Why should a salary increase policy be written down?
In periods of high inflation, raise decisions are among those with the biggest effect on employee retention and employer cost. Without a written policy, every raise cycle turns into a new negotiation: managers propose different rates, employees do not understand how decisions are made, and the budget is often exceeded. A written salary increase policy reduces this uncertainty by setting out the raise cycles, raise components, approval flow and communication rules in advance.
This guide is written for foreign companies with employees in Turkey. It covers types of raises, how to separate inflation adjustments from merit increases, the mid-year raise decision, how a gross raise affects net pay and employer cost, and the implementation steps. The raise rates in the examples are for illustration only; for official inflation data, rely on the latest release from TÜİK (Türkiye İstatistik Kurumu, the Turkish Statistical Institute).
What types of salary increase are there?
| Raise type | Purpose | Who receives it |
|---|---|---|
| General raise (inflation adjustment) | Protect purchasing power | Usually all employees at the same rate |
| Merit raise | Reward strong performance | Different rates depending on performance |
| Promotion raise | Reflect the responsibility of a new role | Employees who are promoted |
| Market adjustment | Correct pay that has fallen behind the market | Employees below the salary band |
| Mid-year raise | Offset unexpected price increases during the year | As defined in the policy |
| Minimum wage alignment | Comply with the statutory minimum wage | Employees below the new minimum wage (mandatory) |
How is the pay increase rate set?
The total pay increase rate is usually the sum of several components. In practice, companies first set a raise budget and then allocate it across components.
- Inflation reference: The annual or periodic CPI change published by TÜİK and the company's own expectations are reviewed. If the decision is made before the official figure is published, the policy should say which data will be used.
- Market data: Salary surveys and sector raise trends are reviewed.
- Ability to pay: The revenue plan, profitability and cash flow set the upper limit of the budget.
- Minimum wage change: When the minimum wage rises, raises for employees near the floor become mandatory and compression in the salary band is reviewed.
- Merit and promotion share: Part of the budget is reserved for differentiated raises.
For example, a company may set the total budget as a percentage of payroll cost, distribute part of it as an equal general raise and the rest as merit raises. Rates vary from company to company; we do not assume any particular inflation rate here.
How do you separate the inflation adjustment from the merit raise?
Merging the inflation adjustment and the merit raise into a single rate leaves employees unsure which part was given for what. Many companies therefore show the two components separately in the raise letter. The performance matrix below is illustrative; the rates depend on the company's budget.
| Performance result | General raise | Merit raise (example) | Total (example) |
|---|---|---|---|
| Below expectations | Company general rate | 0% | General raise only |
| Meets expectations | Company general rate | 2% | General raise + 2 points |
| Exceeds expectations | Company general rate | 4% | General raise + 4 points |
| Outstanding | Company general rate | 6% | General raise + 6 points |
It is common to add the employee's position in the salary band to the matrix: a high performer near the bottom of the band gets a higher rate, one near the top a lower rate. For how performance results are produced, see the year-end performance review guide.
When is a mid-year raise given?
A mid-year raise is an additional increase outside the annual raise cycle, usually around the middle of the year. It is not a legal obligation (except for minimum wage changes and collective agreement terms); it depends on company policy and budget. To make the decision easier, define a trigger in the policy in advance:
- Official inflation data exceeding the value assumed at the annual raise by a set margin.
- A mid-year change in the minimum wage that compresses the salary band.
- Rising turnover in certain roles or fast-rising market pay.
When the trigger is written down, expectations about a mid-year raise are easier to manage. Employees are told under which conditions a mid-year raise will be considered, and that this is not a commitment.
How does a gross raise affect net pay and employer cost?
