Turkey: An Evaluation Of The Draft Bill Of The Severance Allowance Fund

Last Updated: 9 September 2014
Article by Özge Mızrak


The severance allowance, which is among the most important outcomes of a terminated labor contract, means the amount payable by the employer to the employee or his/her beneficiaries upon termination of the employee's labor contract for any reason after working for the minimum period set forth in the labor law.

The Supreme Court of Appeals defines severance allowance in a verdict as follows;

"Severance allowance" means the lump sum payable by the employer to an employee who has worked at the workplace(s) of that employer for a specific period as per the applicable legislation against his/ her past performance taking into account the age, difficulty in finding a new job as well as his/her contribution in that workplace upon termination of his/her labor contract."

The Labor Act No. 4857 contains no provision regarding severance allowance but proposes the establishment of a severance allowance fund by virtue of Temporary Article 6 of the Act. Severance allowance rights of employees have been reserved with the implementation of Article 14 of the former Labor Act No. 1475 until establishment of that fund. Relevant provisions of the former Labor Act No. 1475 still apply as the Severance Allowance Fund and has not passed into law despite the promulgation of the new Labor Act No. 4857 ha upon publication of the same in the Official Gazette dated 06/10/2003, issue No. 25134.

Entitlement to the severance allowance governed in the Labor Act No. 1475 requires satisfaction of a number of conditions including having a job subject to the Labor Act, its termination due to the reasons mentioned in the Labor Contract Act and being employed at that workplace at least for one year.

Currently, the labor contract of the employee must have been terminated due to the reasons defined below for entitlement to severance allowance as per Article 14 of the Labor Act No. 1475:

  • Immediate termination of the labor contract by the employee (Labor Act, Art. 14) for good cause
  • Termination of the labor contract by the employer (other than Labor Act, Art. 25/II)
  • Termination of the labor contract due to active military service
  • Termination of the labor contract in order to be entitled to old age pension, retirement pay or invalidity pension or a lump sum amount from relevant pension fund
  • Termination of the labor contract upon marriage, if a female employee
  • Leaving work voluntarily after completing the insurance period and the number of premium days other than retirement due to age limit
  • Termination of the labor contract due to death of the employee


It was mentioned above that the Labor Act No. 4857 contains no provision regarding severance allowance but proposes establishment of a severance allowance fund and that the severance allowance rights of employees have been reserved with the implementation of Article 14 of the former Labor Act No. 1475 until the establishment of that fund. The issue of tying the severance allowance to a fund has been discussed regularly and maintained its place in the agenda so far. Our evaluation is based on the draft text as the draft bill has been prepared but not promulgated yet.

The Draft Bill of the Severance Allowance Fund consisting of 22 articles governs payment of severance allowance to the beneficiaries from a fund in accordance with specific procedures and rules.

In Article 12, paragraph 1-a of the ILO Convention 158 on termination of employment, the term "severance allowance" is defined as "a severance allowance or other separation benefits, the amount of which shall be based inter alia on length of service and the level of wages, and paid directly by the employer or by a fund constituted by employers' contributions". As per this definition, the severance allowance may be paid by a fund. Accordingly, it is stated that the general grounds of the draft bill on the regulations about the fund are consistent with the international norms.

It is suggested in the general grounds of the draft bill on why the severance allowance fund should be implemented that "the severance allowance which has become a heavy burden for the establishments in the course of time have caused them to suffer insolvencies particularly in times of crisis and therefore, some employers have tried not to pay severance allowance by using some methods such as increased labor turnover".

The current draft, which has been often discussed and shall probably be amended to a considerable extent, proposes the following regulations on the severance allowance fund:

Pursuant to the Labor Act No. 1475, the Maritime Labor Act No. 854 and the Press Labor Act No. 5953, the severance allowance fund covers the employees working on the basis of a labor contract, the employers who employ them and the beneficiaries of deceased employees. The draft bill, however, envisages containment of all employees. On the other hand, it is further ruled that the liabilities of the employers relating to the service periods before promulgation of the Labor Act shall continue to exist as per the former Act.

