The difference between severance pay and transition pay
June 2, 2020
Our articles usually refer to severance pay, although the legal term is transition compensation. So what exactly is the difference between the two? And why are we talking about severance pay and not transition pay?
Transition compensation is the amount that you are legally entitled to in the event of dismissal, at the end of a contract or a project. You can only receive severance pay in the event of dismissal by mutual consent or after a decision by the employee insurance agency (UWV) or a judge. We prefer the term severance pay because we think it is clearer and is the term used most often.
Below we tell you more about the differences between severance pay and transition payment. So read on and find out why this could be important to you.
What is the difference between transition compensation and severance payment?
Severance pay and transition pay are two different things. The biggest difference is that a transition payment is a legally established right in the event that you lose your source of income and a severance payment comes from negotiating with your employer in case of a mutually consented dismissal or after a recommendation by the UWV or a court.
A transition compensation is also a fixed percentage, whereas the amount of the severance payment can differ completely, depending on the negotiations or the decision of the third party.
You are almost always entitled to the transition payment if you lose your job, you can only receive a severance payment if you are dismissed by mutual consent or after dissolution by the UWV or a judge.
Because the severance payment is generally at least as high as the transition payment, there is often a lump sum payment, which can be understood as follows: Severance payment = Transition compensation + Lump sum payment
The lump sum payment is therefore what makes the severance payment different from the transition payment.
Why severance payment and not transition payment?
It would not have escaped you that this website is called My Redundancy Compensation and not My Transition Compensation, though in general, we are actually talking about transition compensation.
We have consciously opted for this. Severance payment is a term that strikes the imagination faster than transition compensation. You immediately know what is meant and that is very important to us.
Moreover, transition compensation is a term that is mainly used in legal and government documents. We want to ensure that you do not have to deal with the legal side of the compensation, which we take care of.
The ginger nuts effect
You can compare severance pay with ginger nuts. When you talk about ginger nuts, you often mean spice nuts, the hard and small fried snacks which we like to eat in the Netherlands in the run-up to December. But of course, you can also just mean the soft and chewy dough chunks; the 'real' gingerbread cookies.
Because we increasingly referred to spice nuts as ginger nuts - probably because that sounds better - this has become ingrained in our language and culture over the years. Pepernoot can now mean both pepper nut and spice nut.
This is also the case with severance pay. Just like the word pepernoot, we use severance payment whether we actually mean transition compensation or severance payment.
Transition compensation is the term that you may have come across before, but of which you did not know exactly what it meant. We understand that. That is why we explain here again what it is exactly.
What is transition compensation?
A transition compensation is an amount to which you are legally entitled if your contract with your employer comes to an end. There are some exceptions to this, so read this page (and our other blogs) carefully to know what is applicable to you.
The transition compensation is a fixed amount; always ⅓ of your monthly salary for each year that you have been employed.
The amount you receive as a transition payment is intended to help you further your career or manage yourself until you can be rehired. You can also use the money to start a study or to find a new job. For example, you can get retrained to increase your job opportunities.
It sometimes happens that employers do not pay transition compensation, even though you are entitled to it. We therefore help you claim what you are entitled to!
On these and other sites you often come across the term severance pay and transition payment probably less often. It is therefore easy to understand why that is, but what about the "real" meaning of severance pay? You can read that here, so that you always understand what is meant.
What is severance pay?
Only if you are dismissed in consultation with your employer, known as an official dismissal by mutual consent, can you receive a severance payment.
This means that you actually want to resign, for example, because you no longer want to work, but you still want to be entitled to unemployment benefits. It is also possible that your employer wants to fire you without having to start a dismissal procedure with the UWV or the subdistrict court.
If your employer wants to accommodate you, you can make an appointment with them. You record the agreements made in a settlement agreement.
Since you are not officially entitled to a transition allowance, the severance payment is included in this agreement. That is why the amount of the severance payment is normally at least equal to the legal minimum amount.
How does severance pay work?
Unlike the transition compensation, the amount of the severance payment is not fixed in advance. Your employer often comes up with an initial offer.
Because you are not actually entitled to a transition compensation, in most cases you will be offered what you would receive as a transition compensation. But of course, it doesn't have to stop there. Usually your employer expects you to make a counter offer. Don't be afraid to negotiate firmly if you think you are entitled to more than your employer's proposal.
