Calculating the Transitional Compensation: Formula and Practical Examples
The transitional compensation is a statutory compensation that employees receive upon termination of their employment contract. Since 2020, there is a simpler way to calculate this compensation, also for employees in Westland.
When Are You Entitled to Transitional Compensation?
You are entitled to transitional compensation in the following situations:
- Your employer terminates the contract
- The subdistrict court dissolves the employment contract at the employer's request
- A fixed-term contract is not extended by the employer
- You resign yourself due to seriously culpable conduct by the employer
- The contract ends after 2 years of illness (at the employer's request)
When No Transitional Compensation?
- You resign yourself (unless the employer is seriously culpable)
- Dismissal due to your own serious misconduct
- You are under 18 and worked on average no more than 12 hours per week
- You reach state pension age
- The company where you work goes bankrupt
- A comparable arrangement is included in the collective labour agreement
The Calculation Formula
As of 1 January 2020, a simple formula applies for the transitional compensation:
In other words: approximately one third of a month's salary per year worked.
Which Salary Components Are Included?
In calculating the gross monthly salary, the following components are taken into account:
- Your basic salary
- Fixed allowances (for example, for shift work)
- Holiday pay (at least 8%)
- Structural end-of-year payments (such as a 13th month)
- Regular overtime compensations
- Average bonuses over the past 3 years
What Is Not Included?
- Reimbursements for expenses
- A lease car
- Reimbursements for telephone or internet
- One-off bonuses
- Employer's pension contributions
Practical Examples
Example 1: 5 Years of Service
Gross monthly salary: €3,000
Holiday pay: €240 (8%)
Total: €3,240
Length of service: 5 years
Transitional compensation: €3,240 ÷ 12 × 5 = €1,350
Example 2: 15 Years of Experience with 13th Month
Gross monthly salary: €4,000
Holiday pay: €320 (8%)
13th month: €333.33 (€4,000 ÷ 12)
Total: €4,653.33
Length of service: 15 years
Transitional compensation: €4,653.33 ÷ 12 × 15 = €5,816.67
Example 3: 8 Years and 6 Months of Service
Gross monthly salary: €2,500
Holiday pay: €200
Total: €2,700
Length of service: 8.5 years
Transitional compensation: €2,700 ÷ 12 × 8.5 = €1,912.50
Maximum Amount of Transitional Compensation
A statutory maximum has been set. For 2024, it is:
- Maximum amount: €94,000 gross
- Or one year's salary if that exceeds €94,000
This amount is adjusted annually for inflation.
Including a Fraction of a Month
A fraction of a month is included pro rata. For example, 5 years and 3 months of service counts as 5.25 years.
Transitional Compensation in Case of Long-Term Illness
In the event of dismissal after 2 years of incapacity for work, you are also entitled to transitional compensation. Employers can reclaim these costs from the Employee Insurance Agency:
- Compensation possible since 1 April 2020
- Application must be submitted by the employer to the Employee Insurance Agency
- The transitional compensation is refunded to the employer
Payment Deadline for Transitional Compensation
The employer is obliged to pay the compensation within one month after the end of the contract. In case of delay, the employer must pay statutory interest.
Additional Compensation via the Subdistrict Court
If the subdistrict court dissolves the contract and the employer acts seriously culpably, a fair compensation may be awarded in addition to the transitional compensation.
Offsetting with Training Costs
The employer may deduct certain costs from the transitional compensation, such as:
- Costs for outplacement or retraining
- Costs for broader labour market training
This must have been agreed in writing with the employee in advance.
Deviations in the Collective Labour Agreement
A collective labour agreement may provide for a different arrangement for transitional compensation, provided that:
- An equivalent arrangement is included
- The arrangement helps prevent or shorten unemployment
Frequently Asked Questions for Westland
Transitional Compensation in a Settlement Agreement?
This depends on the negotiations. Legally, it is not mandatory, but often at least the transitional compensation is included in the agreement.
Court: District Court of The Hague (district)
Legal Aid Office: Legal Aid Office Westland