Compensation of the transition payment after long-term illness: soon only for small employers

The bill has major consequences for employers. When an employment contract is terminated after two years of illness, a transition payment often has to be paid. Until now, all employers could have this payment compensated by the UWV (subject to conditions). This bill will bring a change to that situation.

Currently, the following applies: if you terminate the employment contract after two years of incapacity for work, you pay a transition payment and you can have this (partly) compensated via the Long-Term Incapacity for Work (LAO) compensation scheme.

According to the bill, this will change as of 1 July 2026:

• Compensation of the transition payment in cases of dismissal due to long-term incapacity for work will apply only to small employers.
• Employers who are not classified as “small employers” will no longer receive any compensation.

The intended entry into force date is 1 July 2026, but the House of Representatives and the Senate still need to consider and adopt the bill.

The law aligns with the definition of a “small employer” as set out in the Financing of Social Insurance Act (Wfsv) and the Wfsv Decree. In short:

• A small employer has a total wage bill of no more than 25 times the average premium-liable wage per employee per year.
• Starting employers are automatically classified as small during their first two calendar years, because no wage data are yet available.
• For companies operating in multiple sectors, it is assessed per sector whether the employer is small; each part can therefore be classified separately as small or large.

Make sure to have your business assessed well before 1 July 2026 to determine whether it qualifies as a small employer under this definition!

The compensation scheme was introduced in 2020 to put an end to so-called “dormant employment contracts”: situations in which employers do not terminate an employment contract after two years of illness in order to avoid paying the transition payment. With the introduction of the scheme, the Supreme Court ruled in the Xella judgment that good employment practices generally mean that an employer agrees to termination at the employee’s request, including payment of the transition payment, because that payment is compensated.

If the compensation is abolished for larger employers, questions arise such as:

• Are employers still obliged to cooperate with termination at the employee’s request?
• Are they allowed to let the employment contract remain dormant in order to avoid the transition payment?

The expectation is that this will lead to more proceedings being initiated by employees who seek to enforce payment through the courts, with outcomes that are less predictable than before.

A transitional arrangement is included in the bill. In broad terms:

• Does the period of two years of uninterrupted incapacity for work end on or after 1 July 2026? Then the new scheme applies: compensation only for small employers.
• Has a wage sanction been imposed requiring the employer to continue paying wages for more than two years? In that case, the reference date still appears to be the end of the first two-year period, even though termination is not yet formally possible at that time.

he bill, which may have major financial consequences, is likely to enter into force in just over six months’ time. Would you like to know what this proposed change specifically means for your organization? Then contact Liban Hadi, egal assistant Employment Law.

Webinar: current developments

On Thursday, 15 January, the webinar “Current Developments in Employment Law” will take place, during which this new bill will also be discussed. Participation is free of charge and registration is possible here.

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