Dismissal after two years of sick leave – does compensation for the transition allowance only apply to small employers in the Netherlands?

From 1 July 2026 the compensation scheme for the transition allowance (or: severance pay) when dismissing an employee after two years of continued sick pay may only apply to small employers in the Netherlands. The question whether an employer is ‘small’ seems to depend on which category it has been put into by the Dutch Tax Authorities. You can find this in the ‘beschikking gedifferentieerde premie Whk’ that employers receives every year.

Please note: this change in Dutch legislation is not final yet and still needs to be approved by both the Dutch House of Representatives (Tweede Kamer) and the Dutch Senate (Eerste Kamer).

The compensation scheme for the transition allowance after 2 years of continued sick pay was introduced in the Netherlands in April 2020. One of the reasons for doing so was because employers often kept in place the employment contracts with employees who were on long-term sick leave, even after two years of continued sick pay. This is how employers avoided having to pay a transition allowance (or: severance pay). These are also referred to as ‘dormant contracts’.

When the compensation allowance was introduced in the Netherlands, the employer still had to pay severance pay (transition allowance) to a long-term sick employee, but the employer could claim back a similar amount in compensation from the Dutch government.

The plans by the Dutch Parliament as described above could well have an effect on this development. Especially for large employers who will no longer be able to claim compensation. Please read more about this on our website:

• Dismissal of sick employees – how this works in the Netherlands