With the 18th paragraph added to the 23rd article of the Income Tax Law No. 193 with the Law No. 7349, “the part corresponding to the remaining amount of the minimum wage after deducting the worker’s SSI premium and unemployment insurance premium from the monthly gross amount of the minimum wage” is exempt from income tax, and the part equal to the gross amount of the minimum wage is exempt from stamp duty.
While there is no confusion regarding gross wages when the exception is applied here, differences of opinion occur among people who have a “net wage” agreement. The exception declared by law in the resulting calculation method for net wage contracted employees has been completely misunderstood by the practitioners of this job and they are trying to bring a new custom to the old village, so to speak.
As it is known, the critical point in the net wage agreement is that all variables are covered by the Employer when reaching the gross wage. When we look at the basic articles of the practice enacted by law, it is understood that although the word “exception” is used, this is not a tax base exception but the exemption figure to be deducted from the “Income Tax” corresponding to the “Income Tax Base of the Minimum Wage”. Because there is a very fine detail in the text of the law and the examples in the notification support this.
“In taxation of wage income exceeding the exemption, the income bracket amounts and rates on which the tax will be calculated are determined by taking into account the amounts within the scope of the exemption. The amount of tax to be paid is calculated by deducting the portion corresponding to the exemption amount from the tax amount found in this way.” In the notification, the exemption figure is deducted from the calculated tax instead of deducting it from the tax base. In fact, it is not the monthly wage but the taxable additional payment within the month, overtime, etc.
It clearly states that all progress payments must be deducted. Therefore, an evaluation situation arises from a different perspective rather than the exception calculation as we know it.
At the same time, in the section titled “Taxation of Wage Income” in the clause (4) of the communiqué, “taxpayers who have to make withholdings in Article 94 of Law No. 193 are listed, and in clause (1) of the first paragraph of the same article, it is stated that tax withholding will be made in accordance with Articles 103 and 104 on the wages paid to service personnel and the payments written in Article 61 and considered as wages.” It is said.
Employees are among the taxpayers listed in Article 94 of Law No. 193, and it is stated that this tax withholding will be made by referring to the wage definition.
At this point, I will evaluate the confusing issues and the drawbacks of “low gross wage” calculation made in calculation channels such as many websites and financial advisor applications for employees who have a “Net Wage” agreement in their contracts.
First of all, it is necessary to examine the situation in its legal dimension. How did I do it when I signed the contract with my employer? The salary agreements that employers make with their employees are basically;
– Gross Salary Agreement
– Net Salary Agreement
It is divided into two.
So, what is this low gross wage in the salaries calculated due to the exception introduced by Law No. 7349? For workers with a net wage agreement, it is the lower gross amount achieved by reducing the actual net amount agreed in the contract by “including the exemption amounts to the net salary” of the employee in the Net to Gross wage calculation. The correct thing is to reach the gross wage based on the agreed “net salary” of the “Net Wage Agreement” workers, without taking into account any exceptions.
Calculating the net wage, which is understood as the net payment amount to employees after “including exceptions” despite the “Net Salary Agreement” mentioned in bold letters above, will cause the employee to lose rights at many points and put businesses in a difficult situation at many points. For example;
– SGK Base will be low and will lead to underpayment of the worker’s premiums, including retirement. At the same time, naturally, SSI or incomplete premiums will be paid and the Employer will also come face to face with SSI.
– Due to the low gross wage, the Income Tax Base will also be low and underpayment of tax will occur.
– Due to the low gross wages, employees will be underpaid in severance and notice pay, and at this point, many lawsuits will be filed by workers against companies in the following years due to loss of rights.
– Since the focus is on the net payable figure, including exceptions, as of July 2022, the income tax bracket of the minimum wage increases, the exemption amount also increases, and the net wage actually paid to the person will be reduced, causing the person’s gross wage to also be reduced. This is a practice that, from a legal perspective, will bring the employer into conflict with both the SSI and the employee.
In payroll calculations, you can never take back the gross wage of an employee during the year, and you cannot take the actual net wage of employees with a “Net” contract backwards for any reason. This will not be evident in programs that currently calculate from low gross wages, but it will begin to be seen after the July 2022 period.
– In overtime calculations, in the logic of calculating the low gross wage, for example, a person with a net wage of 4500 TL is charged 4500 TL, including exceptions, but the overtime amount is still calculated from a unit wage of 4500 TL, and when a payroll is examined, it will be seen that the person is subject to the net overtime wage, including exceptions.
In this case, upon examination, it will be understood that the real unit wage of this person is 4500 TL as a result of calculating the overtime unit wage per month, but in the calculation from Net to Gross, it will be seen that the employee is given a net wage of 4500 TL, including exceptions, and the employer will be in a difficult situation again.
Why is it wrong to include wages for net contracted personnel?