Your negotiating position for a higher severance payment
What plays an important role is your negotiating position. If your employer takes the initiative for your dismissal, there is a lot more scope for negotiation. You can agree to your dismissal, but you must also agree to the terms of the dismissal.
If you have not come up with the idea of dismissal by mutual consent, your employer must give clear reasons for dismissal. Appearances can be deceiving regardless of how good the reasons might sound.
Many employers prefer to avoid the official route in case of dismissal, via the UWV or subdistrict court because these bodies are very strict in assessing the dismissal and many dismissals are often rejected. Moreover, this often takes a very long time. By means of a dismissal by mutual consent, your employer can be sure that the dismissal is fast and final.
This, as crazy as it may sound, is beneficial for you. If your employer would like to dismiss you and he does not want to do this through the UWV or the subdistrict court, you are in a pretty strong position. Since the employer has much to gain from a quick agreement, your requests are more likely to be met.
Keep this in mind during your negotiations and leverage your position to create the most beneficial outcome for yourself!
The result of the negotiations between you and your employer must be recorded in a settlement agreement. There are a number of things to pay attention to:
- Everything should be written down so it's not your word against your employer's.
- To be entitled to unemployment benefits, your employer must always officially initiate dismissal. This is also the case if the idea actually comes from you.
- There must be financial compensation for the dismissal, i.e. the severance pay.
- You must have the consequences of your dismissal explained by your employer.
It is very important that you check carefully what is stated in the settlement agreement and that you agree with the amount of the severance payment. So do not sign until you have thoroughly read everything.
Have you already signed but are not satisfied with the agreement? Then hope is not necessarily lost, because you always have 14 days to change your mind. If this is not explicitly stated in the settlement agreement, you can even have a legal reflection period of 21 days.
The settlement agreement often forms the basis for the negotiations with your employer. So make sure you are well informed about the content before entering the negotiations.
Lump Sum Payment
When it comes to transition compensation and severance pay, the term lump sum payment is also regularly mentioned. Of course you have an idea what this is, but what exactly does it mean?
What is the lump sum payment?
The lump sum payment is an important part of the severance payment. This is an additional amount on top of the minimum transition compensation. The lump sum payment is therefore the extra sum that you agree upon during the dismissal negotiations.
To make things even more confusing, instead of the lump sum payment, people often simply speak of a severance payment. A severance payment can therefore mean both the full compensation or only the additional amount.
Amount of the lump sum payment
There are many possibilities for the amount of the lump sum payment. For example, you can agree that there will be no additional lump sum payment and you will only receive the amount of your transition payment. But you can also manage to get a good amount from the negotiations based on your contributions to the organization.
When are you entitled to compensation?
In many cases you are entitled to a transition compensation. If you have a temporary contract that expires, you are entitled to a transition payment, even if you are not actually fired. You are also entitled to a transition payment with a temporary, zero-hour contract.
So, for example, do you work as a seasonal worker and your contract will not be extended? Don't forget to claim what you are entitled to!
Even if you are released during your probationary period, you are entitled to a transition compensation. So do not assume what you’re entitled to and let us help you figure it out!
When are you entitled to compensation?
Little can be said about the amount you receive as severance pay since it depends on the negotiations with your employer and is different for everyone. However, the transition compensation is the same for everyone.
Amount of transition allowance
You can easily calculate the amount of your transition compensation by taking 1/3 of your monthly salary for each year that you have been employed. The sum is the amount that you are entitled to as a payment. More information about the amount of the transition compensation and calculations can be found in our blog post on this subject. blogpost over dit onderwerp.
Amount of severance pay
The amounts vary considerably with regard to the amount of the severance payment.
The average amount of a severance payment in the Netherlands is € 24.000 gross. The actual severance payment in this is € 12.000 and there is, for example, € 8.000 as an exemption from work (wages that you do not have to work for).
Therefore, negotiating your severance payment can be very fruitful if you equip yourself with the right information!
Tax on severance pay
Please note that the amount that you receive as compensation, be it transition compensation or severance payment, is always gross. That means that there is still tax to pay. So you never get the full amount as it came from your calculations or from the negotiations. Rather, the organization will deduct the tax before transferring you the amount.
Are you entitled to a transition payment?
Then we are here for you, to help you claim what you are entitled to. Make sure you fill in the form below so that we can get started!
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