Severance Pay Ceiling and Statute of Limitations 2026

Severance Pay Ceiling and Statute of Limitations 2026. Within the systematics of Turkish Labor Law, severance pay constitutes one of the most sensitive and financially burdensome items in employee-employer relations. Developed historically as part of job security, this type of indemnity stands at the intersection of individual labor law, social security law, and tax legislation. In particular, the radical changes introduced by the Law on Labor Courts No. 7036 in 2017, followed by the reflection of the high inflationary process on the 2026 parameters, have made it mandatory to reconsider the legal and financial dimensions of the subject.

This report, titled “Severance Pay Ceiling and Statute of Limitations,” aims to examine the subject not only through legislative provisions but also in light of established and current Court of Cassation (Yargıtay) precedents, doctrinal discussions, fiscal policies, and concrete data for the year 2026, with a depth of approximately 20-25 pages. The primary target audience of the report includes legal counsels, human resources managers, certified public accountants, and professionals specializing in the field. Our analysis will detail the legal nature of the ceiling application, the complex tax regime of payments exceeding the ceiling, how to calculate statute of limitations periods together with transitional provisions, and the impact of the 2026 Social Security Institution (SSI/SGK) parameters on severance pay burdens.

Section 1: Legal Nature of Severance Pay and Historical Perspective

1.1. The Concept of Severance Pay in Turkish Law

Severance pay is a sui generis type of payment regulated as a reward for the employee’s loyalty to the workplace, wear and tear, and past services. Its legal nature has been debated in the doctrine for many years; it has been characterized by some as an “supplement to wages,” by others as “aid similar to unemployment insurance,” and by others as a “wear and tear allowance.” However, the established jurisprudence of the Court of Cassation and the will of the legislator define this payment as an indemnity paid to an employee who has worked at the employer’s workplace for a certain period, in return for their contribution to the workplace and wear and tear, in the event of job loss or the occurrence of legal conditions.

Although the Labor Law No. 4857 has entered into force, the regulation regarding severance pay continues to exist through Article 14 of the abrogated Labor Law No. 1475, which was kept in force. This situation indicates the deep-rooted place of severance pay in Turkish working life and the sensitivity of the legislator’s approach to changes in this regard. According to Provisional Article 6 of Law No. 4857, the provisions of Article 14 of Law No. 1475 shall continue to apply until a severance pay fund is established.

1.2. Foundations of the Severance Pay Ceiling Application

The right to severance pay is not regulated as an absolute and unlimited right. Regardless of how high the employee’s wage is, the amount of indemnity to be paid for each year of service is limited by a “ceiling” (upper limit) determined by law. The legal and economic reasons underlying this limitation are as follows:

Social Justice and Equality: Keeping the gap in termination-related rights between employees receiving very high wages and those at the minimum wage level within a certain range.
Protection of the Employer: Preventing the financial sustainability of businesses from being crushed under unforeseen high indemnity burdens.
Public Finance: Limiting the state’s tax loss since severance pay is exempt from tax.

Article 14 of Law No. 1475 indexes the severance pay ceiling to the “maximum retirement bonus to be paid for one year of service to the highest-ranking civil servant.” This reference indirectly links the indemnity rights of private sector employees to the financial coefficients in the public personnel regime. Therefore, every increase made in civil servant salary coefficients directly affects severance pay costs in the private sector.

Section 2: 2026 Severance Pay Ceiling and Financial Parameters

2.1. Mechanism for Determining the Ceiling

The severance pay ceiling is announced twice a year (in January and July) through the “Circular on Financial and Social Rights” published by the Ministry of Treasury and Finance. The following formula is used in calculating the ceiling:

$$\text{Severance Pay Ceiling} = (\text{Highest Civil Servant Indicator} + \text{Additional Indicator}) \times \text{Monthly Coefficient}$$

To this formula, the base salary, seniority salary, special service compensation, and other raises and compensations are added to find the gross amount. By 2026, inflationary pressures in the Turkish economy and the consequent raises in civil servant salaries have carried the severance pay ceiling to historical peaks.

