Severance Pay (Transitievergoeding) in the Netherlands

If your employer terminates your employment contract, you are in most cases entitled to severance pay — in Dutch known as the transitievergoeding. This is a statutory compensation intended to help you transition to a new job. In this article you can read how severance pay is calculated, when you are entitled to it, what common pitfalls to watch out for, and how to ensure you receive the correct amount.

What is severance pay (transitievergoeding)?

Severance pay, or transitievergoeding in Dutch, is a statutory compensation that your employer must pay when your employment contract ends on the employer's initiative or is not renewed. The term "transitievergoeding" literally translates to "transition compensation" — it is intended to facilitate your transition to new employment, for example by covering the costs of retraining, courses, or outplacement.

The transitievergoeding was introduced on 1 July 2015 as part of the Work and Security Act (Wet werk en zekerheid). Before this date, a different system applied with the so-called "subdistrict court formula" (kantonrechtersformule) for calculating dismissal compensation. The transitievergoeding replaced this formula with a uniform and more predictable calculation method.

Since 1 January 2020, following the Balanced Labour Market Act (Wet arbeidsmarkt in balans, or WAB), the right to severance pay applies from the very first day of employment. Previously, you had to have been employed for at least two years. This is an important change: even if your employment contract lasted only a few months, you may be entitled to severance pay if your employer terminates it.

Legal basis: Article 7:673 BW

The right to severance pay is laid down in Article 7:673 of the Dutch Civil Code (Burgerlijk Wetboek, or BW). This article specifies the conditions under which an employee is entitled to the transitievergoeding and how it should be calculated.

The key provisions of Article 7:673 BW include:

• Paragraph 1: The employer owes the transitievergoeding if the employment contract is terminated on the employer's initiative, or if the employer does not renew a fixed-term contract. The right also arises if the employee terminates the contract due to seriously culpable acts or omissions by the employer.
• Paragraph 2: The formula for calculating the amount — one-third of the monthly salary for each full year of service, and a proportional amount for the remaining period.
• Paragraph 7: Situations in which the employee is not entitled to severance pay, such as summary dismissal for an urgent reason or if the employee is under 18 and works limited hours.
• Paragraph 8: The employer can deduct certain costs from the transitievergoeding, such as costs incurred for employability measures (e.g. training courses aimed at finding new employment). The conditions for this deduction are further specified in the Decree on conditions for deduction of costs from the transitievergoeding (Besluit voorwaarden in mindering brengen kosten op transitievergoeding).

In addition, Article 7:673b BW provides that a collective labour agreement (CAO) may include an alternative arrangement for the transitievergoeding, provided that the alternative is equivalent in value. This means that in some sectors a different scheme applies, but your employer cannot simply ignore the statutory minimum without a CAO that provides a comparable arrangement.

How severance pay is calculated

The calculation of the transitievergoeding is straightforward in principle. Since 1 January 2020, the formula is the same regardless of your age or years of service:

Here are a few examples to illustrate the calculation:

• Example 1: You earned a gross monthly salary of €3,600 and worked for your employer for 6 years. Your severance pay is: 1/3 × €3,600 × 6 = €7,200 gross.
• Example 2: You earned €4,500 gross per month and worked for 9 years and 4 months. Your severance pay is: 1/3 × €4,500 × 9.33 = €14,000 gross (approximately).
• Example 3: You had a temporary contract of 8 months at €3,000 gross per month and the employer did not renew it. Your severance pay is: 1/3 × €3,000 × 0.67 = €667 gross (approximately).

Note that there is a statutory maximum for the transitievergoeding that is adjusted annually by the government. Check the Dutch Government website (Rijksoverheid) for the current maximum amount. If your calculated severance pay exceeds this maximum, or if your annual salary exceeds the maximum, you receive whichever is lower: the calculated amount or the statutory cap. In practice, the maximum primarily affects employees with very high salaries or extremely long service.

What counts as monthly salary

A crucial factor in the calculation is determining your "monthly salary." This is not simply the base salary stated on your payslip. The Decree on the calculation of the transitievergoeding (Besluit loonbegrip vergoeding aanzegtermijn en transitievergoeding) specifies exactly which components are included:

Base gross monthly salary

This is the gross salary as agreed in your employment contract, excluding any allowances or supplements.

Holiday allowance (vakantiegeld)

In the Netherlands, employees are entitled to a minimum of 8% holiday allowance on top of their base salary. This must be included in the calculation. The monthly amount added is: 8% of your gross monthly salary (or the actual percentage if higher). This equals 1/12 of your annual holiday allowance.

Fixed end-of-year bonus / 13th month

If your employment contract or collective labour agreement guarantees a 13th month payment or a fixed end-of-year bonus, 1/12 of this annual amount is added to the monthly salary used for the calculation.