As stated in the notification of the amount of the exemption introduced by Law No. 7349, the payments included in this exemption are clearly stated in the definition of wages in Article 61 of the Income Tax Law No. 193.
Therefore, it has been stated that the exemption figure can be subject to exemption not only on the worker’s monthly wage but also on various additional allowances. For this reason, especially in payroll programs, writing the monthly net wage for “Net Agreement” employees and therefore expecting the net wage to return results, including exceptions, is extremely wrong and, as we mentioned above, a practice that causes the employee to lose rights.
You can see the article of the law and the explanation in the notification below.
“Wages are benefits that can be represented by money and are provided with money and salaries given to employees in return for services in a specific workplace under the employer.
“Whether the wage is paid under the name of allowance, compensation, cash compensation (financial liability compensation), allocation, raise, advance, dues, attendance fee, premium, bonus, expense provision or under other names, or is determined as a certain percentage of the earnings, provided that it is not a partnership relationship, does not change its nature.” Therefore, all payments and benefits paid to service personnel in the form of monthly wages, overtime, premiums, bonuses, expense allowances and other names are also considered within the scope of wages.
We have explained the situation according to the income tax law, but if we also evaluate the situation in terms of SSI;
In paragraph c of article 80 of the “Social Insurance and General Health Insurance Law” No. 5510, it is stated that “Except for the exceptions specified in paragraphs (b) and (c) of the above paragraph, all payments under any name are subject to premium-based earnings. Exemptions and exceptions in other laws stating that they should not be subject to premium are not taken into account in the implementation of this Law.” It is said.
In this sense, although it is clearly stated that there will be no deduction from the Income Tax base, the missing SSI premium, which is reached without taking into account the exempt Income Tax Base in the wage calculation while reaching the Net to Gross and is calculated on this basis, constitutes another basis of incorrect calculation.
How correct is it to think of payroll calculations as a simple monthly wage and calculate the exception accordingly?
On the other hand, considering the payroll in its simplest form and reaching the net to gross figure as if it were calculated solely with wages or additional payments at most, will again cause many errors. As it is known, the things to be done when determining income tax and income tax base are clearly written in paragraphs (2), (3), (4) of the section titled “Taxation of Wage Income” of the communiqué.
In paragraph 2, it is stipulated that in determining the net amount of the wage, the remaining amount is the total wage after deductions and payments such as insurance premiums, personal insurance premiums and union dues are deducted.
In clause number 3, wage payments exempt from income tax in the 23rd and subsequent articles of Law No. 193, and disability discount in Article 31 of the same Law are included. Exemptions and discounts are shown on the wage slip, but are not included in the income tax base.
In paragraph 4, the taxpayers who are obliged to make withholdings in Article 94 of Law No. 193 are listed, and in paragraph (1) of the first paragraph of the same article, it is stated that tax withholdings will be made in accordance with Articles 103 and 104 on the wages paid to service personnel and the payments written in Article 61 and considered as wages.
In support of the provisions in this section, in the section titled “Income tax exemption for those who earn wage income above the minimum wage” of the same communiqué, it is stated that “From the wages and income considered as wages earned by service personnel, the discounts in Articles 31 and 63 of Law No. 193 will be deducted and, if any, wage payments within the scope of the exemption regulated in Articles 23 and subsequent articles, except for clause (18) of the first paragraph of Article 23 of the Law, will be deducted from income tax.” It will not be included in the tax base.
“The tax will be calculated by applying the income tax tariff to the income tax base determined in this way.”
In the light of these provisions, if we examine, as an example, people who have a net minimum wage agreement;
Let’s assume that an employee, who is thought to have gone from 4253.4 net to 5004 gross, submits a 300 TL premium payment certificate to his employer for private insurance payment during the month. Based on this, since a net is written including the wage base (since we followed the calculation method, which I think is wrong), the person’s income tax is not calculated. However, the provision in the communiqué states that the payment due to private insurance will be taken into account first.
It is clear that the tax base will have to be reduced due to the private insurance payment here, and that income tax must be calculated first. Accordingly, if the net of an amount for which income tax will be calculated is 4253.4, it is impossible for the gross amount to be 5004 TL. At the same time, we can easily see that the GV amount that the personnel will benefit from the exemption is decreasing below 638.01. Therefore, will we still report the exemption amount of the relevant employee as 638.01? I leave the comment to you.
To put it another example: According to the common opinion in the market, the gross wage of a person working with a net wage of 5,000 TL is 6048.33 TL. When you go to the net of this amount, even though the person has a net agreement, exceptions are included in his fee and the net payment amount is increased to 5,000 T.
However, when the person submits an 80% report for his disabled child (since it is above the minimum wage, he will be able to receive it in 2022). In the provision clearly stated in the notification, when we deduct 2000 TL from his GVM, which is 5141.08, the 300 TL we will give to the person will be reflected in the total net payments, but the person’s GVM will remain 3141.08. In this case, the exemption amount to be used will also be reduced and the net 5,000 TL promised to the employee will not be paid from this amount.
