Severance pay

Transitievergoeding (severance pay) is a legal compensation to which an employee is usually entitled when an employment contract ends or is terminated. This compensation can be paid in the form of money. If there are other agreements in a cao (collective agreement). This may include, for example, assistance in finding another job.

Who is entitled to receive it?

Not everyone who is dismissed or whose employment contract is terminated is entitled to Transitievergoeding. In most cases where there is an entitlement, the person has been dismissed or a fixed-term employment contract has not been renewed.

If an employment contract is terminated by mutual agreement, the Transitievergoeding is not paid. There is also no entitlement to severance pay in the event of termination without notice. If the dismissal is due to reaching retirement age, there is also no entitlement to severance pay.

If the employment contract is terminated due to long-term occupational disability, there is a claim to severance pay. In this case, the employer may receive financial compensation from the UWV.

How much is the severance pay?

For each year of employment, a compensation of 1/3 of the monthly salary is paid. For each partial year, the compensation is calculated pro rata.

In the case of successive employment contracts (provided they were not interrupted for more than 6 months), all periods of employment are added together. Periods worked for the same employer through a temporary employment agency are also counted.

When calculating the monthly wage, the fixed salary including holiday pay and any other fixed allowances, such as an end-of-year bonus, are taken into account. In the case of a call-up contract, the actual hours worked and earnings are taken into account.

The (legal) severance pay is capped at € 86,000 gross (2022).

On the Dutch government website there is a calculation tool that can be used to estimate how high the severance pay could be.

Tax and social security contributions must be paid on the severance pay. The best way to find out about this is to contact the Belastingdienst [tax office].

Is the Transitievergoeding always paid in full?

If the employer has paid for certain courses and training, these costs can be deducted from the severance pay. Generally, these are courses and training attended to avoid unemployment or to find another job.

A collective agreement may also provide for other arrangements, e.g. assistance in finding a new job may be agreed, which replaces the financial compensation.

Are there any effects on German unemployment benefits?

If you live in Germany, you are dependent on German unemployment benefits in the event of full unemployment. It is possible that a severance payment will be counted towards unemployment benefits. If all termination regulations such as notice period, termination by the employer, etc. are respected, the Transitievergoedingwill not be counted against the German unemployment benefit. In many cases, the Transitievergoeding and sometimes other allowances are included in a settlement agreement (vaststellingsovereenkomst). In such a case, it may be advisable to have the settlement agreement checked by the responsible employment agency.