Calculating Redundancy Pay in a Settlement Agreement

Have you received a settlement agreement and want to know what you can expect financially? The transition payment is often the first figure you look at. Nevertheless, the situation with a settlement agreement is slightly different from that in a formal dismissal procedure — and that actually works in your favour if you know how it works.

The statutory basis of the transition payment

The transition payment is governed by Article 7:673 of the Dutch Civil Code. The calculation is straightforward: you receive one third of your gross monthly salary for each full year of service completed. Periods shorter than a full year are included on a pro-rata basis. Following the introduction of the Labour Market in Balance Act (WAB) in 2020, you accrue the right to a transition payment from your very first working day — even if you are dismissed during your probationary period.

The statutory maximum in 2026 is € 102.000 bruto. If your annual earnings exceed that figure, your gross annual salary serves as the cap. This maximum is indexed annually on the basis of contractual wage developments.

What exactly counts towards the monthly salary

Many employers calculate using only the bare basic salary, but that is too narrow. The basis for calculation is broader than you might expect. The following components are generally included:

• Vakantiegeld — with a salary of € 3,500 this can quickly amount to € 280 extra per month in the calculation base, which makes a considerable difference over a longer period
• Vaste toeslagen — think of a structural shift allowance or irregular-hours allowance (ORT)
• Een vaste dertiende maand — if this has been agreed contractually, it must also be included in the calculation
• Provisie of bonus — provided it is structural in nature and not dependent on annual performance

If your employer presents a figure that is lower than you expected, always check whether all of these components have been taken into account. A forgotten item can easily cost you hundreds to thousands of euros.

A transition payment in a settlement agreement is not automatically required by law.

This is an important point: in the case of a formal dismissal via UWV or the subdistrict court, you have a statutory right to the transition payment. With a settlement agreement, the position is different. Strictly speaking, you do not have an automatic statutory right to the transition payment under a settlement agreement. You and your employer agree on a payment together, and that payment does not necessarily have to equal the statutory amount — it may also be higher.

In practical terms, this means two things: your employer may in principle propose a lower amount, but you have every opportunity to negotiate a higher severance payment. The settlement agreement is in most cases a starting point for negotiation, not a final destination.

When you can negotiate more than the statutory formula

The transition payment is the statutory minimum, but it certainly does not set the ceiling in a settlement agreement. There are situations in which a higher payment is realistic:

• You have a long period of service and the dismissal comes suddenly or unexpectedly
• The grounds for dismissal are doubtful or lack solid legal basis
• Your employer wants a quick resolution and has an interest in reaching an amicable settlement
• There is a conflict for which the employer bears partial responsibility
• The employer has made procedural errors in the dismissal process

In such cases, the statutory transition payment is actually quite low as an opening offer. An employment lawyer can assess how much room there is in your specific situation.

Common mistakes in the calculation

In practice, something frequently goes wrong with the calculation an employer submits with a settlement agreement. Watch out for these common sources of error:

• Holiday pay has not been added to the calculation basis
• Fixed allowances or irregular-hours supplements have been left out of account
• The start date of the employment is incorrect, for example in the case of a transfer of undertaking by operation of law or successive employment
• Part-time situations where the calculation is too low due to incorrect application of the part-time factor
• The amount is presented without substantiation or breakdown

Do not forget: once you sign the settlement agreement, the amount is final. Adjusting it afterwards is virtually impossible.

Gross is not what you receive

The transition payment is always determined as a gross amount. Your employer deducts wage tax before the amount appears in your account. Would you like to reduce the tax burden? There are options to handle this efficiently, such as using the payment for outplacement or training, or making use of your annual fiscal allowance. Choices of this kind require careful preparation — it is well worth seeking advice on this in good time.

Why Employment Lawyer Eindhoven

At Arbeidsjurist Eindhoven we help employees in Eindhoven and the Brabant region to understand what their settlement agreement is truly worth. We check whether the transition payment has been calculated correctly, identify any missing components and assess whether there is scope for a better arrangement. Are you uncertain about the amount your employer is quoting, or do you simply want to make sure you are not leaving money on the table? Feel free to contact us with no obligation — we are happy to think things through with you.

Frequently asked questions

Am I automatically entitled to the transition payment when signing a settlement agreement?

No, with a settlement agreement you do not automatically have a statutory right to the transition payment. Unlike dismissal via the UWV or the subdistrict court, with a settlement agreement you and your employer agree on a payment together. That payment may be equal to the statutory transition payment, but it can also be higher or lower. It is advisable to seek advice before you sign.

What is the maximum transition payment in 2026?

In 2026 the statutory maximum transition payment is €102,000 gross. If you earn more than €102,000 per year, your gross annual salary serves as the maximum. This amount is indexed annually on the basis of contractual wage developments.

Which salary components are taken into account when calculating the transition payment?

In addition to your basic salary, holiday pay, fixed allowances (such as shift allowance or irregular-hours allowance) and a contractually agreed thirteenth month are also included in the calculation base. Employers frequently omit these items in a settlement agreement, causing the calculated amount to fall too low. Always check the breakdown carefully.

Can I negotiate more than the statutory transition payment in a settlement agreement?

Yes, certainly. The transition payment is the statutory minimum, but in a settlement agreement there is no statutory maximum on the payment. In many cases there is room to negotiate, particularly if the grounds for dismissal are questionable, the employment has been of long duration, or the employer has an interest in a swift and amicable resolution.

What should I check when my employer states an amount for the transition payment in the settlement agreement?

Always check whether holiday pay and fixed allowances have been included, whether the correct start date has been used (including in cases of successive employment), whether all years of service have been counted in full, and whether a clear breakdown accompanies the amount. If you sign without checking, the amount is final and can virtually never be adjusted afterwards.

We are happy to think along with you. For advice tailored to your situation, we would be glad to talk. No rights can be derived from the content of this page and it may contain inaccuracies.