Transition allowance upon termination: calculation, amount, and tips
If you are laid off or your temporary contract is not renewed, in most cases you are entitled to a transition allowance. In this article, as an employment lawyer, I explain how to calculate the transition allowance, which salary components are included, and in which cases you may be eligible for a higher amount.
The basic calculation
The transition payment amounts to one-third of the gross monthly salary for each full year of service. For the remaining months and days, the payment is calculated on a pro-rata basis. Accrual begins on the first day of employment, so even in the case of a short-term employment contract or termination during the probationary period, you are entitled to a pro-rata portion.
The three-step formula: first, add 1/3 of the gross monthly salary for each full year of service; then, add 1/36 of the gross monthly salary for each remaining full month; and finally, add 1/1095 of the gross monthly salary for each remaining day.
Suppose you have been employed for 8 years and 4 months. Your gross monthly salary, including vacation pay, is €4,000.
Full years: 8 × 1/3 × €4,000 = €10,666.67
Remaining months: 4 × 1/3 × 1/12 × €4,000 = €444.44
Total transition payment: €11,111.11 gross
Maximum in 2026
The transition payment will be capped at €102,000 gross in 2026. If your annual salary exceeds €102,000, the maximum amount will be equal to one gross annual salary. The cap is indexed annually based on changes in contractual wages.
What counts as salary?
The gross monthly salary used to calculate the transition payment includes more than just your base salary. The following components are included:
Always included: the gross base salary and the vacation allowance (standard 8%, unless your employment contract or collective bargaining agreement specifies a different percentage).
Fixed salary components: a fixed thirteenth-month bonus, a regular shift allowance, a fixed year-end bonus, or other fixed allowances that you receive monthly or annually.
Variable compensation: bonuses, commissions, and overtime pay are included in the calculation on average.
Please note: Employers often underestimate the transition payment by failing to include variable pay components or forgetting to account for the vacation allowance. Always have the calculation reviewed.
When are you not entitled to a transition payment?
There are a few exceptions in which you are not entitled to a transition payment. If you resign, you are generally not entitled to a payment, unless your employer has acted in a seriously culpable manner. The same applies if you are dismissed due to serious culpable conduct on your part, upon reaching the state pension age, or if your employer goes bankrupt.
Strictly speaking, under a settlement agreement, the employer is not obligated to pay a transition allowance, as there is no unilateral termination. In practice, however, the transition allowance is treated as a minimum threshold and serves as the starting point for negotiations.
Can you receive more than the transition payment?
Yes, in several situations.
In a settlement agreement, the transition payment serves as the starting point. If your employer has a weak basis for termination—for example, no solid case file, no performance improvement plan, or no business necessity—you have room to negotiate a higher payment. The weaker your employer’s position, the more room you have to negotiate.
Fair compensation. If the labor court judge rules that your employer acted in a seriously culpable manner, the judge may award fair compensation in addition to the transition payment. The amount of this compensation is not legally standardized and can be substantial. Consider situations in which the employer forced a dismissal, used a performance improvement plan as a pretext, or deliberately disrupted the employment relationship.
Cumulative grounds (i-grounds). If the subdistrict court terminates the employment contract on cumulative grounds—a combination of grounds for dismissal that are insufficient on their own—the court may award additional compensation of up to 50% of the transition payment.
Transition allowance in the event of illness
If you are terminated after two years of sick leave, you are entitled to a transition payment covering the entire period of your employment. The calculation is based on your regular gross salary, not any reduced pay you may have received during your sick leave.
Under certain conditions, your employer may claim reimbursement from the UWV for the transition allowance paid through the compensation scheme. Please note: as of July 1, 2026, this compensation will only apply to employers with fewer than 25 employees.
Some employers deliberately allow the employment contract to continue after two years of sick leave to avoid paying a transition allowance. In such cases, as an employee, you can ask your employer to cooperate in terminating the employment contract so that you can still receive the transition allowance. An employment lawyer can assist you with this.
Tax on the transition payment
The transition payment is a gross amount. Your employer will withhold payroll taxes when it is paid out. The net amount you receive depends on your personal tax situation and your total income for that year. If the transition payment is higher, you may fall into a higher tax bracket.
In some cases, it may be tax-advantageous to have the payment made in a different calendar year, for example, if you have already earned a relatively high income in the year of your termination. Discuss this with your employer and, if necessary, a tax advisor.
Is your transition payment correct?
We determine whether the compensation offered is fair and negotiate for a higher amount when necessary. In 95% of cases, your employer will cover the legal fees.
Check your reimbursement →Frequently Asked Questions
The transition allowance amounts to 1/3 of the gross monthly salary per full year of service. For remaining months, you calculate 1/36 of the gross monthly salary per month; for remaining days, 1/1095 of the gross monthly salary per day. The gross monthly salary includes your base salary plus vacation pay, fixed allowances, and the average of variable compensation over the last twelve months.
In 2026, the maximum transition allowance will be €102,000 gross. If your gross annual salary exceeds €102,000, the maximum amount will be equal to one year’s salary. This cap is adjusted annually.
Under a settlement agreement, the employer is not legally required to pay a transition allowance, as the termination is by mutual agreement. In practice, however, the transition allowance is almost always used as a minimum threshold. Depending on your negotiating position, you may be able to negotiate a higher allowance.
Yes. Variable compensation such as bonuses, commissions, and overtime pay is generally included in the calculation of the transition payment. Employers often overlook this, resulting in an offer that is too low.
The transition payment is a gross amount. Your employer will withhold payroll taxes. The exact net amount depends on your total income for that year. If the payment is substantial, you may fall into a higher tax bracket. In some cases, it may be more tax-efficient to have the payment made in a different calendar year.
Yes. If you are terminated after two years of sick leave, you are entitled to a transition allowance covering the entire duration of your employment. The calculation is based on your regular gross salary, not the reduced pay you received during your sick leave. Under certain conditions, your employer may claim reimbursement from the UWV through the compensation scheme.
Yes. In a settlement agreement, the transition payment serves as the starting point for negotiations. The weaker your employer’s grounds for termination, the more room there is for a higher payment. In addition, the subdistrict court may award fair compensation if your employer has acted with serious culpability, and an additional compensation of up to 50% in the event of termination on cumulative grounds (so-called “i-grounds”).
Yes. Since 2020 (the Balanced Labor Market Act), you begin accruing the right to a transition allowance starting on your first day of work. Even if you are terminated during your probationary period, you are entitled to a pro-rated portion. The amount is usually small, but the right exists.
