What is a Transition Payment in the Netherlands?
When an employment contract ends at the employer’s initiative in the Netherlands, the employer is generally required by law to pay a transition payment (in Dutch: transitievergoeding) to the employee. This transition payment is essentially a form of statutory severance pay in the Netherlands, designed to support the employee after the end of employment. It was introduced to Dutch labour law termination rules in 2015 to ensure all employees receive fair compensation when their job is terminated. The purpose of the transition payment is to help employees transition to new work – for example, it can be used for retraining or education – though employees are not obliged to spend it on training. In plain terms, it is part of employee rights in the Netherlands that provides a financial cushion when an employee’s contract is terminated or not renewed by their employer.
Why does this payment exist? The transition payment exists to make dismissals fairer and to help employees move on after losing a job. It encourages employers to either invest in their employees’ development or compensate them upon dismissal. For employees, it means that if you are facing the end of employment in the Netherlands through no fault of your own, you have a right to a monetary compensation that can help tide you over or fund career-related expenses. This right is enshrined in the Dutch Civil Code and forms a key part of employee rights regarding termination.
Who is Entitled to a Transition Payment?
Under Dutch labour law, not every ending of a contract triggers a transition payment – it applies primarily when the employer is the one ending the employment. According to Article 7:673 of the Dutch Civil Code, an employee is entitled to a transition payment if the employment is terminated at the employer’s initiative. In practice, you are entitled to a transition payment in the following common situations:
- Dismissal by Employer: If your employer dismisses you – whether by giving notice after obtaining UWV permission (e.g. for economic reasons or long-term illness) or via a court decision to dissolve the contract at the employer’s request – you are entitled to the transition payment. In the Netherlands an employer must have a valid reason to terminate a contract; if they proceed with a lawful dismissal, they must pay this compensation.
- Non-Renewal of a Fixed-Term Contract: If you are on a temporary (fixed-term) contract and the employer decides not to renew it at expiry, you are entitled to the transition payment upon that contract’s end. Even though the contract is ending “naturally,” the law treats a decision not to continue as a termination on the employer’s initiative, triggering severance pay.
- Employee Resignation Due to Employer’s Misconduct: If you resign because of serious misconduct by your employer, you are still entitled to the transition payment. This covers situations like an employee quitting due to the employer’s discrimination, harassment, or other seriously culpable behavior by the employer. In such cases, even though the employee formally “quits,” the law sees the employer’s actions as the true cause of termination, and thus the employee should receive the transition compensation.
Importantly, eligibility is not dependent on length of service. Since 2020, employees accrue the right to a transition payment from their very first day of employment, including during a probationary period. This means there is no minimum employment duration required anymore – even if you are dismissed in your first few months (or days) on the job, you can claim a pro-rated transition payment for that short period. This rule applies to all types of employment contracts: permanent (open-ended) contracts, fixed-term contracts, full-time or part-time roles, and even on-call or zero-hour contracts. In summary, any employee in the Netherlands whose contract is ended by the employer (outside of the exceptions below) is entitled to a transition payment, from day one of employment onward.
When is a Transition Payment Not Required? (Exceptions)
There are specific exceptions where an employer does not have to pay a transition payment. Dutch law outlines several scenarios in which the employee has no right to this compensation despite a termination. These exceptions include:
- Voluntary Resignation (no employer fault): If you resign on your own accord (quit your job) without serious cause attributable to the employer, you are not entitled to a transition payment. The law only mandates the payment when the termination initiative comes from the employer. (The only exception is the earlier mentioned case where you resigned due to employer misconduct – in all other voluntary quits, no payment is due.)
- Dismissal for Serious Misconduct by Employee: If you are dismissed for cause due to your own serious culpable behavior or gross misconduct, the employer is not required to pay a transition payment. For example, if you are fired for fraud, theft, violence, or other grave misconduct, the law considers that you forfeit the right to severance.
- Young Workers with Small Jobs: If you are under 18 years old and worked only a small number of hours (on average 12 hours or less per week) for the employer, then no transition payment is due upon termination. (This exception exists because minor part-time jobs held by minors are treated differently under the law.)
