What is a transition payment?
A transition payment is a statutory severance payment. Your employee can, for example, use this money for training that is needed for another job. The compensation applies to permanent and temporary contracts. Also for on-call contracts. Your employee is entitled to a transition payment from the first day of the employment contract.
Dismissal only for good reasons
You may only dismiss an employee if you have a good reason to do so. See the valid reasons for dismissal.
When do you pay a transition payment?
You pay your employee transition 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, example, discriminated against an employee)
- if you do not comply with the rules for reintegration.
When do you not pay a transition payment?
In some cases you do not need to pay a transition payment (in Dutch):
- In case of dismissal by mutual consent. You draw up a a settlement agreement.
- If you dismiss your employee on grounds of seriously culpable conduct or neglect on their 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 (CAO). This only applies if dismissal is for economic reasons. For example, a bankruptcy or business closure.
- When you and your employee agree on a new temporary employment contract while the old or current contract is still valid. The condition is that this contract takes effect no more than 6 months after the end of the previous contract.
- Before the expiration of the old contract, you offer your employee to extend their temporary contract. Or you offer an equivalent contract
Amount of transition payment
The amount of the transition payment depends on the gross monthly salary and the number of years that your employee worked for you. Your employee is entitled to 1/3 gross monthly wage per year worked, from the first working day. There is a maximum compensation. Did your employee earn more? Then you pay a maximum of one gross annual salary.
Read more about the amount of the transition payment (in Dutch) on Rijksoverheid.nl.
How to calculate a 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.
You calculate the transition payment over the entire employment period. So, also for a period shorter than a year. You first calculate the entire years of service and then the remaining period. Use this online calculation tool (in Dutch) of the Ministry of Social Affairs and Employment.
Structure of transition payment equal for everyone
The Balance Employment Market Act (Wet arbeidsmarkt in balans, WAB, in Dutch) has been in force since 1 January 2020. As a result, all employees accrue severance pay in the same way. Previously, for example, people over 50 and employees who had been employed for more than 10 years received a higher compensation. In the event of dismissal, you must also pay your employee severance pay from the first day of employment.
Calculate the gross monthly salary
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.
Add other wages or holiday allowance
Does your employee receive other wages or holiday allowance? In that case, add this to the basic gross monthly wage. These include:
- holiday allowance
- overtime compensation
- shift work allowance
- profit distribution
- year-end bonuses
Transition payment in case of dismissal after illness
In certain cases you can dismiss an employee after long-term illness. For example, after 2 years of illness. You must then pay your employee a transition payment.
The exceptions for paying a transition payment also apply to sick employees. For example, if your company goes bankrupt, you do not have to pay a transition fee.
Calculate the transition payment for a sick employee
The calculation of the transition payment is the same as for the dismissal of employees who are not ill. So, you pay your employee transition compensation for the entire period that he was employed, up to the day of dismissal. This includes the period that your employee was ill. The gross wage stated in the contract applies. Even if the wages were lower during illness or leave.
Use the calculation tool (in Dutch) of the Ministry of Social Affairs and Employment to calculate the transition allowance. You complete this in the same way as you would for a non-sick employee. You can request compensation from the UWV (Employee Insurance Agency, in Dutch) for the paid transition payment.
Compensation for SMEs ending their business
Do you plan to end your business due to retirement or illness? Then your employees are entitled to a transition payment. Do you employ less than 25 employees? Then you can request compensation from the UWV (in Dutch)
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 factsheet on transition payment (in Dutch). 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 once, you can 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.