What is the Transition Payment?
The transition payment (transitievergoeding) is the statutory severance payment a Dutch employer must pay when an employment contract ends on the employer's initiative. Introduced by the 2015 Wet Werk en Zekerheid and strengthened by the 2020 WAB reforms, it replaces the old kantonrechtersformule and standardises severance as a predictable cost of employment.
It accrues from day one of employment and is owed regardless of contract type. For companies planning a Dutch exit or restructure, Octagon's HR consultancy services provide transition payment calculations, UWV compensation filings, and settlement agreement drafting.
How does the Transition Payment work?
The payment is calculated at one-third of a month's gross salary per full year of service, pro rata for partial years and from the first day of employment. The salary base includes holiday allowance, any fixed thirteenth month, structural bonuses, overtime allowances, and shift premiums averaged over the preceding three years. The statutory cap for 2026 is EUR 102,000 gross or one gross annual salary if higher.
The payment is due within one month of the contract end date and is subject to wage tax. Employers can in certain cases reclaim the amount from UWV, notably after two years of sick leave. For a worked calculation, see our transition payment calculator explained and the wider Dutch dismissal law guide.
Who does the Transition Payment apply to?
Every employee on a Dutch employment contract is entitled to a transition payment when the contract ends on the employer's initiative, including permanent and fixed-term staff, payroll employees, on-call workers, and employees engaged through an Employer of Record. It applies from the first day of employment, so even an employee dismissed after a one-month probation extension may qualify if probation rules are not met.
Foreign parent companies operating Dutch payrolls are bound in the same way as domestic employers. In practice, high-exposure sectors include technology, financial services, and consultancy, where restructuring events drive large aggregate transition payment liabilities.
When does the Transition Payment not apply?
The transition payment is not owed when the employee resigns voluntarily without employer-caused culpable conduct, when the contract ends due to serious culpable conduct by the employee (ernstig verwijtbaar handelen), when termination occurs during a valid probation period, or when the employee reaches the statutory state pension age (AOW) and the contract ends by operation of law. It also does not apply where the employer is in bankruptcy, in legal restructuring under the WHOA, or subject to surseance van betaling. For negotiation scenarios, see settlement agreement essentials.