- Retirement Age: If your employment ends because you have reached the state pension age (AOW age) or other official retirement age, you are not entitled to a transition payment. Essentially, when a contract terminates due to the employee reaching retirement, the severance requirement does not apply.
- Employer’s Bankruptcy or Insolvency: If your employer goes bankrupt or is under court-approved debt restructuring or suspension of payments, the transition payment will not be paid. In cases of insolvency, employees may claim unpaid wages via the UWV (government benefits agency), but severance payments like the transitievergoeding are not honored from a bankrupt estate.
- Collective Agreement Severance Provisions: If a collective labour agreement (CAO) or an individual employment contract includes a severance arrangement that replaces the transition payment (for instance, a redundancy package in case of economic layoffs), that agreed arrangement may take precedence. In such cases, you might not get the statutory transition payment in addition to the arrangement – the CAO-provided severance is considered to fulfill the requirement (often this is relevant in economic redundancies where social plans apply).
- Continuous Offer of New Employment: If your employer offers you a new contract before the current one ends, such that your employment will continue without a significant break, then a transition payment is not due at that time. For example, if you are on a temporary contract and before it expires the employer offers to extend or renew your contract (or offer a permanent contract) effective immediately after the current term, the ongoing employment means no termination gap – thus no transition compensation. This holds true even if you decide not to accept the new contract offer; because the employer was willing to continue the employment, the law deems that the end of your job was not solely the employer’s choice. (In short, an employer can avoid the transition payment by offering to renew your contract under the same terms before it ends – if you decline that offer, you won’t get the severance.)
- Mutual Agreement to Terminate: If you and the employer mutually agree to end the employment (often documented in a settlement agreement), the employer is not legally obliged to pay a transition payment. This is because a mutual termination is not considered an unilateral employer dismissal. However, in practice, employers usually do offer a severance payment in a settlement – often at least equal to the transition payment – to incentivize the employee to agree. So, while the law doesn’t force a payment in mutual resignations, employees should negotiate for compensation in any settlement agreement.
How is the Transition Payment Calculated?
The amount of the transition payment you receive depends on your length of service and your monthly salary at the time of dismissal. The calculation is relatively straightforward under the current law. In essence, for each year of service with your employer, you build up entitlement to a portion of your monthly pay. The statutory formula is as follows:
- For each full year of employment, you are entitled to one-third (1/3) of one month’s gross salary.
- For any partial year of employment, you are entitled to a pro-rata (proportional) part of that one-third month’s salary. In other words, even if you worked less than a full year in the final year, you will get a fraction of the 1/3 month pay corresponding to the number of days or months worked in that final partial year.
This formula applies equally to all employees regardless of age or length of service (since 2020), making the calculation uniform. To illustrate, if your gross monthly salary is €3,000 and you worked 3 years, your transition payment would be 3 × (1/3 of €3,000) = €3,000 (which equals one full month’s salary). If you worked 3 years and 6 months, the amount would be 3 × €1,000 + 0.5 × €1,000 = €3,500 (since half a year gives you half of €1,000) – about 1.17 times your monthly pay in total. Even a very short employment yields a small payment; for example, if you were dismissed after just one month, you’d still get roughly 1/3 of one month’s salary for that month of service (approximately 0.33 of your monthly wage).
What counts as “monthly salary”? Generally, the law defines the monthly salary for transition payment purposes to include your gross base salary plus any fixed allowances. This means the calculation takes into account not only your base wage but also recurring payments like holiday allowance (8%) and fixed year-end bonuses or other fixed salary components, prorated on a monthly basis. Certain variable pay (like bonuses or commission) may be averaged and included as well, depending on the circumstances and legal rules. In most cases, your employer or HR will compute the correct figure using the statutory calculation rules so that all relevant wage components are included.
Statutory Maximum (Cap): The transition payment is capped by law at a certain maximum amount. As of 2025, the maximum transition payment is €98,000 gross. If your own annual salary is higher than €98,000, then the maximum is one full year’s gross salary. (In other words, an employee with a very high income is capped at at most 12 months’ pay as their transition compensation.) This ceiling is indexed (reviewed) annually by the government and has been rising over time with inflation – for example, the cap was €94,000 in 2024 and €89,000 in 2023. Most employees will not reach the cap, but high-earning employees should be aware that they might not get “1/3 month per year” for all years if the raw calculation exceeds the statutory maximum.
