Transfer Company or Severance Pay? The 2026 Decision

What is a transfer company?

When an employer cuts many jobs at once, for example due to a plant closure or a major restructuring, a transfer company is often part of the social plan. It is a temporary holding organisation (also called an "employment and qualification company") that affected staff can move into instead of going straight into unemployment.

The basic idea: you look for a new job while still formally employed, supported by coaching, training, and help with applications. The term usually runs for 6 to 12 months.

Transfer short-time allowance: what does the transfer company pay?

The basis is transfer short-time allowance under § 111 SGB III: 60 per cent (without children) or 67 per cent (with children) of standardised net pay. On its own, that would be a significant cut, which is why many employers top it up through the social plan, often to 80 to 90 per cent of your previous net pay.

Do the maths: what matters is not the percentage alone, but what actually arrives net, and for how many months. You then compare that sum with an immediate severance payment.

The three-way agreement: the small print

The switch runs through a three-way agreement (dreiseitiger Vertrag) between you, your former employer, and the transfer company. This agreement ends your existing employment by mutual consent, similar to a termination agreement (Aufhebungsvertrag).

The most important consequence: by signing, you usually waive your right to bring an unfair dismissal claim (Kündigungsschutzklage) against your former employer. That also blocks the route of using a claim to negotiate a higher severance payment in a settlement. This is exactly why you should not make this decision under time pressure.

Transfer company or severance pay?

A transfer company often makes sense if:

• your job prospects are uncertain or the local labour market is difficult,
• you need further training or retraining,
• you want to avoid a gap in your CV,
• and there is usually no benefit suspension period for unemployment benefit.

Immediate severance pay (possibly with a claim) often makes sense if:

• you have good chances of finding a new job quickly,
• the dismissal is easy to challenge (formal errors, social selection, works council consultation),
• you want to secure the maximum amount now,
• or you are close to retirement, where bridging time brings less benefit.

Rule of thumb: the transfer company secures time and employment, while severance pay plus a claim aims for the higher one-off payment. Which path pays off more for you can be calculated, we do this in an initial conversation, at no upfront cost.

Check before you sign

Before you sign the three-way agreement, we check with you:

• How long does the transfer company run, and how large is the top-up?
• Is severance pay being paid on top, or does the transfer period replace it?
• What claims are you giving up under the agreement, particularly protection against dismissal?
• How does everything affect unemployment benefit, pension, and tax (the one-fifth rule)?

Legal review and representation are handled by our partner law firm MK Law, for you, success-based, at no upfront cost.