Calculating the Transition Payment: Complete Explanation 2026

In many cases of dismissal, an employee is entitled to a transition payment. This statutory severance pay is intended to facilitate the transition to other work. But how exactly do you calculate the transition payment? And when, as an employer, do you not have to pay it?

What is the transition payment?

The transition payment is a statutory payment that employees receive when their employment contract is terminated by the employer. The payment is intended for:

• Reskilling or training
• Bridging the gap to a new job
• Guidance in finding work

The employee is, however, free to spend the money as they see fit.

Legal basis: Art. 7:673 BW

The transition payment is regulated in Art. 7:673 BW. This article forms the core of the statutory right to severance pay and determines both the conditions and the calculation method.

The transition payment was introduced with the Work and Security Act (WWZ) on 1 July 2015. This act radically reformed dismissal law. Before then, the so-called subdistrict court formula existed, which had no legal basis but was used as a guideline in legal practice. The WWZ replaced this system with a statutory right to the transition payment.

On 1 January 2020, the regulation was amended again by the Balanced Labour Market Act (WAB). The most important change: since then, employees have been entitled to a transition payment from their first day of work. Under the WWZ, this right only arose after two years of employment. In addition, the higher accrual for employees over 50 (which was already a temporary measure under the WWZ) was permanently abolished. The calculation is now the same for everyone: one-third of a monthly salary per year of service.

The legislator has a dual purpose with the transition payment: on the one hand, compensation for the loss of the job, and on the other, promoting the employee's employability. The money is intended to facilitate the transition to a new job, for example, through reskilling or guidance.

When is a transition payment due?

An employer is required to pay a transition payment when:

• The employment contract is terminated by the employer
• The employment contract is dissolved by the court at the employer's request
• A temporary contract is not renewed
• The agreement ends by mutual consent (often included in the settlement agreement)
• The employee successfully challenges a summary dismissal

This applies regardless of the length of service. Even with a short period of employment or during the probationary period, a transition payment is technically due, although the amount will be minimal.

Calculation of the transition payment

The calculation has been simplified since 2020. The transition payment amounts to:

The calculation is precise to the day. For each year of service, you accrue 1/3 of a monthly salary. This is calculated pro rata, so half-years and months also count.

What counts as salary?

For the calculation of the transition payment, the following are included:

• The gross monthly salary
• Fixed end-of-year bonus (1/12)
• Holiday allowance (usually 8%)
• Fixed salary components (structural allowances)
• Average variable remuneration over the last 3 years (bonus, commission, overtime pay)

Calculation examples

Below are three examples showing how the transition payment works out in practice. The formula is always the same: the gross monthly salary (including holiday pay and fixed emoluments) divided by three, multiplied by the number of years of service.

Example 1: Short period of employment

An employee works full-time for 2 years with a gross monthly salary of €3,000 and an 8% holiday allowance.

• Gross monthly salary: €3,000
• Holiday allowance: €240 (8% of 3,000)
• Total monthly salary: €3,240

Calculation: 3,240 / 3 x 2 years = €2,160 gross.

Example 2: Long period of employment with end-of-year bonus

An employee works full-time for 15 years with a gross monthly salary of €4,500, an 8% holiday allowance, and a fixed end-of-year bonus of €2,000 per year.

• Gross monthly salary: €4,500
• Holiday allowance: €360 (8% of 4,500)
• End-of-year bonus: €167 (2,000 / 12)
• Total monthly salary: €5,027

Calculation: 5,027 / 3 x 15 years = €25,135 gross.

This example illustrates how the transition payment can quickly increase with a longer period of service. Employers would be wise to take this into account in advance.

Example 3: Part-time employee

An employee works part-time for 3 years (24 hours per week) with a gross monthly salary of €2,400 and an 8% holiday allowance.

• Gross monthly salary: €2,400
• Holiday allowance: €192 (8% of 2,400)
• Total monthly salary: €2,592

Calculation: 2,592 / 3 x 3 years = €2,592 gross.

Please note: for part-time employees, the calculation is based on the actual (lower) monthly salary. It does not matter for the formula whether someone works full-time or part-time. The working hours are already factored into the salary.

Maximum transition payment 2026

The transition payment has a statutory maximum. In 2026, this maximum is €102,000 gross, or an annual salary if that is higher. This maximum is indexed annually.

Transition payment and tax

The transition payment is fiscally classified as income from previous employment. This means the amount is fully taxed in box 1 of the income tax. The employer is obliged to withhold payroll tax at the time of payment.

In practice, the tax burden can be substantial. Because the transition payment comes on top of the regular salary, the amount often falls into a higher tax bracket. The net amount the employee ultimately receives can therefore be significantly lower than the gross transition payment. With a gross payment of €25,000, the employee might, depending on their other income, only have €13,000 to €16,000 left.

The income averaging scheme, which allowed tax peaks to be spread over three years, was abolished as of 2023. For employees aged 60 and over, the RVU threshold exemption (Early Retirement Scheme) still exists. Under this scheme, employers can pay a severance payment to older employees until the end of 2028 without an additional RVU levy of 52% being due, provided the amount remains below the threshold. Consult the Tax and Customs Administration for the current threshold amounts.

It is wise to inform employees in advance about the tax implications to avoid incorrect expectations about the net amount.

When is no transition payment due?

There are situations in which no transition payment is due:

• Seriously culpable conduct: If the employee has acted in a seriously culpable manner (e.g., theft, fraud, or refusal to work), the court may decide that no transition payment is due.
• Employee younger than 18: With an average working week of no more than 12 hours.
• State pension age: If the employment contract ends after reaching the state pension age.
• Bankruptcy: In the event of the employer's bankruptcy.
• Resignation by the employee: If the employee resigns themselves (unless this is the result of seriously culpable conduct by the employer).

