Once you've made the choice to hire contractors in Turkey, there's another vital decision to tackle: how to seamlessly pay them for their services.
You have various choices for paying international contractors, but it's crucial to be careful and select a payment method that's both reliable and fully compliant with Turkish labor and tax laws.
Read on as we walk you through the process of running payroll for your Turkish contractors, including proper classification, seamless onboarding, and compliant payment procedures—so you can rest assured your workforce is well taken care of.
Step #1: Classify your workers in Turkey
In Turkey, just like in many other countries, it's essential to understand the distinctions between freelancers and full-time employees.
Misclassifying Turkish contractors can result in hefty penalties, fines, lawsuits, back taxes, and damage to your reputation. Moreover, there's a risk of losing intellectual property rights if work created by a misclassified worker was done during their time at your company.
Now, let's address the challenge: Turkish employment law does not provide a clear-cut differentiation between an employee and an independent contractor.
The government doesn't just rely on how a business labels a contract but looks at the actual content and nature of the relationship to determine a worker's status. If your relationship with a contractor is similar to that of an employee—with an oral or written contract and working under your authority—they might be considered an employee, even if not explicitly labeled as such.
In these cases, the Turkish Labor Act and the Turkish Code of Obligations Act, which governs individuals providing personal services, will apply.
The good news is that you can use specific tests to figure out if a hire is legally classified as an employee or a contractor. These tests bring clarity and help you stay compliant with the law.
High level of worker control. Contractors enjoy more freedom in how they tackle their work and when they get it done.
More direction from the employer. Employees receive more guidance from their employer, including specific instructions on how to perform tasks and set working hours.
Tools owned. Contractors use their own equipment and tools.
Tools given. Employees typically receive equipment and tools from the company.
Less integrated. Contractors are independent, often working remotely and using their personal resources.
Highly integrated. Employees are more integrated into the employer's organization, many even working on-site.
No entitlement to employee benefits. Contractors are not entitled to company benefits or protections and handle their taxes independently.
Entitled to employee benefits. Employees receive benefits like minimum wage, overtime pay, vacation pay, health insurance, retirement plans, and paid sick leave.
Time-bound engagement. Contractors are hired for specific projects or timeframes.
Indefinite engagement. Employees are hired on an indefinite basis.
Risk of loss and more liability. Contractors may shoulder more risk and liability for their work.
No risk of loss and liabilities. Employees are generally protected from work-related liabilities.
Subcontracting allowed. Contractors can delegate work to others or hire subcontractors.
Hands-on approach to work. Employees can't delegate responsibilities without company approval and are expected to do their own work.
Step #2: Determine the best way to pay your contractors in Turkey
The next step is to choose a payment method that suits both you and your contractors. With the rise of global workforces, you have several options for making international payments confidently:
- Bank transfers: You have two choices here. You can either open a Turkish bank account to directly deposit funds into your contractors' accounts, or you can utilize your own bank for a global wire transfer. Both methods offer secure and reliable ways to send payments.
- International money orders: While this method has been around for a while, it might not be the most efficient. For starters, it's slow since you need to physically purchase the money order, and your contractor must physically deposit it upon receipt. Additionally, there may be fees and less favorable exchange rates involved.
- Digital wallets or payment platforms: Digital payment platforms offer speed and convenience, but keep in mind that not all options (for example, PayPal or Venmo) are available in Turkey. However, you can explore alternatives such as PayU and BKM Express to transfer money across borders. Another thing to note is that exchange rates may fluctuate, so it's essential to stay updated on any changes.
- Global payroll services: Contractors usually operate differently from employees and typically invoice for their services. However, with Rippling, you can simplify the process and include both your Turkish employees and contractors in a single pay run, no matter where they are.
Step #3: Use global payroll software to process payments for Turkish contractors
There are several options for paying contractors in Turkey, as listed above. However, the fastest and most straightforward method is using global payroll software. It streamlines the process and ensures smooth and efficient payments to contractors.
With Rippling, you can pay employees and contractors, across the world, in a single pay run. Here’s a preview of how Rippling’s global payroll system works:
Step #4: Ensure your Turkish contractors have the right tax information
Employers aren't responsible for deducting taxes from independent contractors' paychecks in Turkey; contractors must file and submit their income tax returns. But you may need them to complete important documentation to confirm their contractor status.
For instance, US-based companies intending to hire contractors in Turkey must adhere to the tax compliance regulations established by the IRS. If this applies to you, you must collect Form W-8BEN from each of your contractors working outside the US. Additionally, you might need to complete the 1096 Form, which is used for reporting payments made to independent contractors.
Navigating tax compliance for international contractors can be complex, and companies often make errors. However, avoiding these mistakes is crucial: Failing to file the required tax paperwork can lead to significant penalties for your company.
That's where a global payroll system comes in. With Rippling, you don't have to worry about all the calculations and filing. Rippling handles the paperwork and administrative tasks while you focus on what matters most to your business.
Frequently asked questions about running payroll for contractors in Turkey
Do you need to withhold taxes when paying contractors in Turkey?
No. In Turkey, employers are not responsible for withholding taxes from payments made to independent contractors. Contractors are typically responsible for handling their own tax obligations.
Does Turkey's minimum wage apply to independent contractors?
No, independent contractors are not entitled to the minimum wage in Turkey.
Do Turkish contractors receive employee benefits?
No, independent contractors are not entitled to employee benefits according to Turkish law. In fact, offering employee benefits can even increase the risk that courts will consider the contractors to have been misclassified.
Can payments to contractors in Turkey be made in a foreign currency?
It’s advised to pay Turkish contractors in their local currency (Turkish Lira), but you can pay them in your own currency. Just make sure to specify the agreed currency in the contract or payment terms clearly to avoid misunderstandings.
Is it possible to manually pay contractors in Turkey?
While manual contractor payments are possible, it's worth noting that this approach can become burdensome and risky as your business expands and deals with multiple contractors—both in Turkey and internationally.
Some of the risks include:
- Compliance. Running payroll manually can lead to human error and omission. Protect your company with Rippling, which automatically enforces compliance with any applicable local laws—regardless of where your contractors are located.
- Security. Manually processing payroll also leads to security risks, especially if you use spreadsheets or paper records. This exposes sensitive employee information to loss or misuse.
The easiest solution is to automate your payroll with Rippling. Sync all HR data, and pay employees and contractors worldwide quickly and compliantly—in a single run.
How do you turn a contractor into an employee in Turkey?
Turning a contractor into a full-time employee in Turkey can be a wise decision, especially for valuable talent that plays a crucial role in your company's achievements. By providing benefits and ensuring compliance, you can keep them on board and reduce the risks of legal issues related to misclassification.
However, converting a contractor to an employee involves several important steps. These include updating their employment contracts, adjusting their pay, offering statutory benefits, and handling tax and payroll deductions.
Effortlessly manage contractors, no matter where they are
With Rippling, you can quickly transition contractors to full-time employees. Rippling handles everything so you can effortlessly manage your contractors and stay compliant from onboarding to offboarding.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.