Am I Entitled to Transition Compensation?
There is no doubt that the impact of the current COVID-19 pandemic has hit virtually every part of the world. Between December and now, the novel virus has caused businesses, hotels, restaurants, manufacturing plants, schools, and more to shut doors. Some common practices that many employers are adopting in a bid to stay afloat include reduction-in-force (RIF’s), lay-offs, and furloughs.
In Europe alone, more than 18 million workers have lost their jobs since the COVID-19 crisis struck. What is even worse, the number is likely to swell as the disease continues to cut an ever-widening swath through the European job markets. The bitter truth is that most of these coronavirus job losses will remain permanent long after the pandemic is gone.
For people who have lost their positions due to coronavirus or any other reason that is not their fault, there is a silver lining. Most workers who lose their jobs, particularly in the European Union and the United Kingdom, may be entitled to transition compensation. However, one must meet specific legal requirements to qualify for this payment. But have no fear! This guide will explain everything about transition compensation.
What is Transition Payment?
Transitional compensation is simply a statutory severance payment made by employers to employees upon termination of employment. The allowance usually includes salaries, pay-in-lieu of notice, and wages. Wages here refer to accruals for holidays, and any other paid time off as well as overtime earned before termination.
When Do I Get Transitional Compensation?
While a transitional arrangement applies to workers who lost their jobs, not all employees who fall in this category are entitled to transition compensation. The allowance is payable only if:
- The ex-employer no longer has a job for the employee due to circumstance such as COVID-19 crisis.
- Termination of the employment contract was due to reasons that are not worker’s fault.
- The ex-employer fails to renew or extend the employment contract.
It is important to note that an (ex-) employee is not entitled to a transitional allowance if:
- The employer seriously accuses them of terminating the employment contract themselves.
- The employee lost their job due to bankruptcy.
- The employee applies for transition payment after three months.
According to the Transition Compensation Act, every employee who qualifies to get the transition payment has a collection obligation. What this means is that they should take an initiative to claim their transition allowance from their ex-employer. The reason for this is pretty simple. Employers do not have a legal obligation to make this payment voluntarily. And in most cases, they do not. Also, an employee should claim their compensation almost immediately after dismissal. This is mainly because the right to transition payment often lapses 90 days after the last working day.
Calculation of Transition Compensation
Several factors often determine the amount of compensation that an employer pays upon dismissing an employee. These often include:
- The level of an employee’s (average) monthly salary
- The years of employment, and
- The level of other additional elements such as holiday pay
In most European countries, the Transition Compensation Act states that the allowance should amount to 33.3% of the monthly salary for every year of service for the first ten years. On top of that, the employee should get 50% of the monthly salary for each additional year of service. While that remains the case in most countries in Europe, there has been some recent changes in several countries like the Netherlands.
Most Recent Changes to Transition Compensation Act
In most European countries, the Transition Compensation Act has been active for several years now. However, there have been several amendments in the Act since it first came into force. The most recent changes came into effect on 1 January 2020 and 1 April 2020. Before this time, employees in the European Union and the UK were entitled to transition compensation only if their dismissal came after their employment contract had lasted for at least two years. On top of that, employees would receive only a sixth of their monthly salary per half-year. Workers aged over 50, as well as those whose contracts had lasted for more than ten years, would receive premiums.
What is New?
Since the new Act came into effect on 1 January 2020, there have been some significant changes in transition compensation. In the Netherlands, for instance, employees are now entitled to transition allowance right from the first day of their employment. Besides, the rules that awarded higher accruals for employment contracts longer than ten years and employees who are older than 50 years are no longer in place. Employees will now receive a third of their monthly fixed salary per pro-rata year of service.
Payment Arrangement
As the coronavirus pandemic continues to bite, many employers may not be in a position to make the accrued transition allowances at once. The Act seems to have considered this. It permits organizations to arrange for staggered payment for not more than six months in such situations. In case of such an arrangement, the employer must pay the legal interest plus the amount that is overdue starting one month after the termination of the contract.
So, What Should I Do If I Lose My Job?
With the current pandemic taking its toll on our economy, the job situation will remain grim across the European Union and the UK. More people will lose their jobs as businesses in hospitality, tours and travel, imports and exports continue to feel the heat.