How Are Severance Pay, Notice Pay and Annual Leave Pay Calculated? An Up-to-Date Guide

When an employment relationship ends, the most concrete question on the employee's mind is usually this: "How much compensation am I entitled to?" Severance pay, notice pay and pay in lieu of unused annual leave are three separate entitlements that are often confused with one another but are in fact subject to different conditions and different calculation methods.

In this article, we examine the conditions under which each of these three employee claims arises, how they are calculated, and the settled approach of the Yargıtay (Court of Cassation) on the subject.

Summary of the Situation

An employee's employment contract ends for one of various reasons (termination by the employer, termination for just cause, resignation, etc.). The employee wishes to claim the annual leave earned but not yet used during their employment, the severance pay corresponding to their length of service and, depending on the circumstances, notice pay.

At this point, the problems employees frequently encounter are these: Which wage will the calculation be based on? How is the calculation done for part-time employees or those with variable pay (bonuses, hourly teaching fees, etc.)? Can notice pay be claimed for every type of termination?

The Legal Issue

The three different claim items are subject to three different legal regimes:

• Severance pay is conditional on the employee having at least one year of service and the employment contract ending in one of the circumstances listed in the law (for example, termination by the employer, termination by the employee for just cause, retirement).
• Notice pay arises where the employment contract is terminated without observing the notice period; however, it cannot be claimed where the employee terminated the contract for just cause themselves (for example, due to unpaid wages).
• Annual leave pay is the conversion of unused leave periods into a wage claim upon termination of the employment contract.

What Does the Yargıtay (Court of Cassation) Say?

Calculating Severance Pay

• To qualify for severance pay, the employee must have completed at least one year of service. Under Article 14 of Law No. 1475, which remains in force, severance pay is calculated at 30 days' wages for each full year (Yargıtay 7th Civil Chamber, E. 2013/19779, K. 2014/4785, 2014).
• In determining the wage on which the compensation is based, in addition to the base wage under Article 32 of Labor Law No. 4857, monetary benefits or benefits measurable in money provided to the employee (bonuses, premiums, meals, transport, etc.) must be taken into account, and the calculation must be made on the basis of the "gross wage inclusive of fringe benefits" (giydirilmiş ücret) (Yargıtay 9th Civil Chamber, E. 2016/2292, K. 2019/6818, 2019).

Part-Time Employees and Employees With Variable Pay

• Where the wage varies from month to month or is determined by items such as hourly teaching fees, it is accepted that the calculation of termination-related entitlements must be based on the "average monthly wage over the last year" (Yargıtay 9th Civil Chamber, E. 2020/3163, K. 2021/980, 2021).
• For part-time employees, it has been emphasized that weekly rest-day pay must also be added to the time actually worked (Yargıtay 9th Civil Chamber, E. 2022/8634, K. 2022/8963, 2022).

Notice Pay and the Manner of Termination

• Where the employee terminates the contract for just cause, for example due to unpaid wages (Labor Law Art. 24/II-e), the employee qualifies for severance pay but cannot claim notice pay (Yargıtay 9th Civil Chamber, E. 2017/5024, K. 2018/9029, 2018).
• By contrast, where the employment contract is terminated by the employer without giving the notice period, notice pay corresponding to the employee's length of service must be calculated.

The Annual Leave Pay Claim

• The right to annual leave converts into a wage claim upon termination of the employment contract (Yargıtay 22nd Civil Chamber, E. 2017/14282, K. 2018/20381, 2018).
• Pay for annual leave periods that were not granted must be paid on the basis of the "last wage." Leave periods the employee earned through more than one year of service but did not use are calculated on the basis of the current wage as of the termination date.

Burden of Proof and Set-Off

• The burden of proving that annual leave was granted rests with the employer, and this must be proven with a signed leave register or an equivalent document.
• Payments made through bank records must be set off against the calculated compensation amounts, even if the release document (ibraname) is invalid (Yargıtay 9th Civil Chamber, E. 2022/7234, K. 2022/8054, 2022).

Points to Watch

• Identify the correct type of wage. Severance pay is calculated on the "wage inclusive of fringe benefits" (including transport, meals, bonuses), whereas annual leave pay is generally calculated on the "bare gross wage." Overlooking this distinction leads to an incorrect calculation.
• Clarify the ground for termination. Whether the right to notice pay arises depends directly on the manner of termination (termination by the employer, termination by the employee for just cause, or resignation).
• Mind the severance pay ceiling. Severance pay cannot exceed the statutory ceiling set for each period; the current ceiling amount is updated regularly.
• Keep your documents. Payslips, bank account statements, leave request forms if any, and the employment contract are important for proving the accuracy of the calculation.

Conclusion: What Should You Do?

If your employment contract has ended and you want to calculate your claims correctly:

1. Clearly determine your length of service, your gross wage and, if any, your fringe benefits (premiums, bonuses, transport, meals).
2. Clarify the manner of your termination (termination by the employer, termination for just cause, resignation); this directly affects your right to notice pay.
3. Identify your unused annual leave days and remember that the employer bears the burden of proving that leave was granted.
4. Gather your payslips and bank records so that the exact amounts can be determined.

The calculation of employee claims can vary significantly depending on the wage structure and the type of termination. For an accurate and complete calculation, we recommend obtaining support from an employment law attorney.