Many employees in the Netherlands work on the basis of a temporary contract. When such an employment contract is not extended, this can have far-reaching consequences. Fortunately, in many cases the employee is entitled to a transition payment.
At Arslan Advocaten we regularly receive questions about transition payments for temporary contracts. In this article, we explain how it works, what you are entitled to, and how you can claim the payment.
What is a transition payment?
The transition payment is a financial payment that an employee receives at the end of their employment contract, unless the dismissal is the result of serious culpable conduct by the employee.
The compensation is intended to facilitate the transition to another job, for example by investing in training or as compensation for the loss of income.
Since when has the transition payment existed?
Since 1 January 2020, employers are required to pay a transition payment upon dismissal or the non-renewal of a contract. This statutory obligation applies from the very first working day—so even if you have not been employed for a full year.Transition payment for temporary contracts
Also upon the expiry of a temporary contract (fixed term) the employee is entitled to a transition payment, provided that:
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the employment contract at the employer's initiative is not extended, or;
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the employer terminates the contract early.
It does not matter whether you have had one, two or three temporary contracts: at the end of each employment contract, a right to transition compensation may arise.
How is the transition compensation calculated?
The amount of the compensation is calculated based on:
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1/3 monthly salary per year of service worked
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For a period shorter than a year, a pro rata calculation applies
This includes not only the base salary, but also:
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holiday allowance
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fixed bonuses
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shift allowance and structural overtime compensation
Payroll tax withholding on the transition payment
When you receive a transition payment, it's good to know that the Dutch Tax and Customs Administration considers this payment wages. This means your employer is required to withhold payroll tax before the amount is deposited into your account. You therefore receive the net amount; the tax has already been settled and remitted.Note: the total tax on your income for the year may end up higher or lower due to receiving the transition payment. You will notice this when filing your annual tax return. It is therefore wise to check in advance whether you might have to pay extra or will receive a refund.Is a transition payment taxable income?
A frequently asked question is whether the transition payment counts as taxable income. The answer is: yes. The transition payment is added to your income in Box 1 and is therefore taxable. This means that your employer must withhold tax from the gross amount before you receive it. So you receive a lower net amount than the gross amount promised; this works the same as with your regular salary.So keep in mind that the amount deposited into your account will be lower than the initially stated gross amount. This way, you won't face surprises when you receive the payment.Practical examples
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Example 1: An employee had a one-year contract that was not renewed. His monthly salary was €2.400. He received a transition compensation of €800 (1/3 of €2.400).
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Example 2: A female employee worked for two years on the basis of temporary contracts. Her salary was €3.000 per month. When her contract was not renewed, she was entitled to €2.000 in transition compensation (2 x 1/3 monthly salary).
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Example 3: A student had a temporary contract of 8 months and earned €1.800 per month. When the contract was not renewed, he received a transition compensation of about €480.
What should you know about the final settlement at the end of employment?
When your employment ends, there is always a final settlement. This is the moment when you receive everything you are still entitled to. For example:- Outstanding vacation days: these are paid out if you did not take them.
- Back pay: anything you are still owed must be paid out.
- Holiday allowance: you usually accrue this and receive the remainder with the final salary payment.
Checklist: check entitlement to transition compensation
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📄 Check whether the contract at the employer’s initiative has been terminated.
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📅 Calculate the length of service (all contracts combined count).
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💶 Look closely at the gross monthly salary including allowances.
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📝 Check whether the employer the transition payment within one month after the end of the employment pays out.
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⚖️ Consult an employment lawyer in if the employer refuses to pay.
Why Arslan Advocaten?
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Specialists in employment law and transition payments
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Experience with both individual claims and collective cases
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Personal approach and clear communication
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If necessary, we will immediately start a lawsuit at the subdistrict court judge