Severance payment

If you run a business in the Netherlands and you wish to terminate the employment of one of your employees, there are various ways to do so. If your employee also wants the employment to end, you may opt for ‘dismissal by mutual consent’ ('ontslag met wederzijds goedvinden'). If your employee disagrees with the dismissal, you may apply to the Public Employment Service (UWV Werkbedrijf) for a dismissal permit or request the sub-district court to dissolve the employment contract.

Payment

In the event of dismissal by mutual consent, you can agree a severance payment with your employee. If the employment contract is dissolved by the sub-district court, the court may determine a severance payment. You make the payment, for example, as compensation for loss of income. Specific fiscal rules apply depending on the type of severance payment (e.g. periodic or a one-off lump-sum payment).

Periodic benefits

Compensation in the form of periodic benefits are untaxed if a number of conditions are fulfilled. The claim must, for example, provide for periodic benefits which commence no later than in the year in which the former employee reached the age of 65.

Golden handshake

A golden handshake means you give your employee a lump sum benefit in the event of dismissal. This amount is not seen as income which is subject to employee insurance contributions. However, this compensation is considered income which is subject to the wage tax/national insurance contributions and the income based contribution under the Health Care Insurance Act (Zorgverzekeringswet, Zvw).