How to Calculate the Transition Payment with a Settlement Agreement (VSO)?

The phrase "vso transitievergoeding berekenen" refers to calculating the statutory transition payment when ending an employment contract via a settlement agreement (VSO) in the Netherlands. This payment serves as financial compensation for employees when their contract ends at the employer’s initiative. In this article, you’ll discover how the calculation works and what you should consider.

What is a transition payment and when are you entitled to it?

A transition payment is a statutory severance payment. Employees are entitled to this payment if they are dismissed by their employer, for example due to reorganization, redundancy, or long-term illness. Also, when the employment ends with a settlement agreement (VSO), the employee is usually entitled to this payment unless there is serious misconduct.

According to Dutch law (Civil Code Article 7:673), entitlement arises after at least one day of employment. This applies to both fixed-term and permanent contracts. The transition payment is meant as financial support towards new employment or, in the context of outplacement, as assistance in finding a new role.

What is a VSO and why is it relevant in dismissal cases?

A VSO (vaststellingsovereenkomst or settlement agreement) is a written contract in which both employer and employee agree to end the employment relationship by mutual consent. Instead of a unilateral dismissal, the VSO sets out all arrangements regarding the termination, such as notice period, payment of unused leave, and the transition payment. A well-drafted VSO safeguards unemployment benefit rights and prevents legal disputes after termination.

VSOs are often used in reorganizations or after long-term illness to ensure a smooth process. It is crucial to record the transition payment amount and payment date in the agreement. For more about the role of the settlement agreement in dismissal, see Resigning with a Settlement Agreement: Key Points for Employees.

How is the transition payment calculated with a VSO?

The calculation of the transition payment with a VSO follows the statutory method. The amount is determined by monthly gross salary and length of service. The formula: one-third of a monthly salary per full year of employment, with a pro-rata amount for partial years.

• Example: €3,000 gross salary, 4 years and 6 months service.
• Calculation: 4 x (1/3 x €3,000) = €4,000
• Remaining 6 months: (6/12) x (1/3 x €3,000) = €500
• Total: €4,000 + €500 = €4,500 gross transition payment

The ‘gross monthly salary’ includes fixed allowances and holiday pay. In VSO negotiations, you may agree on a higher amount in exchange for an earlier departure.

For more on statutory rules, see the article on transition payment.

Which factors influence the payment amount?

The transition payment for a VSO depends on several factors. First is the length of service; every full month counts. The gross salary, including fixed components such as regular bonuses, is essential. Variable components count only if they are a structural part of compensation.

The reason for dismissal also matters. If there is gross misconduct, employers may refuse payment. Conversely, higher compensation may be offered for vulnerable employees, such as those nearing retirement or after long-term illness. In practice, parties sometimes agree to an extra-statutory payment to avoid legal proceedings.

Key points regarding settlement agreement and transition payment

It is vital to ensure that the transition payment is clearly defined in a VSO. The Employee Insurance Agency (UWV) and the tax authorities will review whether the payment is calculated correctly. Too high or too low a payment can impact unemployment benefit eligibility or taxes. The date of payment and deductions (such as outstanding salary or leave) should also be specified.

Transition payments are taxed as former employment income, so the net amount will be lower. For more on tax treatment, see transition payment and taxes.

Practical examples: transition payment with VSO in various cases

Suppose a permanent employee is made redundant after reorganization and leaves via a VSO. With 8 years and 4 months of service and a €3,500 salary, the transition payment is: (8 x 1/3 x €3,500) + (4/12 x 1/3 x €3,500) = €9,333 gross.

Another example: an employee on a fixed-term contract works 1 year and 3 months at €2,400 monthly. The payment: (1 x 1/3 x €2,400) + (3/12 x 1/3 x €2,400) = €800 gross.

These examples show that calculation is always tailored. Arrangements around extra compensation or outplacement can make the overall package more attractive. For more on redundancy, see declared redundant.

The role of outplacement when dismissed with a VSO

Outplacement is often offered as part of a VSO or social plan. It includes career coaching, application training, networking, and psychological support for finding new employment outside the organization.

Employers use outplacement to ensure a positive ending, protect their reputation, and reduce the risk of legal disputes. Employees benefit by returning to work more quickly. The costs are usually covered by the employer and can be provided in addition to or deducted from the transition payment. For details on the process, see what an outplacement trajectory involves.

Negotiating the VSO: tips and pitfalls

Negotiating a VSO and transition payment requires attention to detail. Ensure all rights are preserved, such as eligibility for unemployment benefits and correct calculation of compensation. Legal advice or consulting a specialist like Care4Careers is advisable if there are uncertainties.

Common pitfalls include overlooking the notice period, unclear description of the dismissal reason, or ambiguous payment arrangements. It is also important to check whether outplacement is paid separately or deducted from the transition payment. More on this topic is covered in Dismissal by Settlement Agreement: Steps, Rights and Outplacement Perspective.

Transition payment or extras: customization in the VSO

Besides the statutory transition payment, employer and employee can make additional arrangements in a VSO, such as a higher payment, continued salary, debt forgiveness, or a higher-value outplacement program. All extras are negotiable and should be written down clearly.

Note that higher payments have tax implications. Sometimes, arrangements are made in kind, such as continued use of a lease car or an education budget. It is wise to calculate the net benefit carefully. For more on outplacement costs, see outplacement costs.

Summary: calculating transition payment with a VSO in outplacement context

Calculating the transition payment with a VSO requires knowledge of legal rules and practical negotiation skills. The basis is salary and service length, but negotiations may lead to higher or lower amounts. Outplacement is often provided as a valuable addition, supporting a positive transition to new work. Careful handling of the process, with attention to legal pitfalls, provides clarity and security for all involved.