How much does it cost to fire an employee?

You cannot fire an employee simply because you want to. You need a valid reason to let go of an employee. For example, refusal to work, misconduct, unsatisfactory performance, a reorganisation, or (partial) company closure. Make sure to check your rights and obligations first. Expiry periods (in Dutch) apply, so do not wait too long before submitting the request to dismiss someone. 

Choose a dismissal procedure

There are four distinct dismissal procedures, each with their own conditions and options.

1. Immediate dismissal (in Dutch: ontslag op staande voet). This is a quick dismissal procedure but it is only allowed in special cases, for example, theft, fraud, drunkenness, or lying.
2. Petitioning the district court (kantonrechter). This procedure is an option in case of poor performance, labour disputes, or a combination of circumstances.
3. Requesting a dismissal permit from the Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen, UWV). For business reasons, reorganisation, bankruptcy, disability, and mass layoffs (more than 20 employees).
4. By mutual agreement. You enter into a settlement agreement together. 

Cost overview

Whatever procedure you choose, laying off staff always comes at a price. Here is a list of the main cost items. 

1. Notice period: 1 to 4 months' salary

You have to give your employee a notice period. During that time you have to keep paying their salary. The longer they have worked for you, the longer the statutory notice period. Most notice periods are between 1 and 4 months. Employees who have been with you for years may be entitled to more. Employees with a temporary contract are not entitled to a notice period unless you agreed on one.

Contracts are usually terminated at the end of the month, as per the provisions of the contract itself or the collective labour agreement (CAO). You have to keep paying your employee until the end of the month. 

2. Duration of the procedure: several months

Firing an employee is not something you do lightly. Making the right decision takes time. You might decide to give your employee 1 more chance. Or maybe you need some time to put together a dismissal file. The dismissal procedure itself will also take time. The Employee Insurance Agency (UWV) usually takes 5 weeks to process a request. Court proceedings usually take 8 weeks. If your documents are not in order, or the employee lodges an appeal the process may take months. You are required to pay the employee's salary during this time, although the time taken to process the request can be deducted from the notice period.

3. Final settlement: holiday pay and leave

When an employee leaves your company, you have to pay them everything they are still owed, such as:

• Holiday allowance. Holiday pay is accrued per month. When an employee leaves your company, you have to pay them the balance they have accrued.
• Holiday entitlement. Any leave days that an employee did not use have to be paid out. This pay-out is based on their gross daily pay including holiday allowance and end-of-year bonus but excluding extra allowances and pension contributions. Talk to your employee to see if they can take a few more days off.
• Performance bonus or end-of-year bonus (in Dutch). Contracts or CAOs often contain agreements on bonuses. Your employee may be entitled to part of their usual bonus.
• Payable expense claims, such as travel expenses.
• Payable overtime. 

It is also possible that the employee has debts with you. For example:

• Training costs
• Loan from the employer
• Too many leave days taken 

You have to settle in full no later than 1 month after termination of employment. If you pay late, you will also have to pay interest (in Dutch). 

4. Transition compensation: 1/3 monthly salary per year of service

If you choose to dismiss an employee through the UWV or district court, you have to pay a transition payment to compensate for dismissal. A transition payment is one-third of the employee’s monthly salary for each worked year up to a maximum of €102,000. You must also pay this compensation if you do not renew a temporary contract.

If you opt for dismissal by mutual agreement, you do not have to pay transition compensation. However the transition payment is usually included in the negotiations.

You can use this calculation tool (in Dutch) to figure out how much transition payment is due. You can pay in instalments over a maximum of 6 months. 

5. Procedural costs: court fees, lawyer, mediation

The dismissal procedure itself also costs money. Often you will pay advisers an hourly fee or have court costs.

• Lawyer: lawyers cost between €100 and €200 per hour. You can also agree on a fixed price.
• Mediation: you can try to resolve the conflict through mediation.
• Bookkeeper or accountant: Cost of updating your payroll records.
• Court fees: you must pay court fees, otherwise your case will not be heard. 

6. Limit the costs

You cannot avoid all dismissal costs, but you can limit them by following a few smart tips.

• Make sure to keep accurate records. “To prosecute is to prove” is a well-known saying among lawyers. So, make sure to record everything on paper. When an employee is performing poorly, issue a written warning and give them the chance to improve. If you petition a district court for dismissal, the judge will always ask you to show an improvement plan. If you want to dismiss an employee for business-economic reasons, UWV will request all your figures. Make sure that your records are clear and complete from the very start.
• Bring in expert assistance if you lack the necessary knowledge. Save time and avoid mistakes by, for example, hiring a lawyer for the legal proceedings and a bookkeeper or accountant for the financial side of things. 
• Go for the solution that will hurt least in the long term. Reaching an agreement with the employee is often cheaper than a full dismissal procedure. If your offer is reasonable and the employee clearly knows that the only other option is dismissal, they will usually agree. With this approach, the employee retains their right to unemployment benefits.