Severance Package in the Netherlands

The transition payment (transitievergoeding)

When dismissed on the employer's initiative, you are entitled to the statutory transition payment under Article 7:673 of the Dutch Civil Code. In principle, you are entitled to a transition payment from your first day of employment when dismissed on the employer's initiative.

The transition payment amounts in principle to one-third of a gross monthly salary per year of service, with partial years calculated on a pro rata basis. When calculating the gross monthly salary, not only your base salary counts but also your holiday allowance (8% vakantiegeld), any fixed year-end bonus or thirteenth month, and other structural salary components such as structural overtime compensation.

The maximum transition payment is indexed annually. The current cap is set by the government each year. In reorganizations, the transition payment often serves as the starting point for further negotiations.

Transition payment vs. severance package

In a standard dismissal by the employer, you are in principle entitled to at least the statutory transition payment. In a settlement agreement, the parties may agree on different terms. A severance package (beëindigingsvergoeding) is a broader concept referring to the total amount agreed in a settlement agreement. This can include the transition payment but also additional amounts based on negotiation, a social plan or a court award.

In a settlement agreement, there is no statutory maximum for the total severance. The amount is freely negotiable. However, the employer is not obligated to pay more than the statutory transition payment — a higher amount can result from negotiations, a social plan or a court decision.

Components of your total package

Transition payment (statutory)
Additional severance payment
Accrued but unused holiday days
Holiday allowance (pro rata)
Bonus (pro rata or in full)
Outplacement budget
Legal costs contribution
Continuation of pension accrual
Garden leave with salary continuation

When is there room for more than the transition payment?

The transition payment is the statutory minimum. In practice, there are various situations in which a higher severance may be achievable. This depends on the circumstances and the negotiating position of both parties.

Procedural risk for the employer

If the employer risks having a dismissal application rejected by UWV or the subdistrict court, the employer has an interest in reaching a settlement agreement. The greater the procedural risk, the more room there may be for a higher severance. Errors in the reflection principle, insufficient redeployment efforts or inadequate substantiation of economic necessity all increase this risk.

Social plan

In larger reorganizations, a social plan is often drawn up in consultation with trade unions. A social plan typically contains a severance formula that exceeds the statutory transition payment, such as a multiplication factor based on years of service, age and salary. If a social plan applies, it typically plays an important role in your individual arrangement.

Seriously culpable employer conduct

If the employer has acted in a seriously culpable manner — for example through discrimination, intimidation or violation of reintegration obligations — the subdistrict court can award a fair compensation (billijke vergoeding) in addition to the transition payment. The amount is determined by the court based on the circumstances and can substantially exceed the transition payment.

Individual circumstances

Your years of service, age, salary level and position in the labor market all play a role in negotiations. An older employee with long tenure and limited job prospects typically has a stronger negotiating position. The employer's financial position is also relevant: the employer's financial position can influence the room for negotiation.

We assess which factors are relevant in your specific situation and what severance is reasonable and achievable, looking not only at the monetary amount but at the total value of the departure arrangement.

More than just money

A severance package during a reorganization consists of more than just a monetary payment. Several components can be negotiated and together determine the total value of your departure arrangement.

Notice period and end date

The end date determines when your salary stops and when your unemployment benefits can begin. The statutory notice period for employers ranges from one to four months. A longer notice period can be financially beneficial, depending on your personal and tax situation.

Garden leave

In many cases, you are placed on garden leave during the notice period with continued salary. This time can be used for job searching, training or preparing for your next step. Garden leave is a valuable component that should be explicitly documented in the agreement.

Outplacement

An outplacement budget provides professional support in finding a new position: career coaching, CV assistance, networking and interview training. Outplacement costs may be treated favorably for tax purposes under certain conditions and is a valuable addition to the package, separate from the financial compensation.

Non-compete clause

If your employment contract contains a non-compete or non-solicitation clause, the settlement agreement is the moment to have it waived or limited. A broad non-compete clause can significantly restrict your future career options. In some situations, having the clause limited or waived can be more valuable to you than a higher financial severance.

Bonus and variable compensation

Outstanding bonuses, profit shares or variable compensation must be explicitly addressed in the settlement agreement. Check that a pro-rata bonus is included for the current year and that previous commitments are honored. If the VSO contains a broad final discharge, disputes may arise over these entitlements if they are not explicitly excluded.

Legal costs

In most cases, the employer includes a contribution towards legal costs in the settlement agreement. This is a standard negotiation point that enables you to have the VSO professionally reviewed and the negotiation conducted by a legal specialist.

Tax aspects of severance

Tax on the payment

The severance — including the transition payment — is taxed as employment income. This means payroll tax (loonheffing) is withheld. The rate depends on your total income in the year of payment. The withheld tax is a provisional levy; the definitive tax is determined when you file your annual tax return.

There are ways to limit the tax burden. Part of the severance can be allocated as an outplacement or training budget, which may be more tax-efficient. Planning the end date so that the payment falls in a year with lower income can also be beneficial.

For employees aged 55 and over, the RVU scheme (Regeling Vervroegd Uittreden) may be relevant. If the severance qualifies as an early retirement arrangement, a fiscal threshold exemption may apply under certain conditions, meaning no RVU levy is due on part of the payment. This is a complex tax matter on which we recommend consulting a tax advisor as well.

Good to know

Transition payment as starting point. In a standard dismissal by the employer, you are in principle entitled to at least the statutory transition payment.

No maximum in a VSO. In a settlement agreement, there is no statutory maximum for the severance. The amount is negotiable and depends on the circumstances.

Legal costs. In most cases, the employer contributes to your legal costs as part of the departure arrangement.

Bundle your negotiation. Negotiate not just the money, but the total package: severance, notice period, outplacement, non-compete, bonus and references together.