Is your employment contract being terminated and are you wondering whether you are entitled to a transition payment? Since the introduction of the new dismissal law in 2015, almost every employee is entitled to financial compensation in the event of dismissal. This compensation serves as compensation for dismissal and helps make the transition to a new job easier.
In this article, our employment lawyers explain when you are entitled to a transition payment, how the compensation is calculated and in which situations this right lapses.
What is the difference between a transition payment and a severance payment?
It is easy to confuse the terms transition payment and severance payment, but there is an important distinction between the two. The transition compensation is the statutory minimum contribution that every employee receives (without an urgent reason for dismissal) when the employment contract is terminated at the initiative of the employer. This is regulated by law and almost always applies to involuntary dismissal.
On the other hand, a severance payment is a broader term. By this we mean all compensation that can be awarded upon dismissal—including any extras on top of the transition compensation, for example after negotiations or a settlement agreement. In short, every transition payment is a severance payment, but not every severance payment is automatically the statutory transition payment.
Please note: if you resign yourself, the right to a transition payment will lapse, unless there are special situations such as seriously culpable actions by your employer.
When are you entitled to a transition compensation?
You are entitled to a transition payment if your employment contract:
- is terminated or dissolved by the employer, or
- will not be extended after the expiry of a temporary contract of at least two years.
It does not matter whether you have had a permanent or temporary contract. The transition payment may also be due in the event of dismissal during reorganization or long-term disability.
What conditions apply to a transition payment in the event of partial dismissal?
You may also be entitled to a transition payment in the event of partial dismissal. However, this is subject to strict conditions. You are eligible when:
- Your working hours or salary have been structurally reduced by at least 20%;
- This reduction is expected to be permanent and therefore not temporary in nature;
- The change is officially recorded in a new contract, an amendment to your existing contract, or in another written agreement.
It is therefore not a temporary reduction in hours, but a permanent and contractually agreed change in your employment. Are you unsure whether your situation meets these conditions? Then have your contract and circumstances assessed by an employment law lawyer, so that you do not unnecessarily miss out on rights.
Also for temporary contracts and temporary work
The rules surrounding the transition payment apply to both permanent and temporary contracts—including if you work as a temporary worker. If your temporary employment contract is in principle entitled to a transition payment, regardless of the number of hours worked or the type of agreement. Please note: with temporary work it is good to be alert and actively request compensation from the temporary employment agency, if this is not granted automatically.
Are you unsure about the amount of your compensation? With an online calculation tool you can easily calculate what you are entitled to, so that you do not miss out on money. Do not wait too long to claim your transition payment; there is a legal period within which you must do this.
Transition compensation in case of partial dismissal
Sometimes it happens that your employment contract is adjusted and you structurally work less - for example, you lose at least 20% of your working hours and this is not a temporary measure. In that case, you may also be entitled to a transition payment for the part of the work that expires.
Important points here are:
- You will have to work fewer hours on a structural (expected permanent) basis.
- The number of hours you lose and the adjustment of your employment contract must be clearly determined.
The compensation will then be calculated pro rata over the hours you have lost. This way you avoid wasting money when your working hours are reduced without your entire contract ending. Do you need help calculating what your rights are? Feel free to use an online calculation tool, for example from juridischloket.nl.
When is no transition payment due?
There are situations in which you are not entitled to a transition payment. For example:
- Termination by mutual consent: if you and your employer make their own arrangements and agree on a severance payment.
- Seriously culpable conduct: for example, theft, fraud or violence in the workplace.
- Reaching retirement age: upon natural termination of the employment contract.
- Bankruptcy or debt restructuring of the employer: there is then no money available to pay out compensation.
- Equivalent provision in the collective labor agreement: some collective labor agreements contain arrangements that replace the transition compensation.
Are you unsure whether you are entitled? Always have this checked by an employment lawyer.
In what situations can an employer be reimbursed for the transition payment?
There are some exceptions in which an employer can largely or completely reclaim the transition payment paid. This applies, among others, in the following cases:
- After long-term disability: if an employee is dismissed after a period of at least 2 years of illness, the employer can apply for compensation.
- Small Business Termination: If a small business closes down due to the death or retirement of the owner, there is sometimes a right to compensation. This does require that formal dismissal has been granted for at least one employee via the UWV or dissolution via the subdistrict court.
Would you like to know whether your situation qualifies for this? An employment law lawyer can advise you on this.
How is the transition compensation calculated?
The amount of the transition payment depends on:
- your gross monthly salary (including holiday pay and fixed allowances), and
- the duration of your employment.
The structure is as follows:
- For the first 10 years of service: 1/6 monthly salary per half year of service.
- For years of service from the 10th year: 1/4 monthly salary per half year of service.
👉 Example:
An employee with a monthly salary of €3,000 gross and 12 years of employment may be entitled to more than €20,000 transition compensation.
Transition compensation for working fewer hours
But what if you are not fired completely, but you work (significantly) less? In that case too, you may be entitled to a transition payment.
This applies in situations where:
- your working hours have been reduced by at least 20%,
- this reduction is structural (i.e. expected to be permanent),
- and the reduction is officially recorded in your contract.
In these cases, the transition payment is calculated based on the number of hours you have lost. Suppose you work 20% less from now on, you will receive a transition payment for that lost part of your employment - according to the same calculation method as in the case of full dismissal. In this way, the law compensates for the loss of income you suffer due to fewer working hours.
