Calculating the Transition Payment in a Dutch Settlement Agreement

Calculating the transition payment in a Dutch settlement agreement (vaststellingsovereenkomst) means comparing the statutory Dutch transition payment with the compensation offered in the agreement. You first determine what you would receive under Dutch labor law, and then assess whether the VSO offer is equal to, lower or higher than that reference. This is crucial because a VSO is a private agreement without court or UWV review. In this article you will learn how the calculation works and how outplacement can be integrated into the overall package.

What is a Dutch transition payment and how does it relate to a VSO?

The Dutch transition payment (transitievergoeding) is a statutory severance payment that many employees are entitled to when the employer initiates the termination of the employment contract. The payment is intended to compensate for the loss of employment and to support the transition to a new job, for example through training or outplacement. Under Dutch law the right to a transition payment arises from the first day of employment, so even relatively short contracts may generate a payment.

A settlement agreement, in Dutch called vaststellingsovereenkomst or VSO, is a written agreement in which employer and employee record all arrangements regarding the termination of the employment relationship. Because there is no judge or UWV (the Dutch Employee Insurance Agency) involved, all rights and payments must be explicitly agreed. The transition payment is therefore not granted automatically, but must be clearly included in the VSO.

In practice, the statutory transition payment is often used as a benchmark when negotiating a VSO. The legal calculation provides a minimum reference point many employees rely on. At the same time, parties are free to deviate from that statutory outcome, for example by agreeing on a higher payment or a combination of money and a tailored outplacement programme.

• The transition payment is a statutory right when the employer initiates dismissal.
• In a VSO the payment must be expressly agreed in writing.
• The legal calculation usually serves as a minimum benchmark in negotiations.
• Parties may deviate, as long as both sides agree voluntarily.

How is the Dutch transition payment calculated by law?

The statutory calculation method is fairly straightforward but must be applied carefully. The starting point is your gross monthly salary, including holiday allowance and fixed wage components such as structural shift allowances or a fixed thirteenth month. That total is multiplied by your years of service, with one third of a monthly salary for each full year of service. Remaining months are calculated on a pro rata basis.

In simplified form, Dutch law uses this formula: transition payment = (1/3 gross monthly salary) × years of service. For example, if you have worked for 7 years and 4 months, first the 7 full years are counted and then 4/12 of a year is added. That partial year yields 4/12 × 1/3 of a monthly salary. The final amount is rounded to the cent.

It is essential to use the correct salary definition. Holiday allowance, structural allowances and a fixed thirteenth month must be added to the monthly salary. Expense reimbursements and incidental bonuses are usually excluded. For a more general explanation of the calculation and how it is used in career transitions, you can consult the article on calculating the Dutch transition payment in outplacement situations and then apply that logic to your own VSO.

• Start from the correct gross monthly salary including fixed extras.
• Count all full years of service.
• Convert remaining months into a fraction of a year.
• Multiply the total by one third of a monthly salary per (partial) year.

Specific points when calculating the transition payment in a VSO

In a settlement agreement there is more at stake than the pure mathematical outcome of the transition payment. You also have to verify whether the situation qualifies as termination initiated by the employer. Only then does the statutory transition payment logic apply and will your unemployment benefit (WW) rights usually remain intact. UWV will carefully review the wording of the VSO when you apply for benefits.

So calculating the transition payment in a VSO also means checking the underlying assumptions. The agreement should clearly state that the employer took the initiative, that you are not to blame for the termination, and that the statutory notice period is respected via the agreed end date. If these points are not properly documented, UWV may still recognise the payment but refuse or delay your WW benefits.

Furthermore, you need to look at other elements in the agreement, such as an additional severance amount, a training budget or a dedicated outplacement programme tailored to your situation. A sensible approach is to first calculate the statutory transition payment and then assess how the total package in the VSO compares to that amount. This helps you decide whether the proposal is reasonable and in line with market practice.

• Confirm that the employer formally initiates the termination.
• Check whether the notice period and end date are correctly reflected.
• Compare the offered payment with the statutory transition payment.
• Include all other benefits and provisions in your overall assessment.

Practical examples: what does the calculation look like?

A numerical example makes the logic more tangible. Suppose your gross monthly salary, including holiday allowance and fixed extras, is 3,000 euros. You have worked for 5 years and 6 months. The statutory transition payment would then be 1/3 × 3,000 euros × 5.5. That equals 1,000 euros × 5.5 = 5,500 euros gross. This figure is your benchmark for assessing the employer’s VSO proposal.

Let’s say the agreement offers a payment of 7,000 euros gross. This is higher than the statutory minimum, so you may want to check whether there are additional conditions such as a non-compete clause, confidentiality or the waiver of a bonus. You can also consider whether part of that amount could be used as a budget for outplacement, without reducing the overall value for you as an employee.

In another scenario your position is made redundant due to reorganisation, your gross monthly salary is 4,000 euros and your service length is 10 years. The statutory transition payment would be 1/3 × 4,000 × 10 = 13,333.33 euros gross. If the employer offers only 10,000 euros, it is reasonable to ask why the proposal is below the legal benchmark. For context on such situations and their impact on your career, it is helpful to read more about Dismissal due to reorganisation and the next steps.

• Use your own gross monthly salary including fixed extras as the basis.
• Carefully calculate full and partial years of service.
• Compare the result with the payment offered in the VSO.
• Check whether a higher amount comes with additional restrictions.

