Since 2015, employers have been required to pay the transition payment. This applies when you dismiss an employee on your own initiative and the employment contract has lasted for two years or more. The amount of the transition payment is determined by the number of years of service and the level of pay. The maximum amount of the transition payment is currently €77,000. This amount will be increased to €79,000 with effect from 1 January 2018.
Transition allowance following two years of incapacity for work
The transition payment also applies in situations where an employee is made redundant because they have been unfit for work for more than two years. Consequently, if a sick employee is made redundant after two years of continued pay, you, as the employer, are liable to pay the transition payment.
In practice, the obligation to pay the transition allowance in this specific case is frequently circumvented by not dismissing the sick employee – a situation known as a ‘dormant employment contract’. The sick employee then remains in service, but no further wages are paid. This is because, normally, after two years of sickness, the employee is entitled to unemployment benefit (WW) or disability benefit (WIA). Naturally, there are risks associated with this dormant employment relationship.
Changes to the coalition agreement
In the coalition agreement A number of proposals have been put forward regarding the transition payment. The intention is that entitlement to the transition payment should not only arise after two years, but immediately upon entering into the employment contract.
Furthermore, there is a proposal for the government to compensate the transition payment in the event of two years’ sick leave. The aforementioned ‘dormant employment contract’ would therefore no longer be necessary. Compensation in this context will be applied retrospectively. If a transition payment has already been paid to an employee in connection with dismissal following two years of sickness, this amount will be compensated should the aforementioned proposal be adopted.
Finally, there are plans to provide compensation for the transition payment in cases where the employer is obliged to pay it in connection with the closure of a business due to retirement or illness.
It is not yet known when, or indeed if, the aforementioned proposals will be implemented.