Wages and Payroll: Payments, Fringe Benefits and Deductions

Wage and payroll management is one of the most fundamental obligations of the employer. Timely and complete payment of wages, maintaining payroll records in compliance with legislation, making deductions on a legal basis and correctly structuring fringe benefits are important in terms of labour claims disputes, administrative sanctions and corporate reputation.

This article addresses the scope of wages, basic rules of payment and payroll processes, deductions/fringe benefits and frequently encountered risk areas.

Table of Contents

• What is the definition of the wage concept?
• How are wage payment periods, form and payment in foreign currency regulated?
• What is the obligation to prepare payroll?
• Can payroll be delivered to employees via KEP?
• How are bonuses, premiums, gratuities and fringe benefits structured?
• What deductions can be made from wages?
• What are the consequences of late payment of wages?
• What is wage confidentiality?
• Legal support in wage and payroll processes

What is the definition of the wage concept?

The wage, referred to as "salary" in practice, is the amount paid in money to the employed worker by the employer or third parties in return for work.

Wages are examined under two main categories according to how they are used as the basis for calculations:

• Wage in the Narrow Sense (Gross Wage): This is the actual amount paid to the worker in cash for their labour. This amount is used as the basis for calculating entitlements such as annual leave, weekly rest and overtime.
• Wage in the Broad Sense (Total Compensation): This is the total value formed by adding money or benefits measurable in money (meal, transportation, housing allowance, bonuses, etc.) to the gross wage.

Total compensation is the wage basis for calculating severance and notice period compensation. The earnings that form the basis for compensation in lawsuits filed due to work accidents and occupational diseases are also total compensation.

However, bonuses, annual leave pay, weekly rest, public holidays and overtime pay are calculated based on gross wage. Therefore, it is critically important that claim calculations – especially during the mediation phase – are performed by an experienced attorney, both for correctly determining the claim amount and for an equitable solution.

How are wage payment periods, form and payment in foreign currency regulated?

Wages, bonuses, gratuities and all such entitlements are generally paid in Turkish currency to a specially opened bank account. However, if the employer employs fewer than three workers throughout Turkey, there is no obligation to pay through a bank.

Payment of wages by promissory note, coupon, or with a security allegedly representing the currency valid in Turkey, or in any other manner is not permitted.

Wages are paid to the worker at least once a month. The payment period can be reduced to as little as one week through employment contracts or collective bargaining agreements.

Payment of wages in foreign currency: According to Decision No. 32 on Protection of the Value of Turkish Currency, in employment contracts made between persons resident in Turkey, wages, bonuses, gratuities and such claims cannot be denominated in foreign currency or indexed to foreign currency. Payment must be made in Turkish Lira.

Foreign employers (branches of foreign companies, representative offices, international organizations, embassies and consulates, etc.) and parties not resident in Turkey may pay their employees working in Turkey in foreign currency within the framework of relevant legislation.

What is the obligation to prepare payroll?

The employer is obliged to give the worker a slip showing the wage calculation, signed or bearing the special mark of the workplace for payments made at the workplace or to the bank. In practice, this document is called "payroll" or "wage slip".

On this slip, the day of payment and the period to which it relates, as well as the amount of all additions to the basic wage such as overtime, weekly rest, holiday and public holiday wages, and all deductions such as tax, insurance premiums, advance deduction, alimony and execution must be shown separately.

Payroll is not only an internal accounting document but also the basis for tax and social security applications and an important means of proof in labour disputes.

If any worker later files a lawsuit against the company regarding their labour rights, matters such as wages, overtime and holiday work can be proven through payroll signed by the employee. Payroll bearing the employee's signature is conclusive evidence and shows that the employer made the payment.

The evidentiary value of unsigned payroll is limited; therefore, they must be supported by bank records, receipts for wage payments and, if necessary, witness statements.

Can payroll be delivered to employees via KEP?

Yes, it can. According to the opinion letter of the General Directorate of Labor dated November 13, 2017, the obligation to prepare wage payroll and give a copy to employees in Article 37 of the Labor Law is considered fulfilled if it is done electronically via KEP within the scope of the Regulation on Procedures and Principles Regarding the Registered Electronic Mail System.

However, payroll sent via KEP and electronically signed by the employer, due to the legal nature of the KEP system, constitutes conclusive evidence for the delivery of payroll to employees, but does not mean payroll signed by the employee and does not give the payroll conclusive evidentiary value.

Recommended methods for payroll sent via KEP to gain conclusive evidentiary value:

1. Sending electronically signed payroll: Sending payroll signed by the employer with a secure electronic signature via KEP.
2. Obtaining electronically signed confirmation from the employee: KEP accounts and secure electronic signatures are provided to all employees so that employees can sign the payroll sent to them with an electronic signature and send it back to the employer.

Sending payroll via KEP fulfils the legal obligation from the employer's perspective, but for conclusive evidentiary value, the employee must additionally sign the payroll delivered to them with their own electronic signature.

How are bonuses, premiums, gratuities and fringe benefits structured?

