Transition payment after dismissal

What is a transition payment?

When do you pay a transition payment?

You pay your employee a transition payment when:

• you dismiss an employee.
• you do not extend the contract of an employee.
• if your employee resigns after serious misconduct on your part. Or if you failed to take action when you should have done so. For example, in the event of a disrupted working relationship due to discrimination.
• if you do not comply with the rules for reintegration.

When do you not pay a transition payment?

There are also situations where you do not have to pay a transition payment when you dismiss an employee. A transition payment is not mandatory when:

• your employee agrees to the dismissal (mutual consent). Together you draw up a settlement agreement. This may include severance pay.
• you dismiss your employee because they acted in a seriously wrongful manner or were negligent.
• 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 only 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 new contract must take effect within 6 months after the end of the previous contract.
• you enter into a new fixed-term contract with your employee, which begins within 6 months of the end of the previous contract. But you must enter into this new contract while the old one is still in force.

How much is a transition payment?

Your employee is entitled to one-third of their gross monthly wage per year worked. This is calculated from their first working day. So, for a 9-year employment agreement with a gross monthly salary of €3,000, the compensation is €9,000.

There is a maximum limit for the transition payment. Did your employee earn more than this limit? Then you pay a maximum of one year's gross salary. The maximum amount is calculated annually based on contract wages.

Find out more about the amount of the transition payment on Rijksoverheid.nl (in Dutch).

How do I calculate a transition payment?

You calculate the transition payment over the entire employment period. So, also if an employee has worked less than a year in total. You first calculate the entire years worked and then the remaining period.

Use this online calculation tool (in Dutch) of the Ministry of Social Affairs and Employment to check whether your employee is entitled to a transition payment, and to find out how much the transition payment is.

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
• bonuses
• profit distribution
• year-end bonuses

Transition payment in case of illness

After 2 years of illness you can dismiss an employee after a long-term illness. You must then pay your employee a transition payment. You pay your employee a transition payment for the entire period that they were employed, up to the day of dismissal. This includes the period that your employee was ill.

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. You pay the transition payment for the entire period that your employee was employed, including any periods of illness. The gross wage stated in the contract applies. Even if the wages were lower during illness or leave.

Use the calculation tool (in Dutch) the same way as you would for a non-sick employee.

Paying less transition payment

If you incur costs to help your employee find another job, you may deduct these from the transition payment. These costs can include retraining, for example, or coaching support to find a new job.

Payment arrangement

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