Do you have Dutch employees on your payroll? Or will your organisation soon be opening a branch in the Netherlands? Then you will face various challenges in the field of HR and payroll administration. Take, for example, different taxes, regulations or retirement schemes. In this guide, we explain the most important points to consider. This will give you the most complete picture possible of everything you need to know about Dutch payroll.
Do you still have questions after reading this guide? Please let us know. We will be happy to help you set up your Dutch HR and Payroll system in the best possible way. Progress smarter with Salure!
Key Takeaways
- The majority of a company’s employee salaries are covered under collective agreements already in place within the company, which is typically organised by the different levels within that company.
- All employees must be paid by an agreed-upon date (weekly, monthly) and given an itemised payslip that covers information like withholdings and deduction amounts
- Employers are limited to certain mandatory deductions and are not permitted to take additional deductions from an employee’s pay
- Employers are responsible for calculating and deducting for:
- Personal income tax
- National insurance contributions
- Contributions to employee-based insurance plan
- There are three pension systems that can be followed:
- Standard old-age state pension plans
- Occupational pension plans
- Personal pensions via insurance plans
- Gender discrimination is not permitted. There may be no distinction between men and women when it comes to pay.
- National minimum wage is mandatory and must be given to every employee regardless of their role in a company.
- All employers are required to provide statutory minimum holiday allowances to employees, regardless of pay or position.
- National regulations for employee absence must be followed on the basis of sickness and other reasons for an absence.
Context
Years of legislation and regulations have established an effective and efficient payroll system in the Netherlands. It is essential that any employer or company familiarise themselves with all of the regulations required at the national level to ensure compliance when it comes to their own employees. Additionally,
employers must stay up to date on legislative changes that may occur due to factors like the economy or life expectancy.
Most companies have a fixed salary plan in place prior to hiring an employee that offers fair pay and is determined under a collective agreement. This fixed salary plan is scaled under different sections or levels within that company and is based on factors like the type of work performed, the qualifications needed to complete such work, and the quantity and quality of that work. Nearly 80% of the workforce in the Netherlands is employed under collective agreements like this.
Additionally, most collective agreements use an analytical point-rating system that evaluates the relative value of each position within the company to determine fair pay. This value is agreed with the trade union for the collective agreement. They also utilise job-evaluation systems for blue and white-collar positions, allowing for incremental increases on a pay scale that coincide with the years of service. This way, an employee who has worked in the same role for years will experience yearly incremental increases in salary. All employees are
granted equal rights and pay when conducting the same work as a colleague, especially when it comes to male and female employees.
Changes and amendments to the evaluation system must be done via consultation with and approval by unions. Employee grievance procedures also must be defined in the collective agreement and should also involve the unions.
1. Dutch Payroll
Salary and payment
Employers are required to adhere to the following regulations when it comes to paying their employees:
- Employees must receive their pay precisely at the agreed-upon time, whether
this time is each week, each month, or every four weeks. - Employees must be paid in Dutch legal tender (unless agreed otherwise).
- Payment must be in money form (although payment may be made in kind for
board and lodging if a contract permits, subject to limitations). - Employers may not provide full salary payment in cash, specifically. Money
form must include at least the full national minimum wage paid directly to a
bank account (as of 1 January 2017). - Employees must be provided with an itemised payslip for every payment
they receive. This payslip should show hours worked, gross pay, deductions,
calculations, and minimum wage rate.
Deductions
Employers are limited to the mandatory deductions for employee paychecks, as permitted by law. These mandatory deductions include personal wage tax, national insurance, and employee insurance contributions. At an employee’s request, it may also include deductions for occupational pension plans.
Additional deductions, limitations, and regulations are defined under the Labour Market Fraud Act (also known as WAS), which went into effect on 1 January 2017. Restrictions include the repayment of wages paid in advance, rent for accommodations needed under a job, and compensation in special circumstances. Employers must refer to the WAS for further detail.
Equal Pay
First and foremost, when it comes to pay and salary, it is illegal to have any distinction (directly or indirectly) between male and female employees. Men and women who conduct equal work must receive equal pay. Likewise, this equal pay requirement also must be provided regardless of race, disability, full-time or part-time work, fixed-term or open-ended contracts, or temporary status. If two employees conduct work of equal
value, irrespective of these distinguishing factors, they must receive equal pay.
National Minimum Wage & Holidays
The Netherlands has a mandatory minimum wage requirement, which means employers must pay this minimum rate of pay to all employees. The national minimum wage is reviewed twice a year (1 January and 1 July). As of 1 January 2022, the gross minimum wage requirement for workers 21 or older working an 8-hour day is €1,725.00 per month (€79.62 per day, including bonuses, gratuities, and any payment in kind). However, for those under 21, the national minimum wage is a scaled percentage:
- 30% for employees aged 15
- 35% for employees aged 16
- 39.5% for employees aged 17
- 50% for employees aged 18
- 60% for employees aged 19
- 80% for employees aged 20
- 100% for employees aged 21
Similarly, most collective agreements set their minimum wage by position, which is agreed upon by the union. This is often higher than the national standard and may not fall below it.
