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:

• the employment contract at the employer’s initiative is not extended, or;

• 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:

• 1/3 monthly salary per year of service worked

• For a period shorter than a year, a pro rata calculation applies

This includes not only the base salary, but also:

• holiday allowance

• fixed bonuses

• 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

• 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).

• 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).

• 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.

Make sure your final payslip clearly lists all amounts. Carefully check that everything is correct so you don’t miss out. Have doubts? Then contact your employer or an expert, such as the trade union or the Juridisch Loket. This way you avoid surprises later on.

Checklist: check entitlement to transition compensation

• 📄 Check whether the contract at the employer’s initiative has been terminated.

• 📅 Calculate the length of service (all contracts combined count).

• 💶 Look closely at the gross monthly salary including allowances.

• 📝 Check whether the employer the transition payment within one month after the end of the employment pays out.

• ⚖️ Consult an employment lawyer in if the employer refuses to pay.

Why Arslan Advocaten?

• Specialists in employment law and transition payments

• Experience with both individual claims and collective cases

• Personal approach and clear communication

• If necessary, we will immediately start a lawsuit at the subdistrict court judge

FAQ about the transition payment for temporary contracts

1. Am I entitled to a transition payment when my temporary contract ends?
Yes, unless you resign or the dismissal is your own fault.

2. When must the transition payment be paid?
Within one month after the end of your contract.

3. Do I also get a transition payment if I worked only a short time?
Yes, even for short contracts, the payment is calculated pro rata.

4. May the employer deduct training costs from the payment?
Yes, but only if these costs were incurred to make you more broadly employable in the labor market and this has been agreed in writing.

5. What if my employer refuses to pay?
Then, through a lawyer, you can start proceedings with the subdistrict court within three months after the end of your contract. It is important to keep a close eye on this deadline: if you wait too long and do not take action within three months after the end of your employment, you risk losing your right to the transition payment. So make sure you file a petition in time if your employer refuses to pay.