2.2. 2026 Data and Comparison with Past Periods

As of the January 2026 period, the fundamental financial parameters affecting working life reveal the dramatic increase in costs compared to previous years. The table below shows the course of the severance pay ceiling in light of Ministry of Treasury and Finance data and 2026 projections:

Period	Start Date	End Date	Severance Pay Ceiling (TL)	Change Analysis
2026 / 1st Period	01.01.2026	30.06.2026	(Amount Announced by Ministry)	Increase at the rate of civil servant salary hike
2025 / 2nd Period	01.07.2025	31.12.2025	53,919.68 TL	15.57% Increase
2025 / 1st Period	01.01.2025	30.06.2025	46,655.43 TL	11.54% Increase
2024 / 2nd Period	01.07.2024	31.12.2024	41,828.42 TL	19.31% Increase
2024 / 1st Period	01.01.2024	30.06.2024	35,058.58 TL	49.25% Increase
2023 / 2nd Period	01.07.2023	31.12.2023	23,489.83 TL	17.55% Increase

Note: The 2025 data in the table are finalized amounts, whereas the 2026 ceiling is determined according to the civil servant salary coefficient in the Ministry of Treasury and Finance’s January 2026 circular. It is observed that the ceiling, which was 53,919.68 TL in the second half of 2025, reached a higher level at the beginning of 2026 with the inflation difference and welfare share.

2.3. 2026 SSI Ceiling and Floor Amounts

In addition to the severance pay ceiling, another critical element determining labor costs is the Social Security Institution (SSI) limits for earnings subject to premium (SPEK). These limits determined for 2026 are vital, especially for calculating the premium burden of severance pay payments exceeding the ceiling.

The SSI parameters valid for the year 2026 (01.01.2026 – 31.12.2026) are as follows:

Parameter	Daily Amount (TL)	Monthly Amount (TL)	Description
SPEK Lower Limit (Floor)	1,101.00 TL	33,030.00 TL	Minimum Wage (Gross)
SPEK Upper Limit (Ceiling)	9,909.00 TL	297,270.00 TL	7.5 Times the Minimum Wage

These data show that in 2026, insurance premiums will be paid for the portion of an employee’s monthly gross earnings up to 297,270.00 TL. Earnings above this amount (excluding exceptions) are exempt from premiums. This issue will be analyzed in detail in the section on the taxation of payments exceeding the severance pay ceiling.

Section 3: The Concept of “Dressed Wage” and Its Relation to the Ceiling

The wage to be taken into account in the calculation of severance pay is not the net wage received by the employee or just the bare wage on the payroll. The legislator, aiming to protect the employee’s standard of living, has based the calculation on the concept of “Dressed Wage” (Expanded Wage).

3.1. Elements of Dressed Wage

Dressed wage covers the base wage plus all money or benefits measurable in money provided to the employee. According to the established jurisprudence of the 9th Civil Chamber of the Court of Cassation, for a payment to be included in the severance pay calculation, it must meet the following conditions:

Continuity: Payments that are not incidental but show continuity (e.g., allowance given every holiday, fuel aid given every month).
Being a Benefit Provided to the Employee: Can be in cash or in kind.

Items Included in the Calculation:

Gross Bare Wage
Meal Allowance (Cash or meal card, value of utilizing the cafeteria)
Transportation Allowance (Service cost or ticket fee)
Fuel, Housing, Clothing Allowances
Bonuses and premiums showing continuity
Family and Child Allowances
Private Health Insurance (Portion paid by the employer)

Items Not Included in the Calculation:

Annual Leave Pay
Weekly Rest Pay
Overtime Pay
One-off incentive premiums
Traveling duty compensations (Per diem)

3.2. The Limiting Effect of the Ceiling

Regardless of how high the employee’s dressed gross wage is calculated, the severance pay amount to be paid cannot exceed the “Severance Pay Ceiling” valid on the date of termination.

Scenario Analysis:

Consider a General Manager who leaves the job in January 2026 with 10 years of seniority.

