Different Options Regarding
Compensation and Benefits in Türkiye

Salary and Similar Payments

According to the Article 32 of the Labor Law, the general definition of the salary is: "The cash or non-cash benefits provided by the employer or third parties and paid with money in return for the work." Here, the "work" refers to an action performed by physical and mental human activity and its return is salary. Although the definition in the law is like above, salary refers to the sum of the cash and non-cash benefits that can be measured with the money and money paid to a person in return for the work performed in accordance with the instructions of the employer and in a certain period of time.

On the other hand, in accordance with the Article 61 of the Income Tax Law; it is stated as follows: "Salaries are money and goods given in compensation for services to those who work subject to an employer and in association with a specific place of business, as well as benefits derived which are capable of representation in terms of money. The nature of salary is not changed by the fact that it is paid under such titles as subsidy, compensation, cash compensation (compensation for cashier's responsibility), allocation, raise, fees, per diem, premium, bonus, expense compensation, etc., or by the fact that the earnings are established in the form of a particular percentage (provided they are not in the nature of a partnership)."

The significant point in the Turkish law the fact that whether the salary is paid in cash or non-cash/in-kind is an earning that must be taxed with certain exemptions.

Minimum Wage: It is the name given to the salary paid to employees for a regular working day to meet their essential needs at the minimum level at current prices in a sufficient way, which can be counted as housing, food, clothing, health, transportation, and culture.

Bonus, Additional Payments, and Similar Payments

Bonus: It is a payment added on top of the salary as incentives in cases where the work is done by the employee in a certain period is deemed successful according to various criteria. In order to talk about bonus, these criteria must be measured and evaluated. Bonus payment can be diversified through the employee's performance, per piece as a percentage of the work and according to other certain criteria. Agreement on bonus payment must necessarily be included in the employment contract or in its annexes. Bonus in Türkiye is considered as salary, and subject to the taxes by adding it on top of the base salary. Although there are various exceptions, the SSI premium should also be calculated.

Additional Payment: As it is understood from description of salary above, all payments that provide an earning to the employer are considered as a salary, albeit under different names. For example, making one additional salary payment to employees per year or an additional payment based on the turnover made by a sales manager and a calculation made in proportion to the company's total annual income, does not change its nature of being a salary. Therefore, it is added on top of the base salary and subject to tax. Likewise, SSI premium should be calculated over these payments.

Private Insurances

The concept of insurance, which can be defined as the elimination of risks that are likely to occur in the future and the damage of which are is impossible to predict, is subject to a differentiation between mandatory and private in terms of an employment relationship between the employer and the employee. Mandatory insurance appears as a system that meets the essential needs of an employee to benefit from health services provided by the state for the continuity of income during the retirement period and in case of interruption of the salary due to occupational or social risks. In Türkiye, pension payment to be made and health care to be provided to employees are predetermined according to what circumstances and quantities to be made, and long and short-term insurance premiums are collected under these conditions. The social security system, which is regulated by the Social Insurance and General Health Insurance Law No. 5510 is presented without the consideration of the one-to-one benefit/cost balance different than the private insurances as a condition of the social state.

In practice, private insurances appear mostly as health insurance and private pension insurance. In addition, life insurance and personal accident insurance applications are sometimes included in the benefit packages of the organizations.

Private Health Insurances: In order to cover the various health risks of an employee, employer or employee may take out private health insurance. There are many regulations regarding the taxation of private health insurance premiums in Türkiye. Private health insurance is one of the benefits commonly preferred by employees to benefit from health services and hospitals that are not covered by the mandatory insurance.

Private Pension System (BES): Private pension system, which basically aims to increase personal savings, is divided into two groups. While the first one can be the benefits provided by employees for themselves and/or by employers on behalf of the employee, the second one is the mandatory private pension system (automatic enrollment), which has been introduced by the Law No. 6740 on Amending the Law on Individual Pension Saving and Investment System that entered into force as of 1st January 2017. The system, also called automatic or mandatory private pension (Otomatik BES in Turkish), is a state-subsidized saving system that aims to ensure that employees maintain their living standards both during their active service term and retirement. Failure of the employer to fulfill its obligations in full and on time within this framework will result in administrative fines. Employees can exit the system by using their right of withdrawal within 2 months following the payment of their first contribution.

BES contribution is an amount that corresponds to 3% of the employees' earnings subject to social security premium and is paid monthly. Employees can contribute higher than this rate in line with their demands. The state subsidy is 25% of the contribution amount and the total of the state subsidy can be maximum 25% of the gross minimum wage for a (calendar) year.

