Many employees in the Netherlands work on the basis of a temporary contract. When such an employment contract is not renewed, this can have significant consequences. Fortunately, in many cases the employee is entitled to a transition payment.
At Arslan Advocaten, we regularly receive questions about transition payments for temporary contracts. In this article, we explain how it works, what you are entitled to, and how you can claim the payment.
What is a transition payment?
The transition payment is a financial compensation that an employee receives at the end of their employment contract, unless the dismissal is the result of seriously culpable conduct by the employee.
The payment is intended to facilitate the transition to another job, for example by investing in training or as compensation for loss of income.
Since when has the transition payment existed?
Since 1 January 2020, employers are obliged to pay a transition payment upon dismissal or non-renewal of a contract. This legal obligation applies from the very first working day — so even if you have not yet been employed for a year.Transition payment for temporary contracts
Even when a temporary contract (fixed-term) expires, the employee is entitled to a transition payment, provided that:
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the employment contract is not renewed on the initiative of the employer; or
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the employer terminates the contract prematurely.
It does not matter whether you have had one, two, or three temporary contracts: at the end of each employment contract, a right to transition payment may arise.
How is the transition payment calculated?
The amount of the payment is calculated on the basis of:
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1/3 monthly salary per year of service worked
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For a period shorter than one year, a proportional calculation applies
Not only the basic salary counts, but also:
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holiday allowance
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fixed bonuses
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shift allowances and structural overtime payments
Payroll tax on the transition payment
When you receive a transition payment, it is good to know that the Tax Authority considers this payment as wages. This means that your employer is obliged to withhold payroll tax before the amount is deposited into your account. You therefore receive the net amount; the tax has already been settled and paid. Please note: the total tax on your income for the year may turn out higher or lower due to the receipt of the transition payment. You will notice this when filing your annual tax return. It is therefore advisable to check in advance whether you may need to pay additional tax or will receive a refund.Is a transition payment taxable income?
A frequently asked question is whether the transition payment falls under taxable income. The answer is: yes. The transition payment is added to your income in box 1 and is therefore taxed. This means that your employer must withhold tax on the gross amount before you receive it. Net, you therefore receive a lower amount than the gross amount promised; this works the same way as with your regular salary. Keep in mind that the amount deposited into your account will be lower than the initially stated gross amount. This way, you will not be surprised when receiving the payment.Practical examples
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Example 1: An employee had a one-year contract that was not renewed. His monthly salary was €2,400. He received a transition payment of €800 (1/3 of €2,400).
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Example 2: A female employee worked for two years on the basis of temporary contracts. Her salary was €3,000 per month. When her contract was not renewed, she was entitled to a transition payment of €2,000 (2 x 1/3 monthly salary).
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Example 3: A student had a temporary contract of 8 months and earned €1,800 per month. When the contract was not renewed, he received a transition payment of approximately €480.
What should you know about the final settlement at the end of employment?
When your employment ends, a final settlement always follows. This is the moment when you receive everything you are still entitled to. Think, for example, of:- Outstanding holiday days: these are paid out if you have not taken them.
- Outstanding salary: everything you are still owed must be paid.
- Holiday allowance: usually you accrue this and receive the remainder with your final salary payment.
Checklist: checking your right to transition payment
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Check whether the contract was terminated on the initiative of the employer.
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Calculate the length of service (all contracts combined count).
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Look carefully at the gross monthly salary including allowances.
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Check whether the employer pays the transition payment within one month after the end of employment.
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Engage an employment law attorney if the employer refuses to pay.
Why Arslan Advocaten?
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Specialists in employment law and transition payments
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Experience with both individual claims and collective cases
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Personal approach and clear communication
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If necessary, we immediately start proceedings at the subdistrict court
FAQ about transition payment for temporary contracts
1. Am I entitled to a transition payment when my temporary contract expires?
Yes, unless you resign yourself or the dismissal is your own fault.
2. When must the transition payment be paid?
Within one month after the end of your contract.
3. Do I also receive a transition payment if I have worked for a short period?
Yes, even for short contracts the payment is calculated proportionally.
4. May the employer deduct training costs from the payment?
Yes, but only if these costs were incurred to make you more broadly employable in the labour market and this was agreed in writing.
5. What if my employer refuses to pay?
Then you can, through an attorney, start proceedings at the subdistrict court within three months after the end of your contract. It is important to keep a close eye on this deadline: if you wait too long and do not take action within three months after the end of your employment, you risk losing your right to the transition payment. Therefore, make sure you submit a petition in time if your employer refuses to pay.