Variable components (average over 12 months)

Variable remuneration that you received in the 12 months prior to the end of your employment is also included. This covers:

• Overtime pay: the average monthly overtime compensation over the last 12 months.
• Variable bonuses and commission: performance-related bonuses, sales commission, and other variable payments, averaged over the last 12 months.
• Shift allowances and irregular hours supplements: if you regularly worked shifts or irregular hours with corresponding pay supplements, the average monthly amount is included.
• Profit-sharing: if you received profit-sharing payments, the average is included. The reference period is in principle 12 months, but for components paid annually or at longer intervals, the average over the last 36 months may apply. The exact calculation depends on the nature and payment frequency of the component.

When you are entitled to severance pay

You are entitled to severance pay (transitievergoeding) in the following situations:

• Dismissal by the employer: if your employer terminates your employment contract, whether through the UWV (for economic reasons or long-term illness) or via the subdistrict court (for personal grounds such as a disrupted working relationship or dysfunctional performance).
• Non-renewal of a temporary contract: if your employer decides not to renew your fixed-term contract, you are in principle entitled to severance pay. The amount is calculated based on the actual duration of the employment, so even a short contract builds up entitlement.
• Termination during the probationary period by the employer: since 2020, even if the employer terminates your contract during the probationary period, you are technically entitled to severance pay (though the amount will be very small given the short duration of employment).
• Termination by you due to seriously culpable conduct by the employer: if you resign because of seriously culpable acts or omissions by your employer (for example, severe harassment, failure to pay wages, or creating an unsafe working environment), you may be entitled to severance pay. You must be able to demonstrate that the employer's conduct was seriously culpable.
• After two years of illness: if your employment is terminated after two years of illness (via UWV permission), your employer must still pay the transitievergoeding. Many employers are unaware of this obligation or try to avoid it.

When you are NOT entitled to severance pay

There are specific situations in which you have no right to the transitievergoeding:

• Resignation on your own initiative: if you voluntarily resign, you are generally not entitled to severance pay. The main exception is if you resign due to seriously culpable conduct by the employer. In exceptional circumstances, such as a severe employment conflict or medical necessity, the court may also award a transitievergoeding.
• Summary dismissal for an urgent reason (ontslag op staande voet): if you are dismissed on the spot for an urgent reason and the court upholds this dismissal, you lose your right to severance pay. However, if you successfully challenge the summary dismissal in court, your right to severance pay can be restored.
• Under 18 with limited hours: employees under the age of 18 who work an average of no more than 12 hours per week are not entitled to the transitievergoeding.
• Bankruptcy of the employer: if your employer goes bankrupt, no transitievergoeding is owed. This is regulated in Article 7:673c BW. The UWV may take over certain wage claims, but the transitievergoeding is excluded from this.
• Seriously culpable conduct by you: if the court determines that the termination of the employment is the result of your own seriously culpable conduct, the judge may decide that no transitievergoeding (or a reduced amount) is owed. Examples include theft, fraud, persistent refusal to work, gross insubordination, structural sabotage, or serious breach of reintegration obligations. This is not an exhaustive list — whether conduct qualifies as "seriously culpable" is assessed on a case-by-case basis. In practice, the threshold is high. Simple underperformance is generally not enough.
• Mutual termination with a settlement agreement: strictly speaking, there is no statutory right to the transitievergoeding when the employment ends by mutual agreement. However, the severance pay is almost always used as a reference in settlement negotiations (see below).
• Reaching the state pension age (AOW): if the employment contract ends because you reach the AOW age, no transitievergoeding is owed (Article 7:673 paragraph 7 sub b BW).

Severance pay in a settlement agreement

A settlement agreement (vaststellingsovereenkomst or VSO) is an agreement to terminate the employment contract by mutual consent. Technically, termination by mutual agreement does not give you a statutory right to the transitievergoeding. However, in practice, the transitievergoeding is commonly used as a reference point in negotiations.

This is because your employer knows that if you refuse the settlement agreement, they would have to follow a formal dismissal route (via UWV or the subdistrict court), where you would be entitled to the statutory severance pay. This gives you a negotiating position. However, it does not mean that every employer automatically offers the full transitievergoeding — in practice, the compensation can be equal to, lower than, or higher than the statutory amount, depending on the strength of the employer's case and your specific circumstances.

In some cases, you may be able to negotiate a higher amount, especially if:

• Your employer does not have a strong legal ground for dismissal.
• The employer wants a quick resolution and is willing to pay more for certainty.
• You have a long employment history and strong position within the company.
• The employer has acted improperly (for example, not following a proper improvement process).

On the other hand, in situations such as a reorganisation with a social plan, the room for negotiation may be more limited. Every situation is different, which is why it is wise to have your settlement agreement reviewed by a lawyer who can assess your specific negotiating position.