Car Allowance

Cars allocated to employees and used for business purposes in Türkiye should be handled in two separate categories.

1. Allocation of a car owned by or rented for the company, to the employee: In this case, a car registered in company's assets, or leased and billed monthly by the company, and, that is allocated to the employee by issuing an asset delivery form. In this process, if the car is allocated as a requirement of the work, there is no element related to the total earnings of the employee. Therefore, there will be no process affecting the payroll, income tax and insurance premium. When allocating the company car to the employee, one of the main points to be considered is tracking the private/personal use of the car within the scope of occupational health and safety. In addition, there are different opinions regarding to the private use. In case the employee uses the company car for personal purposes, the requirement to include fuel costs and depreciation amounts into the payroll by grossing up with the income tax bracket along with the value added tax for the relevant kilometer always comes as a matter of discussion. On the other hand, the use of the company car by the employee for personal purposes without a permission although it is clearly stated in the company procedures, provides the employer with the right to terminate the employment with a valid reason. The relevant decision of the Supreme Court is as follows: "In the second paragraph of the Article 25 of the Labor Law No. 4857, the situations like immoral, dishonorable or malicious conduct or other similar behaviors are listed and the employer has the right to terminate the employment contract in the presence of the specified situations. In addition, it is stated in the sub-paragraph of the mentioned paragraph (e) that, if the employee commits a dishonest act against the employer, such as a breach of trust, theft or disclosure of the employer's trade secrets, the employer has the right to terminate the employment contract in the presence of the specified situations. As it is seen, the cases in the Law are not limited in number, and in general, the words and behaviors that contradict the duty of loyalty, give the employer the right to terminate.
2. Employee's use of his/her own car: In some situations, employers occasionally pay employees to rent a car rather than allocating cars for them. In this case since the expenses of this car will not be deemed as company expenses; both the cost paid for this car and the fuel cost should be considered as regular benefit to the employee and grossed up on the payroll. In other words, expenses of cars, which are not registered in the company's assets or not leased on behalf of the company, cannot be considered in determining the net profit and these payments are considered as salary. If the employee rents out his/her car to the company with a rental agreement, fuel and other expenses can be considered as expenses in determining the net profit along with the rental car. In this case, it does not need to be considered as salary. In case of renting a personal car, it should be noted that withholding tax should be calculated over the rental payments and reverse charge Value-Added Tax should be paid. Furthermore, the maintenance and insurance costs of the car will need to be covered in proportion to the work-related use in the rental of the employee's own car.

Meal Allowance

Within the scope of the Labor Law, it is not a legal obligation for the employer to pay for meal allowance; yet, if payment is to be made, this matter shall be specified in the employment contract. According to the Article 23 of the Income Tax Law No. 193 as amended with the Article 16 of the Law No. 4108, the benefits occurring from providing meal to the employee by the employer will be exempted from income tax. In this article, with the provision given in brackets, it is exempted from income tax within certain limits if it is done through a catering company (which is a taxpayer in Türkiye) who provides food service to the employee (this amount varies every year) and the amount staying above this exception limit is taxable. Also, this exempted amount is not subject to social security employee and employer premiums. If the employer pays the allowance to the employee in cash, except through a catering company, or by providing the meal in the workplace, the meal allowance is taxable. In-cash meal allowance is subject to social security employee and employer premiums with certain exemptions.

Transportation Allowance

Within the scope of the Labor Law, it is not mandatory for the employer to provide transportation allowance to the employee. This allowance should be agreed between the employer and employee and specified in the employment contract or procedures. In practice, it is seen that transportation allowance is applied in different ways. One of these methods is the provision of shuttle service by the employer. Another method is to provide it in the form of public transportation card, ticket or payment means to be used for this purpose. In case of providing transportation allowance in this way, tax is exempted in the amount of up to a daily transportation cost per working days, which is determined by the ministry every year. In case it exceeds the exemption amount, the exceeded amount should be processed as salary/additional benefit and income tax should be calculated over that. For example, if the employee is provided with "Istanbul Kart" (the public transportation card provided by Istanbul Metropolitan Municipality and can be used throughout Istanbul), the amount to be obtained by multiplying the daily number of exemptions announced by the ministry for the days worked will be exempted from income tax. It is also a common practice to pay transportation allowance to the employee in-cash. In this case, it should be included in the tax calculation without any tax exemptions. Transportation allowance payment in-cash is also subject to social security employee and employer premiums.