If an employee works based on payment per piece/project/order, etc., they are entitled to at least earn the minimum hourly wage for each hour of work, regardless of how many they complete in an hour. However, if employees have control over how many they can complete on a per-project basis, employers and unions can request the Labour Foundation set an industry-wide wage per project in place of an hourly minimum wage.
Holiday Allowance
In addition to national minimum wage requirements, employees are also granted a minimum holiday allowance that amounts to 8% of their annual salary (less if they make 3x the national minimum wage and it’s in their contracted agreement). Holiday allowances accrue during any of the following: annual leave, sickness, longterm disability, and maternity leave. This is often paid in May or June of any given year, although some collective agreements may stipulate their own instalment plan.
National Minimum Wage & Holidays
Employees are now entitled to minimum wage earnings (or more) for any hours worked overtime. Overtime hours include either any hour over the standard 36-40 hour workweek or any hour over what is defined in an individual employment contract. Employees must be paid at least the full minimum wage pay rate for each hour of overtime, and as of 1 January 2019, employers cannot compensate employees’ overtime with time-off in place of payment (unless allowed with certain collective agreements).
It is also the employer’s responsibility to keep a record of each hour worked by every employee. They may choose the means of keeping such records but must use a method more thorough and comprehensive than just the payslips or work schedules. Employers who fail to register employee working hours accurately are subject to fines from the Dutch Labour Inspectorate.
Pensions
In the Netherlands, there are three types of pension system plans available to employees: the standard old-age state pension scheme, occupational pension schemes, and personal pensions via insurance providers. Only 9% of pensioners receive state pensions alone, with a majority receiving pensions that are administered via one of two occupational pension funds: either a company pension fund or an industry pension fund. Some are further funded via personal pensions through insurance providers.
Occupation pension schemes
Occupation pension schemes typically offer the following:
- One-third of the contributions made by the employee and two-thirds from the employer
- 75% of the average pensionable salary (tax acceptable standard)
- Pension accrual cap of 42 years
- Accrual rates of 1.875% for average wage systems (1.657% for final wage systems)
- Tax-deductible contributions
- Maximum pensionable salary of €114,866 (gross, as of 2022)
- Flexible retirement dates- ranging from 5-years prior to statutory age in exchange for lower pension or retirement beyond statutory age in exchange for a higher pension
The standard retirement age and state pension age face necessary adjustments in conjunction with changes in life expectancy. Most recently, it was determined that for each additional year of life expectancy, an employee
needs to work eight months longer (as opposed to the previous one year of work for one additional year of added life expectancy). Adjustments for this change will be made incrementally by 2025.
Changes to the pension system were agreed upon by the Dutch Government, unions, and employers as of 4 July 2020 in an effort to establish more sustainable pensions and costs. Key adjustments included aligning benefits
and pensions to the current state of the economy so they can be increased or decreased as needed. If these changes lead to any loss or disadvantage to any pensioners, they become eligible for compensation. As of 2023, all transfers to the new system must be completed by 1 January 2027.
n addition to reforms on state pension, the Dutch Government has also temporarily reinstated the early retirement scheme, Regeling Vervroegd Uittreden, which allows an early retirement option without additional taxes if it is agreed upon by both an employer and employee. However, it can be no more than three years before the state pension age and is effective from 1 January 2021 to 31 December 2025.
As of 1 January 2021, an increase in accruable leave was changed from 50 weeks’ leave to 100 weeks’ leave. This allows an employee to take a sabbatical or retraining as well as the option to retire up to two years earlier before the state pension age in exchange for accrued leave.
Income Tax and Social Security
It is the employer’s responsibility to calculate and deduct the following from their
employees’ wages (and make their own contributions when required):
- Personal income tax (As of 2022, the rate of income tax is 37.07% for annual
earnings up to €69,398 and 49.50% on earnings over €69,398) - Employee insurance funds
- Unemployment funds
- Healthcare and sickness funds
- Occupational disability insurance
Employer contributions to funds vary, depending on the types of plans, insurance, and
contracts they have.
Sick Pay
By law, if an employee is absent due to sickness, their employee is required to pay 70% of their annual salary for each day missed up to a maximum of two years. This 70% requirement must also still equal at least the national minimum wage for the first year of sickness absence.
However, most collective agreements stipulate a higher rate of sick pay above the 70%, especially in the first year of sickness. A company is not mandated to pay 70% if the employee makes more than €228.76 per day.
Some contracts and collective agreements may stipulate that sick pay does not apply for the first two days of a sickness absence but may be applied after the first two days.
2. Long Term Sickness
If an employee takes a long-term sickness absence but does not cooperate or take measures to regain their health and return to work, their employer has the right to cease their sick pay and may ultimately dismiss the employee.
At the end of two years of sickness absence, the employer’s requirement to pay their employee ends, and if that employee remains sick, they are then evaluated on a case-by-case basis by the Institute for Employee Benefit Schemes (UWV). The Institute will then determine one of two things: either the employee is entitled to state occupational disability benefits, or the employer has failed to make sufficient efforts to support their employee in returning to work and must continue to provide sick pay for an additional year.
In the event an employee is at least 56 years old and was hired after one full year of unemployment, the employer is only required to pay for the first 13 weeks of sickness absence. After this, the employer can submit an application to the UWV (must be submitted within six weeks of the first date of sickness absence) to have the UWV pay the wages until the employee recovers (for up to 5 years).