An employer should pay a transition compensation to the employee if:
- the employment lasted two years or longer, and
- the employment (indefinite term or temporary) terminates at the initiative of the employer, and
- the termination is not for serious cause, and
- the termination does not take place after the retirement age.
An employer should also pay a transition compensation to the employee if the employment (indefinite term or temporary) terminates at the initiative of the employee because of serious culpable behaviour of the employer.
Calculation of severance pay
The amount of severance pay is calculated by the court using the following formula: S × R.
The S-factor takes the service years into consideration and the R-factor takes the remuneration into consideration.
Calculation of the S-factor
- 1/6 for every half-year of service for the first 10 years of the employment.
- 1/4 for every half-year of service after 10 years of employment.
Some transitional rules apply for employees aged 50 or over with more than ten years of service.
Calculation of the R-factor
- Monthly base pay
- 8% holiday allowance
- Year-end pay
- Overtime allowance
- Shift allowance
- Profit sharing
The amount of the transition compensation is capped at €75,000 gross, or at one annual salary if this is higher. Costs incurred by an employer to improve the employee's position on the labour market (such as training and outplacement) may, under strict conditions, be deducted from the transition compensation.
In addition to the transition compensation, an employee may be able to claim an additional award (billijke vergoeding). According to the government, this additional award should only be granted by a court to the employee in exceptional situations.
Example in practice
Below is an example of the calculation of a transition compensation:
- Tom entered into employment with his employer XYZ on February 1, 2000.
- His date of birth is January 25, 1970.
- Due to redundancy the employment contract between Tom and XYZ was terminated on February 1, 2016.
- Tom’s monthly gross salary is 5,000 euros, excluding 8% holiday allowance.
S-factor: (1/6 x 20) + (1/4 x 12) = 6 ⅓
R-factor: €5,000 x 1.08 = €5,400
Therefore, Tom's transition compensation will be: S x R = €34,200 gross.