More, less or no transition fee

With the arrival of the Work and Security Act, the severance pay on the basis of the sub-district court formula has been replaced by the transition allowance. Although the main rule seems clear, the transition fee raises many questions. Frequently asked questions are:

  1. When do I have to pay the transitional compensation: only for permanent contracts or also for temporary employment contracts?
  2. Does every employee who is made redundant be entitled to the transition allowance?
  3. How much transition compensation do I have to pay?

(1.) When do I have to pay a fee?

An employee is only entitled to a compensation if the employment has lasted 24 months or more, or if there are more than 3 contracts. Intermediate periods do not count towards the amount of the reimbursement. Although the transition allowance is lower (roughly 1/3 of the subdistrict court formula), employees with a temporary contract are also entitled to a reimbursement under certain conditions if their employment contract is not renewed. In addition, from now on you will not only have to pay a fee in the event of a dismissal via the Subdistrict Court, but also through the UWV Werkbedrijf.

(2.) Is every dismissed employee entitled to the transition allowance?

You dismiss an employee for a business reason, because your company is in heavy weather. In spite of this, your employee is entitled to a reimbursement, except in the event of bankruptcy, suspension of payment or in the event that the debt restructuring scheme for natural persons (sole proprietorship) applies to you. In the case of a business dismissal it is therefore virtually impossible to avoid a transitional payment. Are you, however, a small employer with fewer than 25 employees? In that case you may still be able to use the ‘small employer scheme’.

Small employers
If the employer can apply the ‘small employer scheme’, then only the years of service from 1 May 2013 are taken into account for determining the level of the transition payment. The employer qualifies for this scheme if:

  • he employed fewer than 25 employees; and
  • there is negative equity in the last financial year prior to the dismissal; and
  • there has been a negative result in the last 3 financial years; and
  • the so-called current ratio (there is enough money on the bank to be able to pay short-term debts) in the last financial year is negative.

In determining whether an employer employs more or fewer than 25 employees, payroll employees count. The employer appeals to the small employer scheme when applying for a dismissal permit. The scheme will expire with effect from 1 January 2020.

Not all dismissed employees are eligible for the transition allowance. For example, an employee who is dismissed due to or after reaching the state pension age is not entitled to a reimbursement. However, this does not apply to the employee who discharges you after 2 years of illness. You will also owe a transitional payment if you are partially discharged. There are more exceptions to the main rule.

Temporary workers
A temporary worker with an employment contract of 2 years or longer is also entitled to a transition allowance. Temporary employees often do not have a fixed monthly salary (because they work differently), so the average monthly salary over the last 3 to 5 years (or shorter if the employment has been shorter). The employment agency is the employer of a temporary worker and must therefore pay the transition allowance. Employment agencies will choose to pass on the transition payment.

(3.) How much transition compensation do I have to pay?

The level of the transition payment depends on the duration of the employment.

Your employee will receive 1/6 monthly salary per six months for the first 10 years of the employment contract. After this period, 1/4 monthly salary per half year applies. There is no rounding up, so 5 months is no compensation. A contract that lasts 7 months means a compensation of 1/6 months salary. The transition allowance amounts to a maximum of € 76,000 (or an annual salary with a higher annual income than € 76,000). Calculating the transition payment is often a difficult exercise, especially for long-term employment.

Advice

It is important for you to ensure that the total duration of employment contracts is shorter than 24 months. No transition fee is due. If you do have to pay a transition fee, call our office and we will gladly help you further.