Employers may be eligible for receiving compensation from the UWV if they have paid a transition fee to an employee whom they have dismissed on account of long-term occupational disability. Some time ago, the legislator announced its intention to restrict the compensation scheme to small employers. On 10 December 2025, this bill was presented to the Lower House of Parliament. What does this mean?
Background of the compensation scheme
Since the implementation of the Work and Security Act (1 July 2015), the employer owes a transition fee if (briefly put) the employment agreement is terminated at the employer’s initiative, also if this is on account of long-term occupational disability. Employers saw this as unjust. They have already continued paying wages for two years and incurred costs for reintegration. This has made employers choose to keep employments ‘dormant’.
The compensation scheme took effect on 1 April 2020.
Bill
The bill says that the compensation scheme will be restricted to small employers. The cabinet considers this just, since medium-sized and large employers can be expected to have sufficient means to pay the transition fee themselves. This is in fact a spending-cut measure.
Definition of a ‘small employer’
When is an employer a 'small employer’?
- The definition of a ‘small employer’ follows that in the Social Insurance Funding Act:
- A company is designated as a ‘small employer’ if its wage bill amounts to 25 times inclusive the average wage subject to social insurance contributions per employee per calendar year.
- Tip: in the notification/decision for the differentiated premium Return to Work Fund (Werkhervattingskas) of the Dutch Tax Administration, it is mentioned whether the employer is considered to be a small or a medium-sized or large employer.
Entry into effect and transitional law
The intended entry into effect is 1 July 2026. The compensation scheme will not end abruptly on this date, but provides for transitional law:
- The compensation scheme remains applicable to cases in which the day after expiry of the two-year period of illness is before the effective date.
- For example, if the first day after two years of illness is 25 June 2026, former law will continue to apply, and a medium-sized or large employer can still claim compensation.
Consequences
The legislator has not chosen to impose a ban on dormant employments or a statutory duty to cooperate in terminating dormant employments. This makes it unclear what the restriction of the compensation scheme means for the Xella duty. According to the Xella ruling of the Dutch Supreme Court, by standards of good employment practices an employer has to agree to a proposal from an employee on long-term occupational disability leave to terminate the employment agreement, while granting the employee compensation equal to the transition fee. This substance given to good employment practices is based on the option of providing compensation.
Restricting this compensation may result in:
- changes to the functioning and/or scope of the Xella duty, and/or:
- employers choosing again to keep an employment dormant, which may lead to an increased number of legal proceedings.
Conclusion
If the Upper and Lower Houses of Parliament agree to the bill soon, the restriction of the compensation scheme may enter into effect as planned on 1 July 2026. This may result in higher financial expenses for medium and large-sized employers. Besides, it is to be expected that after 1 July 2026, the courts will start giving rulings on the option of keeping an employment dormant.
We will naturally keep you posted of the latest developments.
Should you have any questions about this topic, please do not hesitate to contact us. You may contact: Marieke or Joёlle.