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What is Transition Pay (transitievergoeding) in the Netherlands?

When an employment relationship ends, many countries do impose statutory payments to employees, that employers are obligated to pay.  Companies that are in pro-employer labor policy countries may be surprised to find out how generous these end of service payments can be.

It is important to understand fully the nature and calculation of mandatory payments when employment ends, as it will add to the overall cost of employment abroad.  If you are planning on hiring employees in the Netherlands, we will explain what you will be facing at the end of the employment relationship.

What is transition pay (transitievergoeding) in the Netherlands?

The Netherlands has what is called transitievergoeding, or transition pay, that will be owed to an employee when their contract comes to end.  The intention behind transition pay is to help the employee when looking for a new job or to improve their professional skills in the interim.

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Who is entitled to transition pay?

Employees who are dismissed or whose fixed-term contract is not extended are entitled to transition pay.  Employers do not have to offer transition pay if the dismissal is by mutual consent, due to employee resignation, or if the dismissal was for serious misconduct or neglect.

What is the difference between transition pay and severance?

Transition pay essentially replaced statutory severance in the Netherlands, but an employer may still offer severance as part of the terms of the employment contract, or by mutual agreement where transition pay would not be owed.  Severance is often viewed as a way to compensate an employee for an unexpected or unjustified termination, and to offset the minimal power an employee has to retain their position.

Client Case: How is transition pay calculated?

Our client with employees in the Netherlands had questions about how the transition pay is calculated as an end of service benefit.  We explained that it is designed to help an employee transition into a new job, and is not really a penalty on the employer for dismissal like severance.

We told them that the transition pay amount is equal to one-third of the gross monthly wage per year, for each year of service, up to a maximum payment of EUR 84,000.  Gross income does include holiday allowances paid and any bonuses.  It can be paid by the employer over six months if needed.

Do you need more information on the Netherlands?

If the notion of end of service benefits is new to you, there might be other questions such as:

Does an employer still need to make the transition payment if there is a negotiated severance amount in the employment contract?

Does transition payment apply if the employee has had an extended illness and can’t return to work?

Can an employee file a claim if transition pay is withheld due to misconduct?

Our clients bring us questions like these frequently so that they remain in compliance when hiring overseas employees.  We make international employment simple.

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The information in this article is subject to changes in local legislation.

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