In cases of termination of an employee contract, a transition payment comes in effect. As this is a reasonably new practice, you as an employer may not be familiar with it. Though you definitely should be, as it has some severe implications for you and your business. To prepare you for such an event, we listed the most important matters for you in this article. If it were a local employee or a highly skilled migrant worker, with the information in this article you know what to do, how to handle it and how an Employer of Record could help you out.

What is a transition payment in the Netherlands?

This specific financial compensation is, simply put, one that an employer in the Netherlands has to pay to an employee that they are dismissing. In Dutch it is called a ‘transistievergoeding’. The compensation has been instated to give employees who have been dismissed some time and financial room to help them find a new job and transition to a new phase of their career. Furthermore, it is also intended to discourage employers from dismissing employees unfairly.

The transition payment is a relatively new concept in the Netherlands. It was introduced in 2015 as part of a major reform of Dutch labor law. The reform was designed to make it more difficult for employers to dismiss employees and to provide more financial support for dismissed employees. It has been successful in reducing the number of dismissals in the Netherlands so far. It has also helped to improve the financial situation of dismissed employees.

As an employer, you are responsible for paying transition payments to your dismissed employees. If an employer fails to pay a transition payment, the employee could file a claim with the Dutch Labor Board.

Who is entitled to a transition payment?

As stated above, the transition payment is for employees who are dismissed. They are entitled to a transition payment, regardless of the reason for dismissal. This includes employees who are dismissed due to redundancy, poor performance, or misconduct.

However, there are a few exceptions to this rule. For example, employees who are dismissed for serious misconduct, such as theft or fraud, are not entitled to a transition payment. Additionally, employees who are dismissed within the first six months of their employment are also not entitled to a transition payment.

How is the transition payment calculated?

Of course you would like to know how high the transition payment is you would have to pay is, but there is no set amount. The amount of the transition payment is calculated based on the employee’s gross monthly salary and the number of years they have worked for the employer. Yet, there is a maximum amount, which in 2023 is €89,000.

To calculate the transition payment, the employer must multiply the employee’s gross monthly salary by 1/3 and then multiply that number by the number of years the employee has worked for the employer. For example, an employee who has worked for their employer for 5 years and has a gross monthly salary of €4,000 would be entitled to a transition payment of €4,000 * 1/3 * 5 = €6,666.

Help of an Employer of Record

As stated above, an employer is responsible for settling the transition payment. Depending on the gross monthly salary and years in the company of the employee, this could become quite expensive. We hope that you found this information helpful. As the rules encompassing the Dutch labor laws can be overwhelming or confusing, we are here to help. Arrange your payroll through us and make sure that it will always be compliant. The Employer of Record in the Netherlands will take care of all local payroll and HR requirements, and we’ll liaison with all Dutch authorities. This way you can put your focus where it belongs, on the content of the job.

An Employer of Record deals with all matters surrounding the employees payroll, such as payment, taxes, insurances and in some cases transition payments. During this time, you and your employee can continue to work together as usual. Curious to know how an Employer of Record in the Netherlands can help you and your business grow? Looking for assistance with hiring a highly skilled migrant worker? Or would you like to employ any other of these services? Do not hesitate to get in touch with us!

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