Special situations

In addition to the standard situations, there are a number of special cases where specific rules apply to the transition payment.

Employees of state pension age

Employees who have reached the state pension age are, in principle, not entitled to a transition payment upon dismissal. This is regulated in Art. 7:673(7)(b) BW. The legislator has chosen this because these employees can claim a state pension. The WAB has not changed this. However, a payment can be agreed upon in a settlement agreement or collective labour agreement, but this would not be a statutory transition payment.

Bankruptcy

In the event of the employer's bankruptcy, no transition payment is due. This is explicitly regulated in Art. 7:673c BW. The receiver can terminate the employment contracts without employees being able to claim this payment. The same applies in case of a suspension of payments and the application of the debt rescheduling scheme (WSNP). Employees can therefore not submit their claim for a transition payment to the receiver.

Seasonal workers

Employees with successive temporary contracts, such as seasonal workers in the hospitality or agriculture and horticulture sectors, are entitled to a transition payment for the entire duration of their employment. All contracts count, provided the interruptions do not last longer than six months. Due to the WAB amendment (entitlement from day 1), this right has also become relevant for employees with short contracts who previously fell under the two-year term.

Payroll employees

Since the WAB, payroll employees are entitled to the same terms of employment as employees directly employed by the client. This also applies to the transition payment. The payroll company, as the formal employer, is responsible for the payment. The amount of the payment is calculated based on the salary and the total period of employment with the payroll company, including previous assignments.

Compensation scheme for employers

In the event of an employee's long-term illness (2 years or more), you as an employer can apply for compensation from the UWV for the transition payment paid. The main conditions are:

• The employment contract was terminated due to long-term incapacity for work
• The application was submitted within 6 months of payment
• You can prove the payment was made

The compensation is capped at the amount of the transition payment on the day the employee had been ill for 2 years.

Fair compensation: an extra payment on top of the transition payment

If the employer has acted in a seriously culpable manner, the court can award fair compensation in addition to the transition payment. This is an extra payment, the amount of which depends on the circumstances. There is no maximum.

Examples of seriously culpable conduct by the employer:

• Discrimination or sexual harassment
• Dismissal on false grounds
• Serious breach of reintegration obligations
• Deliberately creating a dysfunctional working relationship

Transition payment in the settlement agreement

In a dismissal by mutual consent, the transition payment is usually included in the settlement agreement. In practice, more than the statutory transition payment is often paid, especially if the employer initiates the termination and wants to avoid legal proceedings.

Please note: in a settlement agreement, you can also agree that less than the statutory transition payment will be paid, or even nothing at all. This is permitted, but the employee must voluntarily agree to it.

Frequently asked questions

Do I have to pay a transition payment for dismissal during the probationary period?

Legally, yes, but in practice, the amounts are minimal. For a one-month probationary period and a monthly salary of €3,000, the transition payment is approximately €83.

Is the transition payment taxable?

Yes, the transition payment is considered income and is taxed at the normal rate in box 1. The employer withholds payroll tax upon payment. The employee therefore receives a net amount that is lower than the gross amount, sometimes significantly so due to progressive tax brackets.

Can I pay the transition payment in instalments?

Only if this has been agreed in writing with the employee. You are not automatically entitled to pay in instalments.

What if I cannot pay?

As an employer, you can ask the subdistrict court to reduce the transition payment or allow you to pay in instalments if immediate payment would lead to unacceptable consequences for your business operations.

How long do I have to claim the transition payment?

An employee must submit a request to the subdistrict court to claim the transition payment within three months of the end of the employment contract. This is regulated in Art. 7:686a BW. After this period expires, the right is forfeited. It is therefore important for employers to know that an employee who has taken no action after three months can no longer claim the payment.

Can the employer deduct training costs?

Yes, under certain conditions. Based on Art. 7:673(6) BW, so-called transition costs and employability costs may be deducted from the transition payment. Transition costs are costs aimed at finding a new job (e.g., outplacement). Employability costs are costs for training that enhance the employee's broader employability, provided the training is not directly related to their current role. The employee must agree to the deduction in writing beforehand.

Do I receive a transition payment in case of a summary dismissal?

In the case of a legally valid summary dismissal due to seriously culpable conduct by the employee, no transition payment is due in principle. However, the court can deviate from this if not awarding it would be unacceptable according to standards of reasonableness and fairness. Conversely, if the summary dismissal proves to be unjustified and is overturned by the court, the employee is still entitled to the full transition payment (and possibly fair compensation).

Is a transition payment mandatory in a settlement agreement?

No, with a settlement agreement (termination by mutual consent), there is strictly speaking no legal obligation to pay the transition payment. However, the transition payment is often part of the negotiation and is included in most cases. The amount is then a matter of negotiation. In practice, employers regularly pay more than the statutory minimum to reach a quick agreement, especially when the dismissal case is not strong.

Tips for employers

1. Calculate in advance - Know the amount of the transition payment before you enter the dismissal meeting
2. Set aside funds - Factor in transition payments in your financial planning
3. Document everything - Ensure you have a solid dismissal file in cases of underperformance or misconduct
4. Seek advice - An employment lawyer can help with the right strategy
5. Don't forget the compensation scheme - For long-term illness, you can get the amount back via the UWV

Conclusion

The transition payment is a fixed component of Dutch dismissal law. As an employer, you usually cannot avoid it. Make sure you know how the calculation works and take these costs into account when planning a reorganisation or an individual dismissal.

Need help calculating the transition payment or with a dismissal procedure? Feel free to contact us without obligation.