Transition payment, VSO and outplacement: how do they interact?

The Dutch transition payment is explicitly intended to support the move to new employment. Outplacement is a form of professional guidance where a specialised agency such as Care4Careers helps employees find a new, suitable position after dismissal. In a VSO, employer and employee can agree that part of the transition payment is used as a budget for outplacement. This can be beneficial for both sides.

For employees, outplacement offers structure, expert advice and emotional support in a period of uncertainty. For employers, it underlines responsible employment practices and helps ensure a smooth and respectful separation. The article on what outplacement involves explains in more detail how such programmes work and why they can be a valuable complement to financial compensation.

A practical negotiation strategy is to first calculate the statutory transition payment and then discuss how part of the available budget could fund guidance. Some employees prefer a slightly lower cash amount in exchange for an extensive outplacement programme. Others want to receive the full transition payment in money and agree on an additional employer-funded budget for coaching.

• The transition payment can be used to finance guidance towards new work.
• Agreeing on outplacement can significantly increase the practical value of a VSO.
• Many different combinations of cash and guidance are possible.
• A balanced choice reduces the risk of long-term unemployment.

What else should you check in the VSO beyond the transition payment?

When you calculate the transition payment in a VSO, it is easy to focus only on the final amount. Yet the broader context of the agreement is just as important. The reason for dismissal must be clearly described, the end date must align with the statutory notice period, and your rights to Dutch unemployment benefits (WW) must be safeguarded. UWV will check whether you became unemployed through no fault of your own and whether the termination is not considered voluntary.

Clauses on non-compete obligations, customer relationships, confidentiality and final discharge (finale kwijting) are also crucial. Final discharge means that, once the agreement has been executed, neither party can claim anything further from the other. If you accept a payment that is lower than the statutory transition payment, final discharge may prevent you from later claiming the difference. Comparing the calculated statutory amount with the VSO offer is therefore essential.

Tax treatment is another aspect to consider. The transition payment is taxed as income from former employment. For higher amounts or complex cases it may be wise to seek legal or tax advice in addition to general guidance on transition payments and Dutch taxation. That way you avoid unpleasant surprises after signing.

• Review the dismissal ground and its wording carefully.
• Pay close attention to non-compete, relationship and confidentiality clauses.
• Consider the impact of final discharge on any underpayment.
• Take into account the tax treatment of the transition payment.

Strategic use of the transition payment for guidance and outplacement

Dutch law explicitly states that the transition payment is meant, among other things, to facilitate the move to other work. This makes training, career counselling and outplacement logical ways to spend (part of) the amount. Employer and employee can agree in the VSO that a specified sum is paid directly to an outplacement provider. This ensures that you are not only financially compensated but also actively supported towards your next role.

Care4Careers supports employees in various situations, such as redundancy due to reorganisation, being declared surplus to requirements or long-term illness. Experience shows that people who receive both financial compensation and professional guidance often find new work faster and with more confidence. To understand how such programmes are structured, you can explore what an outplacement programme looks like in practice and how its components can be tailored to your goals.

In negotiations you can therefore discuss several variants: a fixed transition payment plus a separate outplacement budget, a total severance amount of which a portion is earmarked for guidance, or a more extensive outplacement programme in exchange for a slightly lower cash payment. What works best depends on your financial needs, your employability on the labour market and how much support you feel you need in the transition.

• The transition payment can be turned into a targeted investment in your career.
• Directly funding outplacement via the VSO often leads to better outcomes.
• Programmes can be customised to your personal and professional goals.
• A thoughtful balance between money and guidance supports a sustainable next step.

Common mistakes when calculating the transition payment in a VSO

In practice, errors in calculating the transition payment in settlement agreements are common. One typical mistake is using an incorrect salary basis, for example by leaving out fixed allowances or the holiday allowance. Another is to round years of service instead of calculating partial years on a pro rata basis, which results in a lower payment than prescribed by law.

Another pitfall is to accept the employer’s proposal without making your own calculation. This happens frequently in emotionally charged situations, for instance when someone has just been told they are redundant or surplus to requirements. While the need for quick clarity is understandable, it is almost always worthwhile to take time to verify the numbers and, if needed, have a specialist review the offer.

Focusing solely on the euro amount is also risky. Employees who ignore the need for guidance, career reflection or psychological support may later find that the lack of structured help makes it harder to secure a new role. Information on outplacement in case of dismissal can help you view the financial and guidance aspects as one integrated package.

• Using an incomplete salary basis for the calculation.
• Incorrectly rounding years of service instead of using pro rata fractions.
• Accepting the employer’s proposal without an independent calculation.
• Underestimating the value of structured guidance and outplacement.

Summary: control over your payment and your next career step

Taking the calculation of the transition payment in a settlement agreement seriously gives you more control over the entire termination process. The statutory formula provides a clear benchmark so you know what a reasonable minimum looks like. By also checking the wording of the VSO, you reduce the risk of problems with UWV, WW benefits or unexpected tax consequences. This creates space to focus on the next phase of your career.

A VSO is more than a number at the bottom of the page. It is a complete package of arrangements about the reason for dismissal, the end date, financial compensation, restrictive covenants and possible guidance. By calculating the transition payment carefully, comparing that outcome with the offer, and making conscious choices about outplacement support, you increase the likelihood of a sustainable and suitable next step. In that way, the transition payment becomes not only financial compensation, but also a deliberate investment in your future career.