DIFFERENCES BETWEEN NOTICE PAY AND SEVERANCE PAY
1. Introduction: Compensation Regime Upon Termination of Employment Contracts
The termination of an employment contract does not merely mean the parties part ways; it also has significant consequences in terms of protecting the worker's labor, preventing the employer from abusing their right to terminate the contract, and maintaining the stability of the employment relationship. In the Turkish Labor Law system, two main types of compensation arise from termination: notice pay and severance pay.
The aim of both types of compensation balance and fairness . However, there are significant differences in terms of the legal grounds, conditions, and consequences upon which they are based.
2. The Legal Basis and Purpose of Severance Pay
2.1. Legal Basis
The legal regulation regarding severance pay is found in Article 14 of the currently in force Labor Law No. 1475. Although Labor Law No. 4857 has come into force, the specific regulation concerning severance pay has been preserved in Article 14 of the old Law.
2.2. Purpose
The main purpose of severance pay is;
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To provide a guarantee for the worker as a reward for years of loyal service ,
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To provide economic compensation in case of job termination ,
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This can be summarized as deterring arbitrary terminations by employers
Severance pay, while a reward for an employee's past service, also serves a social security function. In this respect, it is directly linked to the principle of the welfare state
3. Legal Basis and Purpose of Severance Pay
3.1. Legal Basis
Severance pay is regulated in Article 17 of the Labor Law No. 4857. This article mandates that prior notice must be given to the other party when terminating indefinite-term employment contracts
3.2. Purpose
The purpose of severance pay is to compensate employees in the event of the termination of their employment contract
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the worker time to find a new job,
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The aim is to provide the employer with the opportunity to plan their workforce.
Therefore, severance pay is compensation for the notice period of termination and always arises when the obligation to give prior notice is not fulfilled
4. Notice Periods and Compensation Calculation (Labor Law Article 17)
According to the Labor Law, notice periods depending on the employee's seniority as follows:
| Service Period | Notification Period |
|---|---|
| Less than 6 months | 2 weeks |
| Between 6 months and 1.5 years | 4 weeks |
| 1.5 – 3 years old | 6 weeks |
| More than 3 years | 8 weeks |
The party that fails to comply with this period severance pay .
The amount is calculated based on the employee's gross wage and is subject to stamp duty.
Formula:
Severance Pay = Gross Salary x Notice Period (weeks) x (7/7)
5. Severance Pay Requirements (Article 1475, Section 14)
Severance pay is not automatically paid to every employee who leaves their job. The law requires certain conditions to be met:
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The employee must have worked for at least one year
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Termination of the employment contract for reasons stipulated by law,
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The employee may terminate the contract for just cause, or the employer may terminate the contract unfairly.
If these conditions are met, the employer is obligated to pay severance pay.
6. Circumstances Under Which Severance Pay is Acquired
Severance pay is paid to the employee in the following situations:
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Unjustified termination by the employer (reasons other than Article 25/II of the Labor Law),
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Justifiable termination by the employee (Labor Law Article 24),
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Retirement (completion of all conditions except age as determined by the Social Security Institution),
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Leaving a job due to military service,
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Female worker leaving due to marriage (within 1 year),
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The worker's death.
Apart from these cases, the Court of Cassation also includes "situations where the employer forces the employee to resign" within the scope of severance pay (Court of Cassation, 9th Civil Chamber, 2018/5121 E., 2019/9734 K.).
7. Conditions for Entitlement to Severance Pay
Severance pay only applies to indefinite-term contracts . The conditions are as follows:
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the terminating party has not complied with the statutory notice period ,
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for termination ,
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the termination was done suddenly and without notice.
In cases of termination for just cause (for example, theft by an employee as defined in Article 25/II of the Labor Law), severance pay is not applicable.
8. Method of Calculating Severance Pay
Severance pay is calculated based on 30 days' gross salary for each full year of service. For periods exceeding one year, a proportional calculation is applied.
Formula:
Severance Pay = (Gross Salary x Years of Service) + (Gross Salary x Accumulated Days / 365)
However, the calculation takes into account not only the salary but all recurring additional payments (meal, transportation, bonuses, fuel allowance, etc.).
The maximum amount is determined annually by the Ministry of Treasury and Finance.
9. Taxes and Deductions
| Type of Compensation | Income tax | Stamp Duty |
|---|---|---|
| Severance Pay | Exempt | It is cut |
| Severance Pay | Subject to | It is cut |
Severance pay is exempt from income tax according to Article 25/7 of the Income Tax Law .
However, notice pay is considered wages and is therefore subject to income tax.
Compensation Differences in Supreme Court Decisions
Supreme Court rulings emphasize the distinct legal nature of notice pay and severance pay
📌 Supreme Court 9th Civil Chamber, Case No. 2021/8543 E., Decision No. 2022/11783 K.:
“Severance pay is compensation for an employee's past service; notice pay, on the other hand, is the consequence of the abuse of the right to terminate employment. Both can be claimed together.”
📌 Supreme Court of Appeals, 22nd Civil Chamber, Case No. 2018/1730, Decision No. 2019/2948:
"Termination of employment by the employer without just cause entitles the employee to both severance pay and notice pay."
📌 Supreme Court Grand Chamber, Case No. 2015/9-2985, Decision No. 2017/1231:
“Severance pay is a right granted to the employer as well. If the employee leaves without complying with the notice period, they are also obliged to pay severance pay.”
These decisions demonstrate that the two types of compensation are not mutually exclusive, but are based on different legal grounds .
9. Claiming Compensation Together
Severance pay and notice pay can be claimed together or separately, depending on the type of termination. If the employer terminates the employment contract without just cause, the employee is entitled to both. However, if the employee terminates the contract for just cause, they are only entitled to severance pay
10. Mediation and Litigation Process
According to Law No. 7036 on Labor Courts , mediation is mandatory for compensation claims . The employee must first apply to a mediator, and if an agreement cannot be reached, then file a lawsuit. An agreement reached through mediation is considered a document with the force of a judgment .
11. The Social Policy Dimension of Severance and Notice Pay
These two types of compensation serve to protect the worker's economic security and ensure a balance of fairness in the labor market . As a requirement of the principle of the social rule of law, they strike a balance between job security and freedom of termination.
Overall Assessment
In Turkish Labor Law, notice pay and severance pay are two separate institutions related to termination.
Severance pay is a reward for the employee's past labor;
notice pay, on the other hand, is a penalty for abrupt termination.
Therefore, a clear distinction must be made between the circumstances under which both types of compensation arise, the calculation method, taxation, and the litigation process. Judicial practice also emphasizes this difference, ensuring the establishment of a fair termination regime
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