Calculating Your Severance Pay (Transitievergoeding)

If your employment in the Netherlands is ending, you are most likely entitled to severance pay (transitievergoeding). But how much will you actually receive? The calculation is laid down in Dutch law and depends on your gross monthly salary, your years of service and a number of salary components that may or may not count. In this article, you will find a detailed explanation of the formula, which components are included, worked-out examples, and common errors that employers make.

The Statutory Formula

The severance pay (transitievergoeding) is regulated in Article 7:673 of the Dutch Civil Code (BW). Since 1 January 2020, one uniform formula applies to all employees, regardless of age or length of service. The formula is straightforward:

This daily calculation means you start building up severance pay from your very first day of employment in principle. Unlike the old system (the so-called "kantonrechtersformule"), there is no longer a minimum number of years you need to have worked. Even if you have only been employed for a few months, you are in principle entitled to severance pay calculated on a pro rata basis when you are dismissed. However, there are exceptions: if you are dismissed during your probationary period (proeftijd), the employer does not owe severance pay. If you have acted in a seriously culpable manner, the court may decide that you receive no (or reduced) severance pay (Article 7:673 paragraph 7 sub c BW). Additionally, the severance pay may be replaced by an equivalent provision in a collective labour agreement (Article 7:673b BW).

How the formula works in practice

The calculation involves two steps:

1. Determine your gross monthly salary: this is your base salary plus certain fixed salary components (explained in detail below).
2. Multiply by your years of service: divide your gross monthly salary by 3, and multiply the result by the number of full years. For the remaining incomplete period, calculate the amount proportionally on a daily basis.

The calculation is based on the Besluit loonbegrip vergoeding aanzegtermijn en transitievergoeding (Decree on the Salary Concept for Severance Pay). This decree specifies exactly which salary components must be included and how variable pay must be averaged.

What Constitutes "Monthly Salary"?

Your gross monthly salary for the purpose of severance pay is broader than just your base salary. The legislator has specified that a number of fixed and regularly recurring salary components must be included. This ensures that your severance pay reflects your actual income rather than only a portion of it.

1. Gross base salary

The starting point is your gross monthly base salary as agreed in your employment contract or collective labour agreement (CAO). This is your fixed monthly pay excluding allowances and benefits. If your salary has changed during your employment, the salary at the time of termination applies.

2. Holiday allowance (vakantietoeslag) – 8%

The holiday allowance always counts towards the calculation. In the Netherlands, the statutory holiday allowance is 8% of your gross annual salary (Article 15 of the Minimum Wage and Minimum Holiday Allowance Act). If your CAO or employment contract specifies a higher percentage, that higher percentage is used. The holiday allowance is converted to a monthly amount: at the standard rate of 8%, this equals your gross monthly salary × 0.08.

3. 13th month / year-end bonus

A fixed year-end bonus (13th month or "dertiende maand") counts towards the calculation if it is structurally agreed in your employment contract or CAO. The annual amount is divided by 12 to arrive at a monthly figure. Important: this must be a guaranteed payment. If the year-end bonus is discretionary (your employer decides each year whether and how much to pay), it falls under the variable components category instead.

4. Structural overtime pay

If you regularly work overtime and receive compensation for it, this overtime pay is included in the calculation. The amount is determined by looking at the average overtime compensation over the twelve months preceding the end of your employment. It must concern structural overtime — incidental overtime does not count.

5. Fixed bonuses and shift allowances

Do you receive a shift allowance (ploegentoeslag) or other structural allowance for working irregular hours? This allowance is included in the calculation. As with overtime pay, the average over the last twelve months is used. The same applies to other fixed, regularly recurring bonuses that form part of your standard compensation.

6. What does NOT count

Not everything your employer pays you is included. The following components are excluded from the calculation:

• Employer's pension contributions: the pension premium your employer pays does not count
• Expense reimbursements: travel allowances, home office allowances, representation costs — none of these count
• Company car: the value of a lease car is not included in principle. However, if you receive a fixed car allowance in cash (for example because you no longer have a lease car), this allowance may in certain circumstances qualify as a salary component
• Employer's health insurance contribution: not included
• One-off payments: jubilee bonuses, farewell gifts and other incidental payments are excluded

Variable Components: How to Average

Variable pay such as bonuses, commissions and profit-sharing is included in the calculation, provided it has a structural character. The legislator has laid down specific rules on how to average these amounts to prevent a single exceptional year from distorting the calculation.