Please note: if you have any doubts about the calculation or your situation, it is wise to seek legal advice so that you know exactly what you are entitled to.
Transition costs and employability-costs
Employers may deduct certain costs from the transition payment, such as:
- Transition costs: costs for outplacement or training aimed at finding another job.
- Employability costs: costs incurred during employment to increase your broader employability on the labor market.
Important: this is only allowed if the employee has been informed and agreed to this in writing in advance.
Maximum amount of the transition compensation
The transition compensation has been capped. This maximum amount is adjusted annually. The following currently applies:
- maximum €81,000 gross, or
- one gross annual salary if this is higher than €81,000.
Do you have to pay tax on the transition payment?
The transition payment is regarded by the Tax Authorities as wages from work. This means that you owe wage tax and premiums on it - just like on your regular salary. This means you will receive the net amount in your account after the employer has withheld and paid the tax.
Please note: If you spend (part of) the transition payment directly on a training or outplacement process, you may not pay tax on that part. This is possible under certain conditions. Be well informed about this by a specialist or the Tax Authorities, so that you are not faced with any surprises.
When do you not pay tax on the transition compensation?
You do not have to pay tax on the transition compensation if you spend the full amount on training or an outplacement program. The amount that you use directly for new training or professional guidance will then be exempt from tax.
How can you request a transition payment from a temporary employment agency?
You are also entitled to a transition payment for temporary workers. However, this is often only paid out if you request it yourself. Therefore, after your employment has ended, send an official application to the employment agency, for example with a sample letter. Do not forget to do this in time, because the application must be submitted within three months after the end of the contract.
Do you want to know what amount you are entitled to? Then use an online calculation tool for transition compensation.
What other benefits are available after dismissal?
After the end of your employment contract, you may be eligible for various benefits. The most common is the unemployment benefit (Unemployment Act), which provides you with a temporary income while you are looking for a new job.
In addition, if you have left work sick, for example, you may be entitled to a Sickness Benefits Act benefit. If you are partially incapacitated for work, you may be able to apply for a WIA or WGA benefit via UWV.
In short, depending on your situation, different arrangements are possible:
- Unemployment benefit: For job seekers without immediate new employment.
- Sickness Benefit: If you were ill at the end of your employment.
- WIA or WGA: In case of (partial) disability.
Be well informed about your options and if in doubt, contact the UWV or a legal advisor.
Do you have to declare the transition payment as income for a benefit?
Many employees wonder whether they must report the transition payment as income when applying for benefits, such as WW, IOW, WIA, WAO, Wajong or the Sickness Benefits Act. This is not necessary: the transition payment is not regarded as income for these schemes. You do not have to report this amount separately to the UWV or another benefit agency. Your benefit will not be lower or determined differently as a result.
This way you can spend the transition payment on, for example, training or as a financial buffer, without this having consequences for your right to benefits. Do you have specific questions about this or do you have doubts about your situation? Then consult a specialist or contact the UWV for personal advice.
What you need to know about the final settlement at the end of your employment
If your employment ends, you will receive a final settlement from your employer. It states exactly what you are still entitled to, such as:
- the remaining salary for your last days worked,
- the accrued holiday pay,
- the value of outstanding vacation days,
- and possibly an end-of-year bonus if you have accrued one.
Your employer must provide and pay this final settlement within one month after the end of your employment. Does it not arrive on time? Then it is wise to indicate in writing within the same month that you expect the final settlement. This way you have a clear overview of your remaining rights and you know where you stand.
What can you do if you have not received a final settlement after your dismissal?
Have you not received a final settlement after the end of your employment, showing, for example, your outstanding salary, holiday pay or unused holiday days? Then send a written request to your employer within one month to request payment. Your employer is obliged to provide and pay the final settlement no later than one month after your departure. You can use a sample letter for this. If your employer does not respond, you can consider further steps, such as seeking legal help.
What does a final settlement upon dismissal entail?
When your employment ends, you will usually receive a so-called final settlement. This is an overview of all financial matters to which you as an employee are still entitled upon departure. Consider:
- the remaining monthly salary,
- the accrued holiday pay,
- the value of untaken vacation days, and
- any end-of-year bonuses or bonuses that you are still owed.
Have you not received your final bill on time? Then it is wise to contact your employer within one month after the end of the employment contract. This is because he or she is obliged to provide and pay out the final settlement no later than one month after termination of the employment relationship. A short, written reminder can often provide a solution in such situations.
What can an employment-law lawyer do for you?
Both employers and employees can benefit from expert advice. Our employment law lawyers in Rotterdam, Amsterdam, Utrecht, The Hague and Eindhoven can help you with:
- calculating the correct amount of the transition compensation;
- checking whether your employer is right to deduct costs;
- negotiate a higher compensation in a settlement agreement;
- conducting proceedings when your right to compensation is disputed.
Frequently asked questions
Do I have to apply for the transition payment myself?
No, the employer is obliged to pay it within one month after the end of the contract.
Can I receive a higher compensation than the transition compensation?
Yes, in the event of dismissal by mutual consent, a higher compensation can be agreed.
What if my employer refuses to pay?
Then you can start a procedure with the subdistrict court within three months after the end of the employment contract.
Contact us
Do you have any questions about the transition payment or would you like our lawyers to assess your situation? Contact Arslan Advocaten without obligation. We assist both employees and employers with expert and practical advice.