Bill on limiting compensation scheme to the Council of State

On Friday 6 June 2025, the bill ‘Limiting the compensation scheme for transition payments upon dismissal due to long-term incapacity to work to small employers’ was submitted to the Council of State.

Content of the Bill
In case of dismissal due to long-term illness, the employer is required to pay the employee a transition allowance. In that case, the employer may receive compensation for this allowance via the UWV.

This bill aims to ensure that only small employers will remain eligible for this compensation. For large(r) employers, the compensation scheme will be abolished. The Dutch Tax Authority classifies employers with a wage bill of up to and including 25 times the average contributory wage per employee per calendar year as ‘small’. This classification is based on the employer’s contributory wage in the past two years.

The government believes that paying the transition allowance does not pose a major financial burden for larger employers, while small employers may not be financially able to pay the full amount without support. For this reason, the compensation scheme will remain in place for small employers.

Consequences
By abolishing the compensation scheme for large employers, it is very likely that many of these employers will avoid terminating the contracts of long-term ill employees after two years. This may lead to a situation where the employee will not be dismissed after two years of illness, and will not receive a transition allowance, but also does not perform work or receive a salary. This is also known as a “dormant employment” (“slapend dienstverband”). In practice, limiting the compensation scheme to small employers may lead to an increase in these dormant employments.

Progress of the Bill
The bill is currently under review by the Council of State, where it is being assessed for legal, policy and legislative aspects. Based on this review, the Council of State will issue its advice, after which the bill can be submitted to the House of Representatives.

The bill was expected to be submitted to the House of Representatives in the fourth quarter of 2025. After consideration by the House of Representatives, the bill will be sent to the Senate for approval, after which it will come into effect. However, given the current political climate in the Netherlands, it remains uncertain whether this timeline will be met.