Severance pay is a broad term for compensation provided to an employee upon termination of employment, regardless of the reason. It may arise from a mutual termination agreement, a without-cause dismissal, or a contractual clause. In many jurisdictions, severance above the statutory minimum is negotiated commercially and reflects factors such as seniority, role level, and the circumstances of departure.
Redundancy refers specifically to the situation where employment ends because the employee's position ceases to exist, typically due to business restructuring, technological change, or an economic downturn. Many countries mandate specific redundancy or retrenchment pay that is calculated separately from any general severance entitlement, and they often impose procedural obligations such as notice periods, consultation with employee representatives, and selection criteria documentation.
In the Netherlands, the principal statutory payment for both redundancy and other forms of involuntary termination is the transitievergoeding (transition allowance), which has been payable to all employees from the first day of employment since the Wet arbeidsmarkt in balans (WAB) came into force in January 2020. The allowance is calculated at one third of a gross monthly salary per year of service, with no cap on years. The transitievergoeding replaces the former berekening op basis van dienstjaren system and applies regardless of whether the termination is classified as redundancy or otherwise.