What is a transition payment?
A transition payment is a mandatory payment you must make when you dismiss an employee. Your employee can use this money to, for example, retrain 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.
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.
- an employee resigns following seriously culpable conduct or neglect on your part. For example, if you discriminated against an employee.
- 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 on grounds of seriously culpable conduct or neglect on their part.
- 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 new contract must take effect within 6 months after the end of the previous contract.
- You offer to renew your employee's contract before the end of the previous one. Or you offer an equivalent contract.
How much is a transition payment?
The amount of the transition payment depends on the gross monthly salary and the number of years that your employee has worked. Your employee is entitled to one-third of their gross monthly wage per year worked. This is calculated from the first working day. 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.
How do I calculate a transition payment?
You calculate the transition payment over the entire employment period. So, also for a period shorter than a year. Or 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.
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 your 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 illness
In certain cases, you can dismiss an employee after a long-term illness. For example, after 2 years of illness. You must then pay your employee a transition payment. You pay your employee transition compensation 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. 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.
Transition payments when closing your business
Do you plan to close 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 the factsheet on transition payments (in Dutch). These costs can include retraining, for example, or coaching support to find a new job.
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.