Gross Bare Wage: 150,000 TL
Fringe Benefits (Meal, Vehicle, etc.): 30,000 TL
Total Dressed Gross Wage: 180,000 TL

If the severance pay ceiling for the 2026/1 period is announced as 65,000 TL (with estimated civil servant raises);

Normal Calculation: 180,000 TL x 10 Years = 1,800,000 TL
Legal Payment: 65,000 TL (Ceiling) x 10 Years = 650,000 TL

The difference of 1,150,000 TL is not within the scope of legal severance pay. The employer is not obliged to pay this amount. However, if they wish to pay it due to freedom of contract, the legal nature and taxation of this payment change completely.

Section 4: Legal and Financial Regime of Payments Exceeding the Ceiling

In the private sector, it may be agreed upon in employment contracts or collective bargaining agreements to make a payment above the severance pay ceiling. The Court of Cassation accepts that the ceiling is of “relative mandatory” nature, meaning it can be increased in favor of the employee. However, this increase has serious consequences in terms of fiscal legislation.

4.1. Taxation Regime: Income Tax and Stamp Tax

The most distinctive feature of severance pay is that it is exempt from income tax pursuant to Article 25 of the Income Tax Law (GVK). However, this exemption is not unlimited; only the portion up to the severance pay ceiling is exempt.

Taxation of the Excess Portion:

The portion exceeding the ceiling is considered “wage” under Article 61 of the GVK. Therefore, the following procedures must be applied for the amount above the ceiling:

Income Tax: The amount exceeding the ceiling is added to the employee’s cumulative tax base and taxed according to the income tax tariff (brackets) valid for that year. Although tax brackets have increased with the revaluation rate in 2026, high-amount payments can quickly enter the 27%, 35%, or 40% brackets.
Stamp Tax: A stamp tax of 7.59 per thousand is deducted from the entire severance pay (below and above the ceiling). However, since the portion above the ceiling is considered a wage, it is subject to the stamp tax procedure in the payroll.

Example Application (2026):

If it is agreed to pay 100,000 TL severance pay to the employee, but the ceiling at that time is 60,000 TL;

60,000 TL: Only Stamp Tax is deducted. NO Income Tax.
40,000 TL (Difference): Both Stamp Tax and Income Tax are deducted.

4.2. Social Security Premium (SSI) Application

Whether the portion exceeding the ceiling is subject to SSI premiums is determined by Article 80 of Law No. 5510 and Court of Cassation precedents.

General Rule: Severance payments are not included in earnings subject to premium (SPEK).
Exception (Above Ceiling): Since the payment exceeding the ceiling loses its legal “severance pay” quality and acquires the nature of a “premium” or “bonus,” this excess amount must be included in the Earnings Subject to Premium base.

However, the 2026 SSI Ceiling comes into play here. The monthly SSI Ceiling for 2026 is 297,270.00 TL.

If the sum of the employee’s other earnings in the termination month and the severance payment exceeding the ceiling remains below 297,270.00 TL, SSI premium is deducted for the severance portion exceeding the ceiling.
If the total amount exceeds the SSI ceiling, no premium is deducted for the excess portion.

4.3. Prohibition of Exceeding the Ceiling in the Public Sector

The situation is different in public institutions and enterprises where more than 50% of the capital belongs to the state. Here, the severance pay ceiling is of absolute mandatory nature. Under no circumstances can payment be made above the ceiling. If made, a “Public Loss” occurs within the scope of Law No. 5018 and is recourse to the supervisors who made the payment. Additionally, an investigation may be opened against those responsible under the provisions of the Turkish Penal Code.

Section 5: Statute of Limitations in Severance Pay and Law No. 7036 Reform

The enforceability of the severance pay claim is limited to a certain period pursuant to the principle of legal certainty. The legal amendment made in 2017 created a revolutionary transformation in this field.

5.1. Law No. 7036 and the 5-Year Rule

The Law on Labor Courts No. 7036, which entered into force on October 25, 2017, added “Additional Article 3” to the Labor Law No. 4857. With this article, the general statute of limitations for labor claims, including severance pay, was reduced from 10 years to 5 years.