The 36-month average for bonuses

Variable bonuses, commissions and profit-sharing are calculated as the average over the 36 months (three years) preceding the end of your employment. This three-year average smooths out fluctuations. If you have been employed for less than 36 months, the average is calculated over the actual duration of your employment. Note: the reference period differs per salary component. For overtime pay and shift allowances, a 12-month reference period applies (see above), while bonuses and profit-sharing use the 36-month period.

The 12-month average for overtime and shift work

Structural overtime pay and shift allowances use a shorter averaging period: the twelve months before the end of your contract. If your employment lasted less than twelve months, the full employment period is used.

Calculation for Partial Years

Under the current legislation, severance pay is calculated down to the day. This means that if your employment does not end precisely on the anniversary of your start date, the remaining partial year is included proportionally.

The calculation for partial years works as follows:

1. Determine the number of remaining calendar days after the last full year of service
2. Divide this number by 365
3. Multiply the result by 1/3 of your gross monthly salary

For example, if you have 6 years and 200 days of service, you receive the full amount for 6 years (6 × 1/3 monthly salary), plus an additional amount for the 200 days (200 / 365 × 1/3 monthly salary). This daily calculation ensures you receive fair compensation for every day worked.

Examples with Actual Calculations

To make the calculation concrete, here are three worked-out examples. In each example, the gross monthly salary is calculated including holiday allowance and any other applicable components.

Example 1: Employee with 8 years of service

Example 2: Senior employee with 15 years and 7 months of service

Example 3: Employee with a short employment period

As you can see, the formula itself is not complicated. The complexity typically lies in correctly determining your gross monthly salary — particularly the question of which components count and how variable pay should be averaged. An error in the monthly salary figure cascades through the entire calculation and can lead to a significant difference.

Common Employer Errors

In practice, employers frequently make mistakes when calculating severance pay. Some errors are genuine oversights; others may be deliberate attempts to reduce the amount owed. Here are the most common errors to watch out for:

1. Forgetting the holiday allowance

One of the most common errors is calculating severance pay based on the base salary alone, without adding the 8% holiday allowance. Since the holiday allowance is always included by law, this single omission reduces your severance pay by approximately 8%. On a severance payment of € 15,000, that means you would miss out on roughly € 1,200.

2. Excluding the 13th month

If your contract or CAO guarantees a 13th month payment, it must be included in the calculation. Employers sometimes "forget" this component or argue that it is a discretionary bonus. Check your contract carefully: if the 13th month is a guaranteed entitlement, it counts.

3. Ignoring structural overtime

If you have been working structural overtime for months or years, the average overtime compensation must be included. Some employers calculate severance based only on the contractual salary, omitting the overtime component entirely. If you regularly worked overtime, verify that this is reflected in the calculation.

4. Using the wrong averaging period for bonuses

Variable bonuses must be averaged over 36 months, not 12. Using a shorter period — or worse, taking only the most recent year when it happened to be a low year — leads to an incorrectly lower calculation. Conversely, if only the best year is used, the average would be too high. The three-year average provides a fair and balanced figure.

5. Incorrect calculation of partial years

Some employers round down to full years and ignore the remaining months and days. Under current law, partial years must be calculated on a daily basis. If your employer offers you severance for "10 years" when you actually worked 10 years and 8 months, you are being shortchanged on the pro rata amount for those extra 8 months.

Maximum Severance Pay Amount

Dutch law sets a maximum cap on severance pay. This maximum is indexed annually by the government based on wage developments. The cap applies regardless of your salary or number of years of service.

The maximum amount changes each year. When calculating your severance pay, you should use the maximum that applies on the date your employment contract ends — not the amount that was in force at the start of the dismissal procedure. Since the indexation typically involves an increase, it may be advantageous for employees with a high severance amount if the end date falls in a new calendar year.

