Transition Payment Compensation: Proposed Abolition in 2027.

⏱ 4 min read

Last updated October 12, 2026

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.

Update: The government proposes abolishing transition payment compensation for all employers from January 1, 2027, subject to parliamentary approval. This replaces the earlier proposal to retain compensation exclusively for small employers. Until the change takes effect, employers may continue to apply under the existing conditions.

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 statutory transition payment is generally payable when the employer terminates the employment contract or does not renew a fixed-term contract.

This includes:

• Dismissal following UWV permission or termination by the court.
• Termination because of long-term incapacity for work, subject to the applicable dismissal conditions.
• Non-renewal of a fixed-term contract by the employer.

In a termination by mutual agreement, a transition payment is not automatically required by law. The parties may agree a severance payment, often using the statutory transition payment as a reference.

A transition payment is generally not payable if:

• The employee resigns voluntarily, unless the resignation results from seriously culpable conduct or omissions by the employer.
• The termination results from seriously culpable conduct or omissions by the employee, subject to statutory exceptions.

Compensation Transition Payment after Long-Term Sickness

Under the current rules, employers may claim compensation from UWV for a statutory transition payment paid when employment ends because of long-term incapacity for work, subject to the applicable conditions. This scheme is not restricted to businesses with fewer than 25 employees.

This means:

1. The employer first pays the transition payment to the employee.
2. The employer then applies for compensation from UWV, normally within six months of paying the full amount.

The scheme reduces the accumulation of employer costs following long-term sickness. UWV assesses eligibility and the amount of compensation, which may not cover the entire payment.

Proposed Legislative Change 2027: Reimbursement Dismissal Payment Netherlands

The Dutch government has announced a revised proposal:

• Transition payment UVW compensation following long-term incapacity for work would be abolished for all employers from January 1, 2027.
• Small businesses would also lose access to compensation.
• The separate compensation scheme for small employers closing their business because of retirement or death would also be abolished.

The proposal remains subject to parliamentary approval. Abolition of compensation would not itself remove the employer’s obligation to pay a statutory transition payment where the employee is entitled to one.

Compensation Transition Payment Regulation

Dismissal following long-term incapacity for work is one situation in which employers may be required to pay a statutory 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
• Employment does not end automatically after two years of sickness. The employer must satisfy the applicable dismissal conditions, including requirements concerning recovery and redeployment.
• A statutory transition payment is generally payable when the employer terminates employment on this ground.

For all businesses, this combination is disproportionately heavy. One long-term sick employee can materially threaten cash flow or even business continuity.

This compensation scheme applies specifically to qualifying terminations because of long-term incapacity for work. It does not generally reimburse transition payments for redundancy, underperformance or reorganisation dismissals. Eligibility depends on the statutory conditions rather than whether the dismissal is considered a business choice.

Note: The proposed abolition is intended to take effect on January 1, 2027, subject to parliamentary approval. The law can take effect after publication in the Government Gazette. The final legislation and commencement provisions will determine when the change applies.

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.