What is a golden handshake?
The golden handshake is a term used for a transition or severance payment. An employer can grant an employee a golden handshake in the event of involuntary dismissal. This amount then serves as a kind of compensation for the missing wages and/or pension. In this article we explain what a golden handshake exactly entails.
Difference between transition payment and severance payment
Since the term golden handshake is used to refer to both transition compensation and severance compensation, it is important to first know the difference between these two types of compensation.
If the dismissal takes place via the subdistrict court or the UWV, you will receive a statutory transition payment from your employer. You will receive severance pay if it concerns a collective dismissal. The amount of this amount is then determined from negotiations between the employer and the unions. It is also possible that, as an employee, you are awarded both a transition payment and an additional severance payment in the event of dismissal through the subdistrict court.
Right to a golden handshake
According to the law, anyone who is 18 years or older and has been employed by a company for more than twelve hours per week for two years or more is entitled to a transition payment. However, the compensation only applies to involuntary dismissal. If both employee and employer agree to the dismissal, the transition payment is not mandatory. In this case, the employee can consult with the employer about a possible transition or severance payment and it is quite possible that the golden handshake will still be given.
What is the compensation for?
A golden handshake is officially intended for finding a new job. However, in practice you can also use the money for other purposes. You could, for example, use this amount to follow a course to increase your chances of finding a new job, but you could also use it to finance the renovation of your house.
Calculate the amount
The amount of the transition payment is determined based on various factors. For example, the gross income you earned from your employer plays a major role, but so does your date of birth. In addition, when determining the amount of a golden handshake, the date you entered employment and the date you left employment are taken into account. Different rules also apply to employees of companies with more than 25 employees than to employees of companies with fewer employees.
There are no fixed rules regarding the amount of severance pay. The amount of this amount is determined based on negotiations between the employer and the trade unions.
Payout
If you receive a golden handshake, income tax is immediately withheld. The amount that you receive into your account is therefore a net amount. The compensation is added to your income, which may put you in a higher tax bracket. This means that a higher percentage of tax is deducted from the compensation.
Pay less or no tax on the golden handshake
If you meet certain conditions, you do not have to pay any or less tax. For example, if you use the amount for training or outplacement, you do not have to pay tax on it. The amount you receive is then a gross amount and higher than a net compensation.
Averaging scheme
You may be eligible for the tax authorities' so-called averaging scheme. If you have a highly variable income, you may have to pay less tax. The averaging scheme makes it possible to add up the income from three consecutive years. This total amount is then divided by three, resulting in an average annual income for these three years.
If you want to qualify for this scheme, you must meet a number of conditions. The averaging scheme only applies to three consecutive calendar years. In addition, you must have paid tax in the Netherlands in these years. You must also indicate in time if you want to qualify for the averaging scheme. You must do this within 36 months after the assessments for the three years to be averaged have been determined. You may also only average the income from box 1.
Golden handshake in combination with unemployment benefits and allowances
If you have unemployment benefits, this is separate from the golden handshake. This means that your unemployment benefit will not be reduced because you receive compensation from your employer. However, if the golden handshake is seen as income in your case, you may lose some allowances. This concerns, for example, healthcare allowance, housing allowance and childcare allowance.
Make up your pension deficit with a golden handshake
You can use the golden handshake as a supplement to your pension. This can certainly be a good idea if you have a pension deficit. You can then deposit the gross amount for an annuity insurance policy and benefit from tax benefits. You only have to pay the tax when the annuity is paid out, which can make it cheaper in some cases. It is possible that the payment of this income will fall into a lower box in another year.
Furthermore, it is often the case that you have to pay a lower percentage of income tax when you have reached retirement age. This will then provide you with a tax advantage. Take the so-called annual space into account if you want to benefit from tax benefits. This determines the maximum amount you can deduct for tax purposes.
Use compensation to pay off mortgage
Another good purpose for the golden handshake is to (partially) pay off your mortgage. This ensures that your housing costs immediately decrease. You can also gain a tax benefit from this. If you repay sufficiently, you are entitled to the deductible 'no or small home acquisition debt'. This will reduce these costs in the coming years.
Furthermore, in many cases it is better to use the compensation to pay off your mortgage than to leave it in your savings account. The tax authorities may request capital gains tax on this, if the amount is high enough. Another advantage is that you can negotiate a lower mortgage interest rate with the bank. The bank runs less risk if you have already paid off a large part, so they are often willing to offer a lower interest rate. In addition, the chance of having a residual debt when selling your home also decreases.
If you choose to pay off (part of) the mortgage with the compensation, you must bear in mind that you do not pay off too much at once. Many banks charge a penalty interest if you repay more in a year than is permitted and if the current mortgage interest rate is lower than before. It is usually possible to repay 10% of the mortgage per calendar year without penalty.