Wage items such as bonuses, premiums and gratuities, when not structured correctly from a legal and operational perspective, can lead to discussions about vested rights, allegations of violation of the equal treatment obligation and retroactive difference claims.

To minimize these risks and establish a transparent system, the following elements must be clearly defined in the structuring phase:

• Nature of Payment: It must be clearly stated whether the payment is fixed or at the discretion of the employer. For discretionary payments, the employer's unilateral decision-making authority must be emphasized.
• Entitlement Criteria: Performance targets, measurement methods and success scales must be based on concrete and objective data. Unclear or subjective criteria can lead to vested rights claims.
• Process Management: Bonus period, payment schedule and evaluation processes must be predetermined.
• Exceptional Scenarios: It must be regulated how entitlement will be calculated or forfeited in cases of resignation during the period, unpaid leave, long-term sick leave, disciplinary penalty or termination of employment contract.
• Objectivity and Equality: A fair distribution structure based on objective criteria must be established among employees with the same title or performing work of equal value. Arbitrary applications constitute a violation of the equal treatment obligation.

The written regulation of all these matters in employment contracts, bonus regulations or collective bargaining agreements and notification to employees is important.

What deductions can be made from wages?

When the employer wants to reduce wages, they must notify the employee in writing. However, for this change to be valid, the employee must accept it in writing within six working days from the date of receiving the notification. If the employee does not accept, the wage reduction cannot be applied unilaterally; if applied, the employee can exercise their right to immediate termination for just cause.

Deductions to be made from wages must generally be based on legal regulations or applied within the framework of a legally valid mechanism. The main legal deductions are:

• Income tax and stamp duty
• Employee's share of social security and unemployment insurance
• Union dues (if the employee is a union member)
• Alimony garnishment and wage garnishment
• Advance deduction
• Wage deduction penalty (disciplinary penalty)
• Damage compensation deduction (under certain conditions)

Limits of wage deduction penalty (disciplinary penalty): The employer cannot impose a wage deduction penalty except for reasons specified in the employment contract or workplace internal regulations. If there is a collective bargaining agreement, its provisions also apply. The deduction to be made as a penalty must be notified to the employee in writing with justification and cannot exceed two days' wages in one month. The deducted amounts must be deposited into the account of the Ministry of Labor and Social Security; otherwise, the deduction is unlawful and can be reclaimed by the employee. It is possible for the employee to face both a disciplinary penalty and a compensation claim for the same act.

Damage compensation deduction / offset: Not every alleged damage caused by the employee to the employer is automatically grounds for deduction. For damage compensation deduction to be made from wages:

• The employee's written consent must be obtained or
• There must be a court decision

Additionally, when making deductions, the limit of the garnishable portion of wages (generally one quarter) must be taken into account.

Wage garnishment: In wage garnishment, generally no more than one quarter of the employee's monthly net wage can be garnished. In garnishment proceedings, the provisions of the Execution and Bankruptcy Law apply, and the employer is obliged to comply with the garnishment notification; otherwise, they may be subject to execution proceedings.

What are the consequences of late payment of wages?

Timely payment of wages is one of the fundamental obligations of the employer. For wages not paid on time, the highest interest rate applied to deposits is applied, and the employee can claim this interest.

Employee's right to refuse to work: An employee whose wages are not paid within twenty days from the payment day without force majeure can refuse to fulfil their work obligation (Labor Law Art. 34). In this case:

• The employee can demand wages even without working.
• The employment contracts of these employees cannot be terminated for not working.
• New employees cannot be hired, and this work cannot be assigned to others.
• The decisions of the employees, even if they take on a collective character, cannot be characterized as a strike.

Employee's right to immediate termination for just cause: Non-payment of wages also gives the employee the right to immediate termination for just cause (Labor Law Art. 24/II-e). By exercising this right, the employee can:

• Terminate the employment contract without observing the notice period.
• Acquire the right to severance pay
• File a lawsuit for wage claims and other labour claims

Additional consequences:

• The employee can file a compensation lawsuit for material and moral damages suffered due to late payment of wages.
• In case of continuous delay, the employee can complain about this situation to the Ministry of Labor and Social Security.
• In case of non-payment of social security premiums, the employer is additionally liable to the Social Security Institution.

What is wage confidentiality from the employer's perspective?

Wage information is personal data within the scope of Law No. 6698 on Protection of Personal Data (KVKK). Therefore, the employer is obliged to protect wage information belonging to employees and process it in accordance with KVKK.

For this reason, the employer cannot share wage information with unauthorized persons; payroll and wage records must be stored securely; according to KVKK, there must be a legal basis such as explicit consent or legal obligation for processing wage data; disclosure of wage information to third parties (e.g., bank, social security, tax office) is only possible with legal obligation or the employee's explicit consent.

Legal support in wage and payroll processes

Wage and payroll management includes tax, social security and personal data dimensions in addition to labour law, so legal support is beneficial both for compliance and dispute prevention.

Additionally, the statute of limitations for wage claims is five years. Therefore, regular storage of payroll, bank records, timesheets and documents related to bonuses and fringe benefits is important in terms of proof and risk management in possible disputes.