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Labor and Social Security Minister Faruk Çelik used to say that the current system for granting workers severance pay is no longer sustainable and that the government would draw up a new system. That’s why a new system which would be autonomous is expected to be established by the Labor Ministry following the general elections in June 2015.


The existing system is based on the payment of the last gross amount by employers for one year of employment. In other words, the system guarantees workers one month’s salary for each year they have worked.


With the new severance payment system, no transition period is proposed for the acquired rights. When the law will enter into force, everybody would be involved in the fund system. The notion of “indemnity” would totally be abolished. Indeed, workers who will be dismissed by the employers won’t have the right to indemnity.


In the draft law, the “Severance Payment Fund” will be a public institution with a legal entity, regulated under the private laws, financially and administratively autonomous. It would be considered out of the Treasury.


Concerning the calculation of the severance payment, the draft law provides for that the amount will be based on “the average premium paid for the worker on the latest calendar year”. The limit is also regulated in the said law: the maximum rate will be similar to the maximal retirement bonus paid for the highest state official.


The contribution rate will be determined by the Council of Ministers. The fund management will submit to the Council a proposal of rate not exceeding 3%, calculated on the average earning taken as basic to premium. The premiums paid shall be registered as charges or expenses by employers and shall be collected by the Social Security Institution in return of allocating shares by the fund revenues.


Some of analysts think that the new severance payment fund would be a burden on employers. The current payment system enables workers to receive payment in the event of dismissal, leaving to complete military service, retirement, marriage (for women) and death. However, the new system grants severance only if the worker retires, dies, in case of incapacity or after 10 years of work.


In addition, when the worker entitled to have the severance pay, leaves the job, he can get this money out of the fund with its interests. Otherwise, the new employer will continue to pay on the same fund (worker’s account).


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