tax Law and other laws regarding the mutual rescission agreements, these termination agreements are accepted as negotiated settlements in nature. A stamp tax at a rate of 9.48 per thousand is applied to the total sum including the deductions on the said settlements, according to the table attached to the Stamp Tax Law (I) numbered 488, paragraph A / 4 of the section titled “Papers related to the Contracts”.
Datassist CFO / COO