Calculating the Dutch transition payment in outplacement

The Dutch transition payment (transitievergoeding) is the statutory minimum severance that an employee is entitled to in many dismissal situations. It is based on the gross monthly salary and the length of service, including certain fixed allowances. Understanding how to calculate this payment helps both employees and employers make informed decisions about dismissal arrangements and the funding of outplacement support. This English section summarises the main Dutch rules and connects them to outplacement practice.

What is the Dutch transition payment?

Under Dutch labour law, the transition payment is due when the employer terminates the employment contract or decides not to renew a fixed-term contract. It is intended as compensation and as a contribution towards finding new work. The legal rules are laid down in the Dutch Civil Code and apply to both permanent and temporary contracts, with some exceptions.

The right to a transition payment usually arises when dismissal is approved by the Employee Insurance Agency (UWV) or ordered by the subdistrict court. In practice, many cases are settled through a mutual agreement, the so-called settlement agreement (vaststellingsovereenkomst). In those cases, the statutory transition payment often serves as a reference point or minimum level in negotiations.

• Statutory severance payment under Dutch labour law.
• Applies to most employer-initiated dismissals and non-renewals.
• Also relevant when parties agree on a settlement agreement.
• Intended to support the transition to new employment.

Basic formula: how is the transition payment calculated?

The core calculation method is relatively simple. For each full year of service, an employee accrues one third of a gross monthly salary. For remaining months, a proportional part of this one-third monthly salary is added. The length of service is calculated from the first working day up to and including the last day of employment.

The formula can be summarised as: transition payment = (1/3 × gross monthly salary) × number of full years of service + pro rata part for remaining months. Dutch law also sets a maximum cap on the total amount. For employees with very long service or very high salaries, the statutory maximum may therefore limit the final payment.

• One third of a gross monthly salary per full year of service.
• Pro rata part for remaining months added to the total.
• Service length runs from first to last day of employment.
• A statutory maximum amount applies to the total payment.

Which salary components are included?

The gross monthly salary used for the transition payment is broader than just the base salary. It includes the fixed monthly wage plus recurring allowances and structural bonuses. This prevents the severance from being artificially low.

Typically, the following elements are included: base salary, holiday allowance, fixed shift allowances, a fixed thirteenth month or year-end bonus, and structural bonuses or commissions averaged over a relevant period. Expense reimbursements, travel allowances and incidental bonuses usually do not form part of the basis.

• Base salary plus fixed allowances form the calculation basis.
• Structural bonuses are usually averaged over past months.
• Expense and travel allowances are generally excluded.
• Checking several payslips helps avoid calculation errors.

Transition payment and outplacement support

In outplacement practice, the transition payment is often linked directly to the funding of support. Outplacement is specialist guidance towards new employment, offered by organisations such as Care4Careers. An employer can pay for an outplacement programme on top of the statutory transition payment, or agree that part of the payment is used for coaching and training.

From the employee’s perspective, this creates a choice: use most of the transition payment as a financial buffer, or invest a part of it in professional guidance and career development. Combining financial security with structured support often leads to a faster and more sustainable return to work. This matches the legal purpose of the transition payment as a contribution to the transition to a new job.

• Outplacement can be funded by the employer or from the payment.
• Programmes may include coaching, job search and career orientation.
• Using part of the payment for guidance can speed up re-employment.
• The details are usually recorded in a settlement agreement.

Tax treatment and net outcome

For tax purposes, the Dutch transition payment is treated as taxable employment income. The employer withholds wage tax and social security contributions before paying out the amount. As a result, the net sum received by the employee is lower than the gross calculation suggests and may push the employee temporarily into a higher tax bracket.

Because of this, employees and employers often explore whether certain parts of the transition payment can be used directly for training or an outplacement trajectory. In some cases, direct payment by the employer to a training or outplacement provider can be fiscally more efficient than paying everything out as cash severance.

• The transition payment is taxable income in the Netherlands.
• The net amount depends on the applicable tax brackets.
• Direct funding of outplacement or training may be tax-efficient.
• It is advisable to review both legal and fiscal aspects together.

Care4Careers: transition payment as a springboard to a new career

Care4Careers is a Dutch specialist in outplacement, second-track reintegration and career counselling. In dismissal situations, the coaches help employees understand their legal position, including the transition payment, and translate this into a concrete plan for the next career step. The payment then becomes not only compensation, but also a budget for future employability.

Depending on the situation, support can focus on processing the dismissal, redefining career goals, strengthening application skills or exploring a new profession or sector. By linking the transition payment to targeted outplacement support, Care4Careers helps employees turn an involuntary ending into a realistic new beginning on the labour market.

• Specialised guidance in outplacement and reintegration.
• Transition payment used as an investment in future employability.
• Focus on both legal clarity and practical career steps.
• Support tailored to the employee’s background and ambitions.

Conclusion

Calculating the Dutch transition payment is a crucial step in any dismissal process. Once the statutory minimum severance is clear, employees and employers can make balanced decisions about the content of a settlement agreement and the role of outplacement. By viewing the transition payment as a resource for professional guidance and development, it becomes a lever for sustainable career transitions rather than just a financial end-of-service payment.