Common employer mistakes in calculation

In practice, the transitievergoeding is frequently calculated incorrectly by employers. Sometimes this happens deliberately, but often it is a genuine mistake due to the complexity of the calculation. Here are the most common errors to watch out for:

• Forgetting the holiday allowance: many employers calculate the severance pay based on the base salary alone, without adding the 8% holiday allowance. This means you receive less than you are entitled to.
• Excluding the 13th month or end-of-year bonus: if your contract or CAO entitles you to a 13th month or guaranteed year-end bonus, 1/12 of this amount must be included in the monthly salary. Employers frequently overlook this.
• Ignoring variable pay components: overtime, bonuses, commission, and shift allowances over the last 12 months should be averaged and included. Employers often only use the base salary.
• Wrong start date of employment: if you had consecutive contracts with the same employer (or a chain of temporary contracts), the entire duration counts. Your years of service do not reset between contracts if there was no gap of more than six months. Employers sometimes use the start date of the latest contract rather than the first.
• Applying the old formula: since 1 January 2020, the rate is 1/3 monthly salary per year for all years of service. The old system (higher rate after 10 years of service or for employees over 50) no longer applies. Some employers still use outdated calculation methods.
• Not paying after two years of illness: after two years of long-term illness, the employer is still obliged to pay the transitievergoeding. Some employers incorrectly believe that no severance pay is owed in this situation. Note: the employer can apply for compensation from the UWV for this payment.

Tax implications

The transitievergoeding is subject to taxation. Understanding the tax treatment helps you plan financially and avoid unpleasant surprises.

Income tax in box 1

The severance pay is classified as income from current or former employment and is taxed in box 1 of the Dutch income tax system. Your employer withholds payroll tax and social security contributions when paying the transitievergoeding. Because the severance pay is added to your regular income in the year of payment, it may push you into a higher marginal tax bracket, resulting in a higher effective tax rate on the payment.

Impact on allowances

The severance pay increases your taxable income in the year it is paid. This can affect your eligibility for income-dependent government allowances (toeslagen), including:

• Healthcare allowance (zorgtoeslag)
• Housing allowance (huurtoeslag)
• Childcare allowance (kinderopvangtoeslag)
• Child-related budget (kindgebonden budget)

If you receive a large severance payment, you may temporarily lose entitlement to some or all of these allowances for that year. It is advisable to contact the Tax Authority (Belastingdienst) or check your personal situation on Mijn Toeslagen.

No VAT or social security exemption

Unlike some other payments, the transitievergoeding cannot be paid tax-free or exempt from social security contributions. It is always fully taxable. Some employers offer to allocate part of the compensation as a "budget for training or outplacement" — in certain cases this may have a favourable tax treatment, but the conditions are strict and specific.

Timing of payment

The employer must in principle pay the transitievergoeding within one month after the end of the employment contract. If the employer pays late, you are entitled to statutory interest (the wettelijke rente) from the moment the payment was due. If you need to claim the transitievergoeding through the court, the limitation period is three months after the end of your employment contract (Article 7:686a paragraph 4 sub b BW). Please note: other employment law claims (such as challenging the dismissal itself or claiming a billijke vergoeding) may have different limitation periods. Do not let any deadline pass — consult a lawyer promptly.

Frequently asked questions about severance pay

How much severance pay will I receive?

The statutory severance pay is 1/3 of your gross monthly salary for each year of service. The "monthly salary" includes your base salary plus holiday allowance, 13th month, and average variable components. For example, with a gross salary of €4,000 and 5 years of service, the severance pay is approximately €6,667 gross. In a settlement agreement, the compensation is negotiable and may be higher.

Am I entitled to severance pay if my temporary contract is not renewed?

Yes. If your employer decides not to renew your fixed-term contract, you are entitled to the transitievergoeding. This applies from the first day of employment, even if the contract was only for a few months. The amount is calculated proportionally based on the actual duration of the employment.

Do I receive severance pay if I resign myself?

In general, no. If you resign voluntarily, you are not entitled to severance pay. The only exception is if you resign because of seriously culpable conduct by your employer (for example, severe harassment or failure to pay wages). In that case you may claim the transitievergoeding through the subdistrict court.

Is severance pay the same as the compensation in a settlement agreement?

Not necessarily. The statutory severance pay (transitievergoeding) is a fixed amount calculated by law. The compensation in a settlement agreement is the result of negotiation and can be higher or, in some cases, lower. However, the transitievergoeding almost always serves as the baseline for negotiations.

Can my employer deduct training costs from the severance pay?

Under certain conditions, yes. The employer can deduct costs of measures aimed at improving your employability (known as transitiekosten and inzetbaarheidskosten), provided these costs were incurred with your written consent and are specifically aimed at your transition to new employment or broadening your employability. The employer cannot deduct costs for training that was necessary for your current job.

What if my employer refuses to pay severance pay?

If your employer refuses to pay the transitievergoeding while you are entitled to it, you can claim it through the subdistrict court. You must submit this claim within three months after the end of your employment contract. After this deadline, your claim lapses. It is advisable to seek legal advice promptly if your employer refuses payment.