The Severance Allowance Fund is planned to become a public enterprise subordinated to the Ministry of Labor and Social Security, subject to the provisions of the private law, autonomous in financial and administrative terms and having a private budget and a legal personality. The fund shall be left out of the coverage of the budget and its revenues shall not be deducted any way. Besides, the fund shall be audited by the Prime Ministry's State Auditing Board and by Certified Public Accountants on a quarterly basis and the audit reports shall be published in the Official Gazette in order to avoid any use of its resources for other purposes as per Article 3 of the draft bill governing the structure of the fund.

Pursuant to Article 6 of the Draft Bill governing Notice, employers should notify the Fund of the employees or his/her beneficiaries entitled to a severance allowance within 7 days following the date of entitlement. Any over payment made by the Fund to those entitled to severance allowance as a result of the employer's failure in notifying the Fund accordingly shall be borne by the employer in default including any expense incurred therefor.

It is ruled in Article 7 of the Draft Bill that the employees covered by the Act shall be entitled to severance allowance in the following cases:

  • An employee who terminates his/her labor contract in order to be entitled to old age pension, retirement pay or invalidity pension or a lump sum amount from the relevant pension fund
  • An employee who applies to the relevant pension fund in order to be entitled to old age pension, retirement pay or invalidity pension or a lump sum amount upon termination of the labor contract by the employer
  • " An employee for whom the premium is paid for at least 10 years
  • Legal heirs of a deceased employee

As per the Draft Bill, an employee whose labor contract is terminated due to old-age or retirement pension, payment is stopped as he/she restarted working and so applied to the Fund for assignment of a pension to be calculated in accordance with Article 63, paragraphs 1 and 2 of the Act No. 506 shall be entitled to a severance allowance for the period his/ her premiums have been paid to the Fund after he/ she was paid his/her severance allowance.

Those for whom the social security support premium was paid shall be entitled to severance allowance only if the conditions of receiving invalidity pension are fulfilled or in case of death of the employee.

As per the Draft Bill, responsibility of severance allowances for the periods after the promulgation date of the Act shall remain with the Fund and the causes of entitlement are limited with old-age, retirement, invalidity, lump sum payment and death. Therefore, doing military service and termination of the labor contract by female employees within one year following marriage are not accepted as causes for entitlement to severance allowance.

Prescription for severance allowance is set out as 10 years in the Draft Bill. Therefore, entitlement to severance allowance of an employee (or his/her beneficiaries) who does not apply to the Fund for receiving the severance allowance within 10 years following actual date of entitlement shall prescribe. The Fund shall be obliged to pay only the amount of severance allowance fixed on the date of entitlement but not any interest. According to the new regulation, an employee covered by the Fund and employed at a workplace only one day shall be entitled to severance allowance provided that his/her premiums are paid to the Fund regularly for 10 years.

Pursuant to Article 8 of the Draft Bill governing the amount of severance allowance, an employee (or his/ her beneficiaries) shall be paid a severance allowance equal to thirty days salary of each full year for which the Fund is paid the corresponding premium. The same ratio applies to remaining days of any given year or those with a paid-up premium period less than one year. The severance allowance cap is also secured by this Article 8 according to which the minimum amount to be taken as a basis in calculation of severance allowance and collection of premiums is limited with the subsistence wage defined in Article 33 of the Labor Law and the maximum amount is limited with the maximum retirement bonus payable to the public servant highest in ranking pursuant to the provisions of the Retirement Fund Act No. 5434.

Article 13 of the Draft Bill requires the deduction of a certain amount from the wage of the employee not exceeding 3% of his/her monthly wage and depositing the same to the fund account. SGK shall be in charge of collecting the premiums but not be held responsible for any premium not paid by employers. Grounds of this Article give no clue as to why the ratio is taken as 3% and this situation causes some disputes between employees and employers on whether the fund shall function properly or the employees shall be paid the amounts they would be entitled to under the Draft Bill.

It is not clear yet if the draft bill on severance allowance that have been discussed for many years shall be promulgated in its current form or not, however, it is an obvious fact that the severance allowance fund should be regulated through an act to meet the expectations of both the employees and the employers.

Negotiations on the current severance allowance regulations continue in order to avoid more serious problems in practice, to maintain the current rights of employees and to introduce a system that would facilitate payment obligations of employers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.