When a raise is given on gross pay, the increase in net pay can be lower because of income tax brackets. The table below shows the effect of an example 10% gross raise using a January calculation (minimum wage exemption applied, a non-manufacturing workplace, employer SGK share at 19.75% with the 2-point Treasury discount). SGK is the Sosyal Güvenlik Kurumu, Turkey's Social Security Institution.
| Item | Before raise | After raise (10% example) | Difference |
|---|---|---|---|
| Gross pay | TRY 60,000.00 | TRY 66,000.00 | TRY 6,000.00 |
| Employee SGK and unemployment share | TRY 9,000.00 | TRY 9,900.00 | TRY 900.00 |
| Income tax (after exemption) | TRY 3,438.67 | TRY 4,203.67 | TRY 765.00 |
| Stamp duty (after exemption) | TRY 204.70 | TRY 250.24 | TRY 45.54 |
| Net pay | TRY 47,356.63 | TRY 51,646.09 | TRY 4,289.46 |
| Employer cost, outside manufacturing (21.75%) | TRY 73,050.00 | TRY 80,355.00 | TRY 7,305.00 |
In manufacturing the Treasury discount is 5 points and the employer SGK share is 16.75%; with the same 10% raise, employer cost rises from TRY 71,250.00 to TRY 78,375.00, a difference of TRY 7,125.00. In this example, gross pay rises by 10% while January net pay rises by about 9.06%. As the year goes on and the cumulative tax base enters higher brackets, monthly net pay falls, and the raised salary reaches a higher bracket earlier. To see the net change through the year, use the salary calculator, and for total cost use the employer cost calculator. Current rates and brackets are on the payroll parameters page.
Should you give net or gross raises in Turkey?
Some companies commit to raises on net pay. This is easy for employees to understand, but gross pay must be recalculated every month as tax brackets change, and employer cost becomes hard to predict. A gross raise fixes the cost, but the employee's monthly net pay fluctuates during the year. Whichever method is chosen, it should be stated clearly in the employment contract and raise letter. For how gross-to-net payroll works, see how to calculate payroll in Turkey.
What should a salary increase policy cover?
- Scope: Which employee groups are covered (employees on probation, new hires, part-time staff).
- Raise cycles: The annual raise date and any mid-year review date.
- Raise components: General raise, merit raise, promotion and market adjustment.
- Reference data: Which official inflation data is used and the source of market data.
- Pro rata rule for new hires: Whether employees hired during the year receive the full or a proportional raise.
- Approval flow: Manager proposal, HR review, budget approval and final sign-off.
- Communication: Content of the raise letter, delivery date and the manager's role in the conversation.
- Equity check: Reviewing whether unexplained pay gaps arise between employees doing the same work.
For the impact of pay transparency rules, see the EU pay transparency directive guide, and for minimum wage changes see the 2027 minimum wage guide.
What is pay compression and how can you prevent it?
Pay compression occurs when the minimum wage or the general raise rate rises faster than raises for experienced employees. The pay gap between a new hire and an employee with several years of service narrows or even disappears. Compression lowers the motivation of experienced staff and increases the risk that they leave.
To prevent compression, check the following during the raise cycle:
- Whether the gap between grades near the minimum wage and the next grade has fallen below the minimum margin set in the policy.
- Whether new hire offers exceed the pay of current employees in the same role.
- Whether the minimum and maximum of each salary band are updated along with the general raise.
These checks may require part of the raise budget to be reserved for fixing compression. That share should be set at the start of budget planning.
How should raise decisions be communicated?
How a raise is explained matters as much as the rate. It is good practice for the manager to hold a short conversation, explain the components in the raise letter and share expectations for the next period. An employee who receives no merit raise should hear the reason and the areas for development clearly, which improves the chance of progress next time. Remember that pay data is confidential and processed as personal data under KVKK (Kişisel Verilerin Korunması Kanunu, Turkey's Personal Data Protection Law).
How do you run the raise process step by step?
- Set the budget and reference data (finance and HR).
- Prepare performance results and salary band positions.
- Open the proposal screen or spreadsheet to managers.
- HR checks budget, equity and consistency (calibration).
- Senior management approval.
- Enter new salaries in payroll with the correct effective date.
- Distribute raise letters and hold manager conversations.
At the end of the cycle, comparing the actual total increase with the budget and noting the reasons for any variance makes planning the next cycle easier.