In regard to the compensation transition payment, where an employer terminates the employment of an employee after two years of incapacity for work, the employer is generally required to pay a statutory transition payment.
As of 1 July 2026, not all employers will remain eligible for compensation of the transition payment.
From that date, the compensation scheme will apply exclusively to small businesses. Employers that do not qualify as small employers will no longer be entitled to reimbursement under this scheme.
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What Is the Transition Payment in the Netherlands (severance pay)?
In Dutch labour law the transition payment [transitievergoeding] is a statutory compensation an employer must pay an employee when the employer ends the employment (e.g., dismissal or non-renewal of a contract) to support the employee move to new work.
The mandatory severance payment an employer must pay when the employer initiates the termination of an employment contract.
This includes:
- Dismissal via mutual agreement, UWV or court.
- Termination after two years of illness.
- Non-renewal of a fixed-term contract initiated by the employer.
It does not apply if:
- The employee resigns voluntarily.
- The employee is dismissed for serious unacceptable behaviour.
Compensation Transition Payment for Small Businesses
Under Dutch law, small businesses (fewer than 25 employees) can claim compensation from UWV for the transition compensation they have paid when an employee is dismissed after two years of illness.
This means:
- The employer first pays the transition compensation to the employee.
- The employer then applies for reimbursement from UWV.
This compensation scheme exists to protect small businesses from the heavy financial burden of long-term sickness dismissals.
Legislative Change 2026: Reimbursement Dismissal Payment Netherlands
The Dutch government has announced a policy shift:
- From July 1, 2026, the UWV compensation scheme will be limited exclusively to small businesses.
- Medium and large employers will lose access to the transition payment reimbursement.
- For small employers, this confirms a long-term safety net but also means accurate headcount qualification becomes even more important.
For companies, there is no exemption from paying transition compensation. This compensation/reimbursement scheme (and its restriction to small businesses from July 2026) is focused on reimbursing transition payments in specific situations.
Compensation Transition Payment Regulation
In the Netherlands, dismissal after two years of illness is by far the most common scenario in which employers face a mandatory transition payment. In this situation, the employer has already:
- Continued paying wages for up to 104 weeks.
- Paid reintegration costs.
- Often paid for occupational health adaptations, and legal compliance
- The dismissal is not discretionary as after two years, termination is often unavoidable. The employee cannot return to suitable work.
- Yet the employer must still pay a full transition payment.
For small businesses, this combination is disproportionately heavy. One long-term sick employee can materially threaten cash flow or even business continuity.
That is why the compensation scheme was introduced specifically for long-term illness dismissals. As redundancy, non-performance, or reorganisation dismissals are business-driven choices, and thus not subject to the compensation by UWV.
Note: The amendment is expected to take effect on July 1, 2026 and is not final yet. The House of Representatives and the Senate must first pass the bill. The law can take effect after publication in the Government Gazette.
More Information
- Netherlands Pension System 2026: The Future Pensions Act.
- What Is eHerkenning? Netherlands Login Requirements Government Portals.
- What is UWV: Employee Insurance Agency Netherlands?
- Sick Leave Policy Netherlands Guidance for Employer and HR.
