Severance pay calculation in the Netherlands
Written by:
Hein Kernkamp
Severance payment upon termination of employment in the Netherlands
Dutch employment law has been amended. As a consequence, as from January 1, 2020, from the first day of employment an employee is entitled to a severance payment (called a transition payment) in the event of dismissal at the initiative of the employer. It does not matter here whether the employer decides not to extend a fixed-term employment contract or whether the employer starts a dismissal procedure. From 1 January 2020, the transition compensation calculation is as described hereunder.
The amount of the transition payment in the Netherlands
The amount of the transition allowance for a Dutch employee is 1/3 monthly salary per entire year of service from the first working day. The transition allowance over the remaining part of the employment contract is calculated according to the formula: (gross salary received over remaining part of the employment contract / gross monthly salary) x (1/3 gross monthly salary / 12). This formula is also used to calculate the transition payment if the employment contract has lasted less than a year. So even if the employment contract has been terminated during the probationary period, a transition payment still has to be paid, albeit that it is a relatively small amount.
Up to one and a half times the transition payment
With effect from 1 January 2020, a new ground for dismissal is introduced, the I-ground, also referred to as cumulation ground. The court can apply this if the legal conditions for the other grounds for dismissal are not met, but where the court nevertheless terminates the employment contract based on the cumulative circumstances of the case. In the event of dissolution on the grounds of the cumulation ground, the court may grant the employee compensation on top of the transition compensation of at most half of the transition compensation. This is not required and to the discretion of the court.
Calculating the gross monthly salary
The gross monthly salary must be calculated for the calculation of the transition payment. This often concerns the gross monthly salary, plus holiday allowance. But that is more complicated in the case of an on-call contract or piece wage or commission. Also shift work allowances, overtime allowances,
bonuses, profit distributions and variable year-end bonuses can play a role.
Maximum transition payment
The amount of the transition payment is legally capped. Costs that an employer makes to improve the employee's position on the labor market (such as training and outplacement) can be deducted from the transition payment under strict conditions.
Fair compensation
In addition to the transition allowance, in some cases an employee may also be awarded an additional fair allowance. According to the Dutch legislator, this additional award may only be granted by the court to the employee in exceptional situations.
Settlement agreement
Based on the mentioned factors severance pay calculation in the Netherlands are made, but employers and employees usually do not go to court to ask for a decision and in stead agree on a tailor made solution. Many employment contracts are terminated by means of a settlement agreement, an agreement between employer and employee, in which the conditions of termination of the contract are agreed. It is not exceptional for the employer to promise more than the statutory regulation. We regularly advise on such contracts and negotiate if needed.
Information
We regularly advise on termination of employment contracts subject to Netherlands law and the consequences thereof. If you tell us the circumstances, we tell you what we consider a fair severance payment. We can show you the ropes or take care of the full negotiation. If you have any questions, please contact us. Not for nothing, our motto is: your problem, our concern.
More information?
Hein Kernkamp will gladly help you further.