Text of Additional Article 3:

“Provided that it arises from the employment contract, regardless of which law it is subject to, the statute of limitations for annual leave pay and the indemnities specified below is five years:

a) Severance pay.

b) Indemnity arising from the termination of the employment contract without complying with the notification condition (Notice Pay).

c) Bad faith indemnity.

d) Indemnity arising from the termination of the employment contract without complying with the principle of equal treatment.”

This regulation aimed to prevent employee-employer disputes from being brought up years later, to prevent the obscuring of evidence, and to reduce uncertainty in employers’ financial statements (in terms of the obligation to set aside provisions).

5.2. Transitional Provisions and Problems Encountered in Practice

The legislator envisaged a complex transitional regime to protect acquired rights. Provisional Article 1 of Law No. 7036 distinguishes between terminations before and after the effective date of 25.10.2017.

Application Principles:

Terminations After 25.10.2017:For employees whose employment contract ended after this date, the statute of limitations is indisputably 5 years. In a dispute that will arise in 2026, if the termination occurred in 2021 and later, the 5-year period applies.
Terminations Before 25.10.2017:In this case, a dual distinction and comparison must be made:
- Statute of limitations periods that started to run before the effective date (25.10.2017) are principally subject to the old legal provisions (10 years).
- HOWEVER; if the unexpired portion of the statute of limitations is longer than the 5-year period envisaged by the new law, the remaining period serves as 5 years.

Detailed Example Analysis (Intersection Set):

Case: Suppose the employee’s employment contract was terminated on 25.10.2015.
Old Law (10 Years): The statute of limitations would have expired on 25.10.2025.
Law Amendment (25.10.2017): On the date of the amendment, there are still 8 years until the old period expires.
Rule: The remaining 8 years is more than the newly introduced 5-year period. Therefore, the period is reduced to 5 years.
Result: The statute of limitations is deemed to have expired 5 years after the effective date, i.e., on 25.10.2022.

Due to this transitional provision, the right to file a lawsuit for many employees who left their jobs between 2012-2017 expired much earlier than the 10-year period they expected. Although the effects of this transitional period have largely been exhausted as of 2026, courts must meticulously perform this calculation in retrospective receivable lawsuits.

5.3. Annual Leave Pay Statute of Limitations

Parallel to severance pay, annual leave pay receivables have also been subjected to a 5-year statute of limitations. However, there is a critical difference here: The right to annual leave can be used while working, but the “annual leave pay receivable” becomes due (arises) upon the termination of the employment contract.

According to Court of Cassation decisions, even if the employee has worked for 20 years, they can demand the pay for all leaves they did not use when the employment contract is terminated. The statute of limitations starts to run not from the date the leaves were earned, but from the date the employment contract was terminated.

For example, an employee retiring in 2026 can request money for unused leave from 2010. Because the right to receivable arose not in 2010, but on the date of termination in 2026, and the statute of limitations begins on this date.

Section 6: Commencement, Suspension, and Interruption of Statute of Limitations

6.1. Commencement Moment of Statute of Limitations: Termination vs. Notification

Consensus has formed between the 9th and 22nd (before merger) Civil Chambers of the Court of Cassation regarding the commencement of the statute of limitations period.

Rule: The statute of limitations begins at the moment the receivable becomes due (Turkish Code of Obligations – TCO 149). For severance pay, this date is the date the employment contract ends (termination becomes effective).
Termination with Notice: In terminations made by giving notice periods, the statute of limitations begins not on the date the notification is served, but on the date the notice period ends and the employee actually leaves the job.
Suspension Cases: Since the notice period will not run during periods of medical report (sick leave), the termination date is extended to the end of the report, and the statute of limitations is also postponed.

6.2. Cases Interrupting the Statute of Limitations (TCO 154)

Pursuant to Article 154 of the Turkish Code of Obligations, in the following cases, the statute of limitations is interrupted, and the running period is reset and starts running again from the beginning (as 5 years):

Acknowledgment by the Debtor: The employer accepting the debt. For example, paying an installment of severance pay or making a written statement such as “Our severance pay debt is… TL.”
Filing a Lawsuit or Enforcement Proceeding: The employee applying to the court or initiating enforcement proceedings for their receivable. However, there is a “Partial Lawsuit” risk here. The statute of limitations is interrupted for the amount claimed in the petition (e.g., 1,000 TL), but the statute of limitations continues to run for the remaining part (to be increased by correction/islah). Therefore, filing an “Indefinite Debt Lawsuit” is more advantageous as it interrupts the statute of limitations for the entire receivable.

