The "Golden Handshake"

What to do with your redundancy package

The "Golden Handshake"

Right now, in the midst of the financial crisis, many companies will need to let go of (some) of their staff members. Should you lose your job in the Netherlands, you could be entitled to financial compensation from your employer.

In the Netherlands this is often referred to as a “Golden Handshake”. You will only be entitled to compensation if your departure from the company is a forced one (not if you resign). In the case of a forced departure, it is often possible to reach agreement between an employer and the employee regarding the amount of financial compensation. Legal advice is usually sought. However, if you cannot reach an agreement on the terms of the departure, the court will have to decide.

The “Golden Handshake” can be applicable in case of a forced resignation for causes that cannot be blamed on the staff member. However, if the reason for the (collective) resignation is the poor financial situation of the company, the chances for financial compensation will decrease considerably. Obviously, the employer will have to prove to the authorities that the company is not in good financial shape.

Financial compensation is intended normally to offer some form of compensation for the (hopefully temporary) loss of income. This can be the case if you have not yet found a new job or if your chances for a job with similar income are slight. It is also possible to receive compensation to secure your future pension rights. In larger companies, with collective redundancies, a social plan is often presented. In this plan your company will try to assist you in finding a new job by for instance offering you additional education or outplacement. The redundancy payment will be offered as a last resort.

Should the forced resignation make it to the courts (the so called Kantonrechter), a special formula for calculating the compensation will be used by the judge. The judge will look at the number of years of employment, your age and your gross annual income. Also, the judge will take into account to what extent you can be blamed for the loss of job. You should bear in mind that your redundancy check will have effect on your unemployment pay (WW). Your unemployment pay will start when your employment has ended. Should the judge decide on the case, it is the judge who will decide on the actual date of the end of the employment contract.

Should you be financially compensated for your redundancy, you will have to make a decision on what to do with the money. There are some fiscal restrictions. The amount you will be awarded will be a gross amount.

According to the Dutch Tax Law, this amount can be paid out in three different ways:

1. As a cash payment. In this case you will have to pay tax on the full amount. If it is a considerable sum, you could end up in a higher tax level for that particular year and this may not be the best idea from a tax point of view. On the other hand, you will have the cash available to you to spend (or save) as you please. It is also possible to receive some of the money in cash and find another purpose for the rest of the money.

2. Other purposes could be placing it with an insurance company. You can choose to have the gross amount paid to an insurance company of your choice and have the money invested into an annuity plan. This is an insurance that can pay out either immediately or at a later stage in life, but in smaller portions (monthly for instance). If this is well planned you could save a lot of tax. A combination of the two is also possible. However, the employer must pay the gross amount directly to the insurance company and this money cannot be send through your account. In this case the tax on the full amount as described under point 1 will apply. Since there are many forms of annuities, either paying out immediately, or when you retire or combinations thereof, it is very important to seek advice on this issue.

3. It could also be worth your while to set up a separate limited company for your “Golden Handshake”. This is referred to as a “Stamrecht B.V.”. You receive the money tax free in your own newly founded company for either future pension planning or as a financial head start for your future enterprise. However, setting up a Stamrecht B.V. is normally only advisable when you receive higher amounts of compensation. This is because of the costs of setting up and maintaining such an administrative company. Again, advice is important. A Civil Law notary will be able to advise you on this issue.

Should you be one (of many) unfortunate people to lose their job in this crisis, consider what you wish or need to do with the money. If you do not need the money for a while (or only need part of it), the insurance company solution or the Stamrecht B.V. can be good options. However, if you need the money at short notice since you have no other form of income, it is probably sensible to have it paid out immediately. Contact your lawyer for advice before you accept your employer’s offer and contact your financial adviser on what to do with the Golden Handshake… (source Nibud 2009)

Article by de Boer Financial Consultants. For financial advice when moving to the Netherlands, contact +31 (0)70 511 8788.

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