Deductions for Training Costs: Employers are allowed, under strict conditions, to deduct certain costs they have invested in the employee from the transition payment. Specifically, if your employer paid for outplacement services or training courses to help you find new work or improve your employability, those expenses can sometimes be subtracted from the amount of the transition payment. This is only permissible if the costs were for your benefit in the context of ending the employment (for example, paying for a reskilling course during the notice period) and if you were informed and agreed to such deduction. In practice, most employers do not unilaterally deduct training costs unless it was agreed in advance, but it’s good to know that the law allows transitional support costs to offset the severance under certain circumstances.
Legal Basis in the Dutch Civil Code and Recent Changes
The rules on transition payment are codified in the Dutch Civil Code, specifically Book 7, Article 673 (Burgerlijk Wetboek 7:673). This law was introduced as part of the Dutch Work and Security Act (Wet Werk en Zekerheid) which took effect on 1 July 2015. The introduction of the transition payment in 2015 marked a shift to a statutory severance system – replacing the older, discretionary severance formulas – to ensure every employee with sufficient service (back then, at least 2 years) would receive a fair payout on termination. Article 7:673 of the Civil Code sets out the entitlement conditions and the calculation formula, including the maximum cap. For instance, the law (as updated) explicitly states that the transition payment equals one-third of a month’s salary per year of service (with part-years prorated) and is capped at the specified maximum.
Major 2020 Reform (Balanced Labour Market Act): On 1 January 2020, the Dutch government implemented the Balanced Labour Market Act (Wet Arbeidsmarkt in Balans, often abbreviated WAB) which significantly updated the transition payment rules. Key changes that took effect in 2020 include:
- Entitlement from Day One: The old requirement of 2 years’ service to qualify for severance was abolished. Since 2020, employees accumulate transition pay from their very first day of employment. This closed a loophole where employers would avoid severance by giving 23-month contracts; now even short-term contracts earn a proportional transition payment.
- Uniform Accrual Rate: Previously, the formula was more generous for long-tenured staff (and there was even a temporary higher rate for employees over 50). The WAB simplified the formula to a single rate for all employees: 1/3 month per year regardless of years of service. Differentiations that existed – such as a lower accrual for the first 10 years and higher accrual after 10 years, or extra for over-50s – were eliminated. Now a year is a year, for everyone, making the calculation straightforward and equal.
- Removal of Special Older-Employee Rule: Up until end of 2019, employees over 50 with 10+ years at a company had a higher entitlement (a temporary measure in the 2015 law). This has been removed, aligning older and younger employees under the same formula from 2020 onward.
These changes reflect the current (2025) legal framework – meaning every employee, even those on very short or part-time contracts, is ensured at least a bit of severance, and long-serving employees accrue their severance more linearly over time. The transition payment thus truly became a universal employee right under Dutch law for any employer-initiated termination.
Additionally, the government adjusts the maximum cap each year (usually on January 1) to keep up with wage inflation. For example, as noted earlier, the cap rose to €98,000 in 2025 from €94,000 in 2024. Employers and employees should stay updated on the cap, especially in high-salary cases.
Legal reference: Article 7:673 and related provisions also enumerate the exceptions to paying a transition fee (as discussed above) and empower courts to deviate in extreme cases. The law continues to evolve – for instance, there are ongoing discussions about compensating small businesses for transition payments in certain dismissals – but as of 2025 the core structure remains as described.
Additional Severance Compensation in Case of Employer Misconduct
The transition payment is the minimum statutory severance an employer must pay. In normal cases, it fully discharges the employer’s obligation. However, if a dismissal involves serious wrongdoing by the employer, Dutch law allows the court to grant the employee an additional compensation on top of the transition payment. This is often called a “fair compensation” (billijke vergoeding in Dutch) and is reserved for exceptional cases of unfair dismissal.
For example, if an employer acted in a gravely culpable manner – say, firing an employee without any valid reason or in a flagrantly abusive way – the sub-district court can award a fair compensation as a form of penalty and extra damages to the employee. Unlike the transition payment (which is formula-based), fair compensation is not capped and is determined by the court based on circumstances. It’s meant to make the employee whole in situations where the basic transition sum is deemed inadequate due to the employer’s gross misconduct.
