I- Gross Salary:

Under Turkish Labor Law, gross salary is defined as the salary earned by employees. However, this is not the take-home amount for employees since gross salary is subject to mandatory government deductions and tax liabilities. Such deductions are made from the gross salary and paid to the related authorities by employers on employees' behalf. As a rule, employees are responsible for paying these deductions; however, to simplify the payment and collection process, employers act as intermediaries by making deductions at the source. These deductions consist of income and stamp taxes, employee contribution of social security premiums and unemployment insurance.

• Gross Salary = Net Salary + Social Security Premium (Employee Contribution) + Unemployment Insurance (Employee Contribution) + Income Tax + Stamp Tax

II- Net Salary:

Net salary is the gross salary after deductions, and it represents the total sum that an employee takes home.

• Net Salary = Gross Salary - Social Security Premium (Employee Contribution) - Income Tax - Stamp Tax - Unemployment Insurance (Employee Contribution)

Total employer cost is higher than the gross salary since the employer is obliged to apply deductions for the SSI employer premium and unemployment insurance items. Shortly, this difference is due to the employer contribution of the specified deductions.

III- Total Employer Cost:

• Total Employer Cost = Gross Salary + Social Security Premium (Employer Contribution) + Unemployment Insurance (Employer Contribution)

IV-Social Security Premium:

In deducting the social security premiums gross salary is used as the base and both the employer and employee contributions are considered as the total social security premiums, which correspond to 34,5% of employee's gross salary. Employer and employee contributions are calculated as respectively 20,5% and 14% of the gross salary, and both amounts are paid by the employer until the end of the following month. In addition, employers are able to benefit from a discount offered by the Treasury, which is applied at 5% on the employer contribution of social security premiums, provided that the employer makes its SSI premium payments on time and that all of its employees are insured. When determining the variable applicable for the calculation of premiums, the minimum and maximum amounts declared by the government are compared with the employee's gross salary. In the event that the gross salary level is below the declared minimum, the minimum amount should be considered instead of the gross salary, and conversely, if the gross salary is above the maximum, the latter must be considered in calculating the premium.

• Social Security Premium (Employee Contribution) = 14 % of Gross Salary

• Social Security Premium (Employer Contribution) = 20,5 % of Gross Salary

• Social Security Premium (Total) = 34,5 % of Gross Salary

IV- Unemployment Insurance:

Unemployment insurance is calculated based on the gross salary. Employee and employer contributions correspond to respectively 1% and 2% of the gross salary, and consist of the total of 3 % unemployment insurance amount. The employer is liable to pay the unemployment insurance deduction along with the above stated social security premiums no later than the end of the following month. Unemployment insurance premiums are calculated as the same way as social security premiums.

• Unemployment Insurance (Employee Contribution) = 1% of Gross Salary

• Unemployment Insurance (Employer Contribution) = 2% of Gross Salary

• Unemployment Insurance (Total) = 3% of Gross Salary

V- Income Tax:

Income tax is imposed by the government on financial income generated by businesses and individuals. In the case of employees, income is defined as wages earned (gross salary). Therefore, employers need to deduct income tax from the remainder of the gross salary after the employee contribution of social security premiums and unemployment insurance are deducted (since these are exempt from income tax), and to pay the amount to the tax office on behalf of the employee no later than the 20th of following month. The payment period can be reduced to quarterly periods, allowing employers to make payments every 3 months provided that the employer has 10 employees or less.

• Income Tax Base = Gross Salary - Social Security Premium (Employee Contribution) - Unemployment Insurance (Employee Contribution)

According to the tax table of the Revenue Administration, the income tax rates vary in respect to the cumulative salary brackets. Hereunder, income tax is applied at the rate of 15% for cumulative salaries up to 11.000 TL.

As the cumulative salary enters into next bracket, the standard tax rate is applied for the upper limit of the previous income bracket and a different tax rate is applied for the exceeding part of salary. The highest applicable income tax rate is 35%.

• Income Tax = Income Tax Base Amount * Income Tax Rate (%) VI- Stamp Tax:

Stamp tax, calculated at the rate of 0,759%, is deducted from employee's gross salary. Stamp tax payments along with a declaration can be made at the same time as income tax payments, subject to the same deadlines.

• Stamp Tax = Gross Salary * Stamp Tax Rate (0,759 %)

Application Of Administrative Fines Reduction In The Late Submission Of New Hire And Termination Declaration

Regarding to Article 102 of Law No. 5510, if the new hire declaration of the insurance holder subject to sub-clause (a) of the first paragraph of Article 4 of Law No. 5510 are not submitted within the legal period, an administrative fine shall be applied at the rate of one minimum wage per insurance holder.

In the event that the new hire declaration is given automatically within 30 days after the expiry of the legal period, and the aforementioned penalty is paid within 15 days from the date of the declaration to be made by the concerned parties, the penalty is applied over the amount corresponding to one fourth.

The circular called "Declaration with regard to non-working days entry" numbered 2013-19 has been published on 6 April 2013 by Social Security Institution. Please find below the Social Security Institution's announcement regarding to regulation of employees' recovery reports:

1-Be effective as of 02.03.2013; if employees' recovery reason is shown as 01- Recovery in Monthly Premium and Service Document, this declaration will replace the declaration of non- working days during the recovery period. On the other hand, if the recovery reports are recorded on the old-system, there won't be needed to an additional notification.

Changes in Absences Days Notification of SSI

For companies that have less than 30 employees, missing social security days must be notified to the authority using the related form EK-10 SGK Eksik Gün Bildirimi (Absences Days Notification  of the Social Security Institute) which must be submitted along with supporting documents (Such as unpaid leave forms, sickness reports, etc…). A new change announced in the official gazette on the 21st of August 2013 under the title ‘Sosyal Sigorta İşlemleri Yönetmeliğinde Değişiklik Yapılmasına Dair Yönetmelik’ (Amending the Regulation on Social Security Procedures) has reduced the number of employees for companies that this rule applies to from 30 to 10. According to this change, all companies with less than 10 employees must make monthly notifications to the authority using the related forms and documents mentioned above. Companies with 10 employees and above can provide information related to missing social security days by including it in the Aylık Prim ve Hizmet Bildirgesinde ( Monthly Declaration of Premium and Service).

Changes in Short Term Insurance Premiums

The short term insurance premium rate is determined by the SSI following registration with the Social Security Institute by taking into account the level of occupational accident and illness risks and applying a rate ranging from 1%-6.5%. Workplaces that have premiums based on the 1% pay a much lower employer premium amount than workplaces that are known to be more dangerous. In a publication of the official gazette on 19.01.2013, it was announced that as of 01.09.2013 the Premium rates will be fixed at 2% and will be independent of danger level. As of result of this change, workplaces that are currently paying premiums at a rate lower than 2% will be faced with an increase in their SSI contribution amount, while workplaces that are paying over 2% will see a decrease in their premium amounts. Organizations that are currently paying a 2% premium will not be affected by this changes. It is important to note that only the employer premium contribution amounts will be affected by this change.

The Cabinet of Minister have the authority to reduce the 2% fixed rate to 1.5% and also to increase it to 2.5%

The changes can be explained using the following example: The short term insurance employer contribution for an organization with a danger level resulting in the 1% rate and who has an employee who earns a monthly gross salary of 5000 TRY is 50 TRY. As of the 1st of September, this figure will be increase to 100 TRY.

As a result of the aforementioned changes and, the SSI sent out a notification stating that the e-declaration system will be out of service and inaccessible due to updates on the dates of August 30-31 2013.