In practice, most employees do not reach the statutory maximum. The cap is mainly relevant for employees with a long tenure (20 years or more) and an above-average salary. For the average employee, the formula of 1/3 gross monthly salary per year of service determines the final amount without hitting the ceiling.

Severance Pay vs. Negotiated Compensation

An important distinction that many employees are not aware of is the difference between the statutory severance pay (transitievergoeding) and the compensation negotiated in a settlement agreement (vaststellingsovereenkomst or VSO).

Upon unilateral dismissal: a statutory right

If your employer terminates your employment unilaterally — through a UWV dismissal permit or a court ruling — you have an automatic legal right to severance pay calculated according to the statutory formula. Your employer is legally obliged to pay this. If they fail to do so, you can claim the severance pay through the subdistrict court within three months of the end of your employment (Article 7:686a paragraph 4 BW).

In a settlement agreement: negotiable

With a settlement agreement, the situation is different. Because a VSO is an agreement by mutual consent, there is no automatic legal entitlement to severance pay. The compensation is entirely negotiable. In practice, this means:

• Your employer is not legally required to offer the transitievergoeding in a settlement agreement
• In practice, many employers offer the statutory amount as a starting point, but this is not a given — if the employee's negotiating position is weak, the offer may also be lower
• The compensation in a VSO can be lower than the statutory severance pay (if you agree to this)
• The compensation can also be higher than the statutory amount, depending on your negotiating position

Why you may be able to negotiate more

Your employer saves significant costs and uncertainty by choosing a settlement agreement over a formal dismissal procedure. This gives you negotiating leverage. Common reasons to expect a higher amount include:

• Weak dismissal grounds: if your employer is uncertain whether the UWV or court would approve the dismissal, they are more willing to offer a higher amount
• Avoided legal costs: a formal dismissal procedure costs the employer time, legal fees and management attention
• Illness or dismissal ban: if you are sick or another dismissal ban applies, your position is particularly strong, as your employer cannot dismiss you unilaterally
• Seriously culpable conduct by employer: if your employer has acted in a seriously culpable manner, a court might award an additional "fair compensation" (billijke vergoeding) on top of the severance pay

Frequently Asked Questions

How do I calculate my severance pay?

Your severance pay equals 1/3 of your gross monthly salary for each year of service. The gross monthly salary includes your base salary, holiday allowance (8%), any fixed year-end bonus, structural overtime pay, shift allowances, and the average of structural bonuses over the past three years. For incomplete years, the amount is calculated on a daily basis. Add up all applicable salary components, divide by 3, and multiply by your years of service (including the daily calculation for remaining days).

Does my holiday allowance count towards severance pay?

Yes, always. The statutory holiday allowance of 8% of your gross annual salary is included in the calculation. If your CAO or employment contract specifies a higher percentage, that higher amount is used. The holiday allowance is converted to a monthly amount and added to your base salary for the calculation.

What is the maximum severance pay I can receive?

In 2025, the statutory maximum is € 98,000 gross. If your gross annual salary exceeds this amount, your annual salary serves as the cap. The maximum is indexed annually and changes each year. The applicable maximum is the one in force on the date your employment ends. Most employees do not reach this cap.

Is severance pay gross or net?

Severance pay is a gross amount. Your employer withholds payroll tax (loonheffing) before paying you. The net amount you receive depends on your personal tax situation and the applicable tax rate. In practice, the employer typically withholds the applicable payroll tax percentage, after which the net amount is transferred to you. Read more about severance pay and its tax implications.

Can my employer calculate severance pay differently?

No. The formula is laid down in law (Article 7:673 BW) and the included salary components are specified in a government decree. Your employer cannot unilaterally apply a different formula or exclude components that should legally be included. However, in a settlement agreement, the total compensation is negotiable and may differ from the statutory amount — which is why having your agreement reviewed is essential.

Do I still get severance pay if I have only worked for a few months?

Yes. Since 1 January 2020, you are entitled to severance pay from your first day of employment, calculated proportionally. Even if you have only been employed for three months, you are entitled to a pro rata amount. The calculation uses the same formula: 1/3 of your monthly salary, multiplied by the fraction of the year you have worked (number of days / 365). Check your eligibility for more details on when severance pay applies.