It’s important to note that such awards are rare and only given in egregious situations. In the vast majority of terminations, the transition payment (and possibly a mutually agreed extra severance if negotiating a settlement) is all that an employee will receive. But it is good to be aware that if you believe your dismissal was exceptionally unjust, you can ask the court for a fair compensation in addition to the transition payment. The burden is on the employee to prove the employer’s serious culpability, and if successful, the court will decide an appropriate amount for this additional severance.
Receiving Your Transition Payment: Timeline and Procedure
Payment Timeline: In practice, the transition payment is usually paid with your final paycheck or shortly after your last day of employment. The law does not set an exact deadline on when the employer must pay it, but it does stipulate that statutory interest will accrue if the payment is late by more than one month. This means if one month has passed since your employment ended and you still haven’t received the transition compensation, the amount will increase with interest until it’s paid. Employers therefore have a strong incentive to pay no later than one month after termination to avoid extra costs.
Taxes: The transition payment is paid gross and is subject to income tax just like your regular wages. Your employer will deduct wage tax from it, and the net amount you receive will depend on your tax bracket. Because it’s considered income, a large severance payout in one year could affect things like your tax rate or eligibility for certain income-dependent benefits. (For example, it might temporarily raise your income for that year, potentially reducing housing or healthcare allowances.) Be mindful of this when planning finances; you may want to consult a tax advisor if the amount is significant.
How to Claim or Enforce Payment: In most cases, employers know their legal duty and will pay the transition sum automatically. You typically won’t need to “apply” for it – it should be calculated and given to you as part of your separation paperwork. It’s wise to check your dismissal letter or settlement agreement to ensure the transition payment amount is explicitly stated. If your employer fails to pay the required transition compensation in a timely manner, you have the right to take action. You should first remind your employer in writing of the obligation. If they still do not pay, you can file a claim with the court for the transition payment (plus interest and potentially a penalty for late payment).
Be aware that there is a time limit for legal action: you must file any claim for an unpaid transition payment within 3 months after your employment ended. If you wait longer than 3 months, you will lose the right to claim it through the courts. This deadline is strict, so do not delay if your employer hasn’t paid what you’re owed.
In the case of an employer’s bankruptcy or insolvency, as mentioned, the transition payment may unfortunately be unclaimable from the bankrupt employer. The UWV (government agency) does step in to pay employees certain outstanding amounts (like unpaid wages, holiday pay, etc.) when an employer goes bankrupt, but it does not cover the transition payment. This is why the law exempts bankrupt employers from the requirement. Employees in such situations become creditors in the bankruptcy, but often there are no funds left for severance payments.
Instalments in Hardship: If an employer is in genuine financial difficulty but not formally bankrupt, Dutch law allows some leeway to pay the transition sum in instalments (over a maximum of 6 months) provided the employee agrees. If your employer proposes this, know that they will still owe statutory interest on the outstanding balance. This scenario is relatively uncommon and would typically be part of a negotiation if, for example, a small company is struggling with cash flow.
Conclusion
The transition payment is a cornerstone of employee rights in the Netherlands when it comes to dismissal. It ensures that employees receive at least a basic severance pay when their employment ends in the Netherlands at the employer’s initiative. In 2025, the framework is well-established: virtually every employee – from a temporary temp to a long-serving manager – is protected by this law. If you are facing termination, make sure you understand your entitlement under Article 7:673 of the Dutch Civil Code and how much you should receive. Knowing the rules will help you ensure you get the severance pay you’re owed, navigate any negotiations with your employer, and plan your next steps with greater confidence. While losing a job is never easy, the transition payment provides a measure of financial security to help you through the transition to new employment – a right that every employee working in the Netherlands should be aware of and exercise when applicable.
Sources: The above information reflects the current Dutch labour law (2025) on transition payments, including recent updates from government regulations and reputable legal sources. Always consider seeking professional legal advice for your specific situation, but as a general guide, this article covers the key points of the Dutch transition payment (transitievergoeding) that every employee should know.