6.3. Suspension of Statute of Limitations: Mediation and Pandemic Effect

Suspension of the statute of limitations is a situation that temporarily stops the running of the period and continues from where it left off once the cause disappears.

Mandatory Mediation: With Law No. 7036, mediation has become a condition for litigation in labor lawsuits. During the period from the date of application to the mediation bureau until the date the final minutes are drawn up, the statute of limitations stops. In a lawsuit to be filed in 2026, the 3-4 week period spent in mediation should be added to the 5-year statute of limitations period.
COVID-19 Pandemic (Retrospective Effect): With Law No. 7226, judicial periods were suspended between 13.03.2020 – 15.06.2020. The 2024 decisions of the 9th Civil Chamber of the Court of Cassation have ruled that this “suspension period” (approximately 3 months) must be taken into account in the statute of limitations calculation for receivables coinciding with this period and added to the 5-year period.

Section 7: Implementation Issues in Light of Court of Cassation Decisions

Court of Cassation decisions are the most important source filling the gaps in legislation and guiding practice.

7.1. Effect of Premiums on Severance Pay

Decision No. 2011/12171 of the 9th Civil Chamber of the Court of Cassation stated that continuous premium payments should be included in the wage basis for severance pay calculation (dressed wage). However, whether “sales premiums” that are sales-dependent, performance-based, and vary every month will be included in the calculation is evaluated according to the “continuity” element of the premium. If the premium has become an essential element of the wage, it is included; if it is an incidental success reward, it is not included.

7.2. “Error” in Exceeding the Ceiling and “Reclaiming”

It is controversial whether the employer can reclaim the excess payment from the employee (unjust enrichment) in case of inadvertently paying above the ceiling. The Court of Cassation accepts that if the payment above the ceiling has not become a “workplace condition” in workplace practice and is merely a calculation error, the excess payment can be reclaimed. However, if the employer knowingly made a payment above the ceiling, they cannot later demand a refund by claiming “I exceeded the ceiling.”

7.3. Correction (Islah) and Statute of Limitations Objection in Labor Receivables

In current decisions of the 9th Civil Chamber of the Court of Cassation, it is emphasized that when a correction (islah) is made for the rights reserved regarding the excess when filing the lawsuit, the defendant employer must raise a “statute of limitations objection” against the correction petition within the time limit. If the employer does not object to the statute of limitations for the corrected part, the court cannot take the statute of limitations into account ex officio (Statute of limitations is a defense/objection, not a procedural requirement).

Section 8: 2026 Projection

The year 2026 is recorded as a year in Turkish working life where the effects of high inflation continue, and the minimum wage and civil servant salaries (consequently the severance pay ceiling) have increased significantly. The main issues that employers and employees should pay attention to in this process are:

Cost Planning: Due to increasing ceiling amounts in 2026 (estimated above 60,000 TL), employers should update severance pay provisions in their balance sheets and plan their cash flows accordingly.
Tax Risk in Payments Above Ceiling: Making payments exceeding the ceiling under the name of “Severance Pay” and exempting them from tax can lead to serious tax penalties. Ceiling control (threshold check) should be automated in payroll processes.
Statute of Limitations Tracking: To be protected from the forfeiture effect of the 5-year statute of limitations period, employees should carefully track the period from the date of termination and correctly use the mediation process as a “reason for suspension.”
Legal Support: Uncertainties regarding which items will be included in the “Dressed Wage” calculation (Transportation, food, private health insurance, etc.) should be resolved with expert legal support.

Severance pay continues to be one of the most dynamic areas of labor law. The SSI ceilings and severance pay ceiling announced in 2026 will directly affect labor costs and require strategic decisions to be taken in the termination of employment contracts.

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