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Do you dismiss an employee or you do not extend their contract? You have to compensate them for expected costs they incur to help them find new employment. 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. This applies to permanent contracts as well as fixed term contracts. It also applies to on-call contracts.
When do you pay a transition payment?
You pay your employee transsition payment when:
- you dismiss an employee
- you do not extend the contract of an employee
- an employee resigns following seriously culpable conduct or neglect on your part (if you for instance discriminated against an employee)
- you dismiss an employee who has been ill for over 2 years (you can apply for compensation of transition payment for long-term disability to the Employee Insurance Agency (UWV, in Dutch)
In some cases you do not need to pay a transition payment (in Dutch):
- In case 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 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 set yearly and is €84,000 in 2021. For dismissals on or after 1 January 2020, use this online calculation tool (in Dutch) to see how much you need to pay. Use this online calculation tool in 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
- shift work allowance
- 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. You can apply for compensation 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.
Compensation for SMEs ending their business
Are you a small business owner and do you plan to end your business due to retirement or illness? You may get compensation for the transition payment you have to pay your employees. If your business ends because you die, the compensation may still be awarded to your heirs or co-employers.
To be eligible for this compensation a number of conditions apply (in Dutch), for instance:
- you had at most 24 employees (on average) in the year before you end your business
- the Employee Insurance Agency (UWV) has granted permission for the dismissal of at least 1 employee
- the employment agreement is ended because the job ceases to exist as a result of the ending of your business due to retirement or illness, or death of the employer
- the gross amount of the transition payment has been paid in full on or after 1 January 2021 or within 9 months of the permission for dismissal
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 payment. 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.
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.