Dismissal in the Netherlands – How does the transition allowance work?
Dismissal in the Netherlands – How does the transition allowance work?
In principle, the transition allowance applies to every form of involuntary dismissal (also when a temporary employment contract is not renewed) and is paid both after the Dutch Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen (UWV) has given permission and also after a district court has ruled.
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Contactform >However, there are a few exceptions:
- the employee resigns or is dismissed because of gross misconduct
- the dismissal is caused by the employee’s behaviour
- the employee is aged under 18 and works a maximum of 12 hours per week for the employer
- the employee has reached the retirement age when the dismissal occurs
- the employer has gone bankrupt or is in a debt restructuring scheme
What are the employee’s rights for receiving a transition allowance in the Netherlands?
If an employment contract is ended in the form of a settlement agreement (vaststellingsovereenkomst/VSO) both parties are free to make their own arrangements about the amount of the severance pay. However, it is highly likely that the employee will claim at least the amount equal to the transition allowance.
In case the dismissal is due to serious misconduct by the employer, the district court may rule that a “fair” allowance (billijke vergoeding) needs to be paid in addition to the transition allowance. Such an allowance can be very costly for the employer.
How do you calculate the amount of the transition allowance (severance pay) in the Netherlands?
The transition allowance is calculated based on the entire duration of the employment. For every full year, the employee has the right to receive 1/3 of a gross monthly salary. For the rest of the time or if the employment lasted less than one full calendar year the transition allowance is calculated pro rata.
To calculate the gross monthly salary in case of a fixed hours contract, the following elements need to be added up:
Fixed remunerations: gross monthly salary, holiday pay, year-end bonus
The average variable shift bonus and/or overtime pay per month – Calculate the total amount of the 12 months (or less if the employee has not worked for an entire year) prior to the end of the employment (the dismissal) and divide this by 12
Average bonus, commission, profit distribution or variable year-end bonus per month
Calculate the total amount that the employee received in the 36 months before the calendar year in which the contract ends (the dismissal) – or less if the employee did not work for 36 months for the employer – and divide it by 36
Number of full years of employment x 1/3 of the gross monthly salary
(Gross salary for the duration of employment/gross monthly salary) x (1/3 of the gross monthly salary/12)
Add up the amounts calculated in steps 2 and 3 to find out what transition allowance is owed to the employee.
For example:
An employee has worked for an employer for 9 years and 4 months, earning € 3,000 gross per month in the Netherlands.
Step 1 – Calculate the gross monthly salary:
€ 3,000 gross per month (this includes all employee benefits such as holiday pay)
Step 2 – Calculate the allowance for 9 years of employment
Formula: number of years employed x 1/3 gross monthly salary
The answer in this example is: 9 x (1/3 x € 3,000) = € 9,000
Step 3 – Calculate the allowance for the remaining 4 months:
Formula = (gross salary for the duration of employment / gross monthly salary) x (1/3 gross monthly salary/12)
The answer in this example is (part 1):
Gross salary for the entire employment duration = € 12,000
Gross monthly salary = € 3,000
€ 12,000 / € 3,000 = 4
The answer in this example is (part 2):
1/3 of the gross monthly salary = € 1,000
€ 1,000 / 12 = € 83.33
Final answer of step 3:
4 months x € 83.33 = € 333.33
Step 4 – Calculating the total transition allowance (severance pay):
The total transition allowance in this example amounts to
€ 9,000 + € 333.33 = € 9,333.33
In cases when there are no fixed hours a different and more complex calculation method applies.
Please note: even if an employee has only worked one week and is dismissed during the probationary period they have a right to receive a transition allowance.
What is the maximum transition allowance (severance pay) in the Netherlands?
The maximum amount for 2026 has been set at € 102,000 gross. If the employee earns more than the maximum per year, he or she will receive a maximum of one annual salary.
Please note: The employer is sometimes allowed to deduct certain costs from the transition allowance. These are costs that were made to prevent the unemployment of the employee or to limit the duration of this or to train the employee to become more widely skilled and to increase their employability. For example: the cost for employability and the work-to-work trajectory. It can be advisable to provide an employee with guidance in the period running up to the possible dismissal procedure.
Please also note: it may well be the case that an employer has already paid a transition allowance to an employee because a previous employment contract ended. If this is the case, it is allowed to deduct the amount that has already been paid from the amount that is owed as transition allowance at this later date.
Please note: When the dismissal takes place after two years of continued sick pay, you as the employer could have the right to receive compensation, full or partial, of the transition allowance paid! Read more about this topic on our website>
Would you like to know more?
Please find more information (in Dutch) on the website of the Dutch government (Rijksoverheid):
https://www.rijksoverheid.nl/onderwerpen/ontslag/vraag-en-antwoord/hoe-hoog-is-de-transitievergoeding-als-ik-word-ontslagen?
This website also offers calculation tools so you will have an impression of the amount of transition allowance owed to the employee.
Do you need advice when entering into or ending an employment contract? Do please contact us. We are happy to help!
questions or need help?
If you have any questions after reading this article, we will be happy to help you. Our customer support team is here for you!
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