Netherlands: Dutch Compensation Scheme for Long-Term Disability to End on 1 July 2026

Dutch law contains a compensation arrangement regarding the statutory transition payment for long-term occupational disability.  However, starting 1^st July 2026, employers with more than 25 employees will no longer be able to claim such compensation. Read below what this means and how this decision came about.

In comparison to the rest of the European Union, Dutch employees are very well protected during illness. Based on Dutch employment law the following applies during illness:

• employers must continue paying (at least partial) wages for up to two years when employees are medically unable to perform their work duties;
• employers must facilitate the employee’s return to work, whether in their original position or an alternative role, either within the company or elsewhere, and
• employees are in principle prohibited from terminating the employment contract of the employee concerned.

After two years of illness, the employer obtains the possibility to terminate the contract of the employee and can also be forced to terminate the employment contract if the employee requests this. Upon termination, the employer is obliged to make a statutory transitional payment.

This collection of obligations poses a big financial burden on employers when dealing with long-term illness of employees. Many saw it as unfair that the employee is entitled to the statutory transition payment after having received two years of wages without performing the stipulated work. The Dutch legislator aimed to fix this by compensating employers for the transition payment.

However, due to government cutbacks, the compensation scheme will be abolished by 1 July 2026. Currently, it remains unclear whether or not there will be a transitional law. If not, this means that for employees that leave the company on or after 1 July 2026 due to long term illness, employers will not be compensated for the transition payment.

Employers with less than 25 employees will still be entitled to the compensation. This distinction based on company size is justified because smaller companies are generally financially weaker, according to the government.