How to Calculate a Transition Payment

How to Calculate a Transition Payment

Employers in the Netherlands who terminate or do not extend an employee’s contract for reasons other than the employee’s seriously culpable behavior are required to compensate the employee for lost income during the period of involuntarily unemployment. This type of compensation is known under Dutch employment law as a transition payment or severance pay. If you were involuntarily dismissed from your job in the Netherlands, or if your temporary employment contract was not renewed, you may be entitled to transition pay from your employer in an amount equal to one-third of your gross monthly salary for each year you worked, whether you worked for 10 years or one year. If you think you may be entitled to transition pay from your Dutch employer, contact our labor and employment law firm today to discuss your legal options. Our skilled attorneys are committed to protecting the rights of Dutch employees and we can help you recover the transition compensation you deserve.

What is a Transition Payment?

A transition payment is a lump-sum payment paid by an employer to an employee upon the termination of the employment contract by the employer. The transition compensation scheme (transitievergoeding in Dutch) was first introduced in July 2015, under the Dutch Work and Security Act, which mandated that transition pay was only available to employees who had two or more years of service with the same employer. However, the Labor Market in Balance Act (Wet arbeidsmarkt in balans in Dutch, or WAB), which entered into force on January 1, 2020, changed that law in a way that benefits employees. Now, employees in the Netherlands are eligible for transition pay from their first day of work, including any trial period.

Calculating Your Transition Payment

Prior to the introduction of the WAB, transition payments were calculated based on the employee’s age, years of service and monthly salary. For the first 10 years of service, employees were entitled to one-sixth of their gross monthly salary for each six-month period of service. After 10 years, they were entitled to one-quarter of their monthly salary. For employees over the age of 50 who had at least 10 years of service, the amount of transition pay they were entitled to increased to one-half of their monthly salary. However, the Labor Market in Balance Act took the employee’s age and total duration of employment out of the equation. Under the new law, employees are entitled to one-third of their gross monthly salary for each full year of service, plus a pro-rated payment for each additional month or day of service short of one full year. Holiday pay and any bonuses are also included in the calculation of transition compensation for Dutch employees. Transition pay in the Netherlands is currently capped at €83,000, or one year’s salary, whichever amount is greater.

Calculating Gross Monthly Salary

One of the most important components of the transition payment calculation is gross monthly salary. In most cases, the gross monthly salary you receive is an amount agreed upon by the employer and employee in the employment contract. If you have an indefinite-term (permanent) or fixed-term (temporary) employment contract, you can calculate your gross monthly salary by multiplying your gross hourly wage by the fixed number of hours you worked per month. However, it is possible that you do not earn a fixed amount per month. If this is the case, you will have to calculate your salary by looking at how much you are paid per month on average. For instance, if you have an on-call contract, you will have to multiply your gross hourly wage by the average number of hours you worked per month. If you have a commission or piece wage agreement, you will have to calculate the average monthly wage you received in the 12 months prior to the end of the employment contract.

Determining Duration of Employment

If your term of employment consists of just one contract, determining your total duration of employment and the amount of transition pay you are entitled to collect is relatively easy. You can simply calculate the period of time between the first day of your employment and the end date of the employment contract. For example, if you entered service on January 1, 2005 and your contract ends on October 31, 2020, the term of your employment is 15 years and 10 months. It is when you have several temporary employment contracts that have succeeded one other that things can get a little more complicated.

Successive Employment Contracts without an Interruption Period

If you have a fixed-term contract and there has been a series of contracts with the same employer that have succeeded one another directly, without an interval (period of interruption) between contracts, the consecutive contracts will be added together to determine the total duration of employment for the purpose of calculating transition pay. Imagine, for example, that you entered service on January 1, 2005 on a temporary one-year contract and your contract is renewed for another year on January 1, 2006, with no interval. If the employment contract becomes indefinite, or permanent, beginning on January 1, 2007 and the contract ends on October 31, 2020, the term of employment will still be 15 years and 10 months.

This method of duration of service calculation applies even if there is a “successive employer,” say, if you initially worked as a temporary worker through an employment agency and then joined the same employer, doing comparable work, or if there is a company takeover and you continue to perform comparable work, just for a different employer.

Successive Employment Contracts with an Interruption Period

If there have been intervals or periods of interruption between your successive employment contracts, whether or not these contracts can be added together to calculate your total duration of employment will depend on the length of the intervals and the dates of the employment contracts. The “chain provision” rule under the WAB effectively increased the contractual sequence of temporary employment contracts from three contracts within two years (24 months) with a six-month interval to three temporary employment contracts within three years (36 months) with a six-month interval. According to the new law, successive employment contracts count for the calculation of transition pay, so long as the interruption period between the contracts does not exceed six months.

Say you have several fixed-term employment contracts with the same employer or for the same kind of work with successive employers, and the contracts succeed one another with an interval of up to six months between contracts. These contracts will be added together to determine your total duration of employment. However, if the interval between any of the successive contracts exceeds six months, the “chain” of contracts is broken, and the old contract(s) will not count for the calculation of your transition payment. Keep in mind that if a different interval period has been agreed upon in your collective labor agreement, this alternative interval must be used in the calculation of your transition payment.

Transition Payment Exceptions

As an employee in the Netherlands, you have a number of rights under Dutch employment law, one of the most important being the right to collect fair and reasonable transition pay after being involuntarily dismissed on your employer’s initiative or not having your employment contract renewed. There are, however, a number of exceptions to the right of a Dutch employee to collect transition pay. Under the following circumstances, a transition payment may not be required:

• If the employee is younger than 18 years of age and has not worked more than 12 hours per week on average during his or her employment,
• If the dismissal is the result of serious culpable acts on the part of the employee,
• If the dismissal occurs because the employee has reached retirement age,
• If the employer is bankrupt,
• If the employee’s fixed-term contract expires and the employee and employer agree in advance that the contract will be renewed within a maximum of six months and can be terminated prematurely, or
• If a collective labor agreement arranges a deviation from the standard transition payment in the event of a dismissal for economic reasons.

Contact Our Labor and Employment Law Attorneys for Help

Dutch employment law has undergone significant reforms in recent years as part of an effort to limit unemployment, increase the rate of permanent employment and provide better protections for temporary employees. As part of these reforms, employees in the Netherlands are entitled to a fair and reasonable transition payment upon being involuntarily dismissed from employment on the initiative of their employer (for reasons other than seriously culpable behavior on the part of the employee) or after not having their temporary employment contract renewed by their employer. Whether your employment contract was a fixed-term contract or an indefinite-term contract, you may be eligible for transition compensation if your contract has been terminated. Consult our labor and employment law attorneys as soon as possible for assistance in calculating and collecting transition pay in the Netherlands.