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Transition payment

This information is provided by

Netherlands Enterprise Agency, RVO

If you dismiss an employee or you do not extend their contract, you have to compensate them for expected costs that help them find new employment. This applies to permanent contracts as well as fixed term contracts. It also applies to on-call contracts. The payment can then be used for schooling or outplacement. This is called a transition payment. Your employee is entitled to transition payment from the first day of employment.

When do you pay a transition payment?

  • When you dismiss an employee.
  • When you do not extend the contract of an employee.
  • An employee resigns following seriously culpable conduct or neglect on your part. In this case, the sub-district court may order you to pay an additional fine as well.

In some cases you do not need to pay a transition paymentExternal link (in Dutch):

  • In the event of dismissal by mutual consent.
  • If you dismiss your employee on grounds of seriously culpable conduct or neglect on his part.
  • If you dismiss an employee who is not yet 18 years old and worked on average a maximum of 12 hours per week .
  • When your company is facing bankruptcy, has filed for suspension of payment or if you are in a debt restructuring arrangement.
  • When your employee has reached retirement age.
  • When a different arrangement has been made in your collective labour agreement. This only applies if dismissal is for economic reasons
  • When you offer to renew your employee’s temporary contract before it ends, it does not make any difference if they accept or not
  • When you and your employee agree on a new temporary employment contract while the old or current contract is still valid.

Calculation of transition payment

The transition payment depends on the monthly salary and number of years of employment. You pay 1/3 of the gross monthly wage per year from the first day of employment. The maximum amount is €81,000. For dismissals on or after 1 January 2020, use this online calculation toolExternal link (in Dutch) to see how much you need to pay. Use this online calculation tool External linkin case of dismissals that took place before 1 January 2020.

To calculate the transition payment, you will need to calculate the gross monthly salary:

  • Permanent contract: the gross hourly wage x the fixed number of hours per month
  • On-call contract: the gross hourly wage x the average number of hours per month
  • Piecework or commission: the average pay the employee has received in the last 12 months before the end of the contract

When applicable you will need to add:

  • holiday allowance
  • overtime compensation
  • shiftwork allowance
  • bonuses
  • profit distribution
  • year-end bonuses

Transition payment in case of dismissal after illness

In certain instances you may dismiss a sick employee, for instance during the probationary period or when you face bankruptcy. This makes no difference to the working time or to the amount of the gross monthly salary. The calculation of the transition payment remains the same.

If you dismiss an employee after long-term illness of more than 2 years, you may be eligible for a compensation of the transition payment. You must have tried all you can for their reintegration. From 1 April 2020 you can apply for compensationExternal link with the Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen, UWV, in Dutch). It is possible to apply for dismissals that took place in the past: compensation is available for employment that was terminated as of 1 July 2015.

Paying less transition payment

If you incur costs to help your employee find another job, you may deduct these from the transition payment. You can look up which costs are deductible in the Dutch-language factsheet on transition paymentExternal link. These costs can include courses that offer the employee new skills they can use outside of their existing job and a longer notice period. You may only deduct these costs if you agreed this beforehand with your employee and have their written consent.

Payment arrangement

If you cannot pay the transition payment at one, you may arrange for staggered payment over a period of at most 6 months. You must pay the legal interest over that part of the amount that has not been paid starting 1 month after the end of the contract.

Changes to transition payments

A new law came into force on 1 January 2020 to regulate flexible work, dismissal and the financing of unemployment benefit. Through the Balance Employment Market Act (Wet arbeidsmarkt in balans, WAB), it is more attractive for employers to offer a fixed contract rather than a flexible one. At the same time flex workers have more stability in their job and income. This law affects:

  • Dismissals and transitional payments
  • Temporary employees and chain provision
  • Payroll staff and stand-by workers

The new law also brings fixed and flexible contracts into line with one another with regard to transition payments to make it more attractive for employers to offer a fixed contract rather than a flexible one. Find out more about the Balance Employment Market Act.

This article is related to:

This information is provided by

Netherlands Enterprise Agency, RVO