Normally, if the exemption amount was not only charged to the wage, it should first be used for disability deduction from the income tax base and then used for exemptions. With this example, we see many mistakes made in calculation logic. Decreasing the net wage without the employee’s permission, failure to pay the promised amount to the employee, etc. Employers will face many difficult situations.
Because the method of calculating the personnel from net to gross leads to completely wrong results, since the wrong and incomplete salary is calculated from the very beginning and the logic that all exceptions can only be used in wages is prioritized. The correct gross amount here should be 6993.89 TL.
Even when a small private insurance or disability discount value is included in the calculation, we understand that, with this logic, the net of the minimum wage is 3577.41 TL. Including exceptions (unless there is an amount that prevents us from getting the full exemption as stated in the example above), it is 4253.4, and it is obvious that taxes should be calculated first.
Based on this, we can easily say that it is extremely wrong to include the exception in the net wage amounts of the “Net Wage Agreement” personnel and to attribute the exception only to the wage.
Currently, in the section titled “Wage slip and calculations” of the communiqué, “Article 238 of the Tax Procedure Law No. 213 dated 4/1/1961 includes provisions regarding wage slips and the information that must be included in the wage slip is listed, and it is stated that employers can prepare their wage slips as they wish by including this information.”
The examples given in the previous sections of this Communiqué have been prepared to determine the amount of tax that will not be collected by exception.
Therefore, it is possible to make wage slips and calculations based on payroll preparation by different methods that will produce the same results as the examples, in other words, in a way that the tax that will not be collected due to the exemption does not exceed the tax of the minimum wage in the relevant month. With the explanation, it is clear that there is no reservation in writing the net amount of the minimum wage withheld as 3577.41, and as long as it is seen that at least 4253.4 net payment is made to the employee in his payroll, the exemption amounts are not reflected to the employee and remain below 4253.4, and the gross amount is 5004 TL, there is no problem in calculating 3577.41 net to gross.
In this case, when reaching the gross amount in the clearly stated and clearly understood wage, we must first take into account these taxable situations, calculate the gross amount without considering the exception, and then include the exception in the calculations based on the total of all earnings. When reaching net to gross, it first deducts the exception from the wage and then calculates the other parts of the gross amount, which not only subtracts the low gross wage but also causes loss of rights.
So what should be the solution?
In this case, in order to solve the issue that causes confusion, employers who have a “Net Wage” agreement and want to make “Net Payment Including Exceptions” (see I say net payment, not net wage) will determine the raises in the new year, while it will not be appropriate for employees to do this as long as the “Net Wage” agreement continues. Because in the net wage agreement, SSI and Tax liability belongs to the employer, and if the exemption amount benefiting from Income and Stamp tax is paid to the employee, it may be considered as an additional benefit within the logic of “interests that can be represented by money” in the wage definition of the Income Tax Law No. 193, and tax may be accrued on it.
Since there is no statement in the law regarding the exemption application that this amount is exempt from taxes if it is paid to the employee in net payments, the interpretation by the Revenue Administration may be that a tax may be calculated.
You will say that there is a net contract and when calculated on the net fee, the cost is high. Yes it will come out. There will be a difference in cost between the person who earns 5000 TL net and the person who makes an agreement to earn 5000 TL on average monthly throughout the year (working on a gross wage).
Because the employer is obliged to give the exemption to the employee in the gross wage, and in the case of net wage agreements (since he is responsible for taxes and social security), the obligation to pay the employee is not specified in the law and communiqué, and in case of payment, it is assumed that it is provided as an additional benefit according to the provision in Article 61 of the Income Tax Law, and the Revenue Administration applies income and stamp tax and even SSI (Article 80 of the “Social Insurance and General Health Insurance Law” No. 5510).
According to the article), situations may arise where premiums must be subjected to. To give an example, in the Minimum Subsistence Allowance application it was clearly stated that it is paid to the worker.
The solution here, if you want to go through the “Net Payment Including Exceptions” route, is to make an additional protocol to your contracts by agreeing with the employees and obtaining their consent, and then switch to a “Gross Wage” agreement. If the net wage agreement is to be continued, the calculation method should be the same as before.
Otherwise, since the method in which the low gross wage is calculated will always be valid for gross contracts, it will not be a valid calculation method for personnel who have a “Net” wage agreement in their employment contract.
Apart from all these, an official notification to be published by the Revenue Administration and the Social Security Institution will make a statement that all this exemption amount is exempt from all kinds of taxes and insurance premiums, and we will all breathe a sigh of relief, and ensuring that employers who want to give the exemption to their employees and want to reduce their costs, just like the gross wage earners, will also be among the solution points.
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