Q&A: Labor
Whether you're hiring here or relocating staff from home, the section that follows gives you all the information you need. Click on a question for a quick link to the answer, or scroll down to read the entire section.
Q: What choices do I have when it comes to staffing in the Netherlands, and how can I determine what's best?
Q: Where can I find resources that can help me identify suitable Dutch employees?
Q: Are there temporary employment and contract staffing agencies in the Netherlands?
Q: Do employment agreements have to be in writing?
Q: What kind of employment agreements are there?
Q: Are probationary periods allowed?
Q: How does hiring and firing work?
Q: What are the costs for employers regarding social security?
Q: How is health care insurance organized in the Netherlands?
Q: What fringe benefits are considered normal in the Netherlands?
Q: When do administrative payroll requirements kick in?
Q: What is a shadow payroll?
Q: Do the Dutch revenue authorities maintain strict deadlines in payroll matters?
Q: Is it possible to outsource payroll administration (including social security)?
Q: What are the main rules of the Dutch Individual Income Tax system?
Q: What is the filing deadline for individual income tax returns in the Netherlands?
Q: What taxes does an employer need to pay on behalf of an employee?
Q: Is it expensive to employ individuals in the Netherlands because of the relatively high tax rates?
Q: What is the average salary that I will have to pay my personnel in the Netherlands?
Q: What choices do I have when it comes to staffing in the Netherlands, and how can I determine what's best?
While there is a wide range of staffing solutions, it really comes down to a choice between local employees and ex-pats or a combination. Obviously, each of these alternatives has its pros and cons. Which you choose depends on what you want to achieve with your business, the investment you want to make, the talent pool available, the needs of your customers, etc. But there are a few things to keep in mind in making a decision.
Your first instinct, most likely, will be to send your employees here. They are the ones, after all, with first-hand knowledge of your company and its products. Not to mention the comfort factor of the "tried and true." And it's undeniable that these employees can be extremely useful in starting up a foreign business, or in establishing a good relationship between the headquarters and the new office. If you decide to go the ex-pat route, assignments can vary in length from business trips lasting less than 3 months to permanent transfers lasting over 5 years.
But there are some definite drawbacks to expatriating employees. The first is cost. Hiring local employees is less expensive because they don't have to relocate, and will usually accept a position without requiring ‘ex-pat perks,' like home leave tickets, cost-of-living allowances, tax gross ups and the like.
Personal and cultural reasons come into play, too. For instance, not all staff will be in a position that allows them to move abroad. Spouses may have a career they are not willing to give up for a temporary foreign posting of their partner. Also, the cultural adaptability of individuals may be far less than expected, causing international assignments to end (often prematurely) without delivering the desired success.
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Q: Where can I find resources that can help me identify suitable Dutch employees?
The Netherlands has a large number of recruitment agencies like Egon Zehnder and Michael Page that can help you identify and hire suitable employees. Some recruitment agencies specialize in the recruitment for certain sectors like financial management, IT, marketing & sales etc.
There are also very good regional recruitment agencies. If you have already decided where you would like to locate your office in the Netherlands, the regional development agencies or municipalities, like the Limburg Development Company (LIOF), or Investment & Development Company for the Northern Netherlands (NOM), can refer you to the agency that can help you tab the regional labor pool.
For a selection of recruitment agencies as well as contact information for the regional development agencies, please check the Resources and Links Section.
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Q: Are there temporary employment and contract staffing agencies in the Netherlands?
Part-time and temporary employees are readily available in the Netherlands, which gives your company added flexibility. Agencies like Adecco, Manpower and Randstad, which operate internationally, and may be familiar to you, have affiliate offices across the Netherlands.
The regional development agencies or municipalities can also help you select a regional temp agency.
For a selection of temp agencies as well as contact information for the regional development agencies, please check the Resources and Links Section.
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Q: Do employment agreements have to be in writing?
Although an employment agreement may be concluded verbally, it is advisable to have the agreement in writing. The employer is obliged to inform the employee in writing of the conditions applicable to his or her employment (place of work, base salary and other pay components, etc.). Certain provisions are legally valid only if they are in writing (for example, probationary periods and non-competition clauses). A written contract may take the form of a formal agreement signed by both parties, or a letter.
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Q: What kind of employment agreements are there?
An employment agreement may be entered into for an indefinite term, or a fixed term. If no term is specified, the agreement will be deemed to be for an indefinite term.
Dutch labor law also provides for so called ‘on-call' employees. These employees are only called upon when the employer is in need of their services, and are only paid for hours worked. There are certain safeguards for these employees. For example, for each period that an ‘on-call' employee works less than three hours, he will be entitled to receive a minimum of three hours wages, unless parties agree to an on-call agreement for more than 15 hours per week, or clearly agree on the precise working hours per week.
Alternatively, you can hire indirectly via a temporary employment agency. There are no restrictions on an employer as to the period for which employees are hired through such an agency. The average fee of an agency is 25% - 30% of the salary paid to an employee. The agency will arrange for the payment of all premiums and any withholding of taxes.
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Q: Are probationary periods allowed?
Yes. An initial probationary period is allowed, but is only valid in writing. The probationary period can never be longer than two months. During the probationary period, either party may terminate the contract at any time, without observing a notice period and without any liability for severance pay.
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Q: How does hiring and firing work?
There is a widespread belief that it is difficult for an employer to terminate an employment contract in the Netherlands. Although it is true that employee rights are well protected under Dutch law, an employment contract may be terminated for a variety of reasons. However, it is up to the employer to justify dismissal on objective grounds.
Agreements for an indefinite period
An employer must obtain approval from the Dutch Center for Work and Income (CWI) before terminating an indefinite employment contract (unless the employee is a member of the Management Board of an N.V. or a B.V., in which case no prior approval from the CWI is required).
An application for CWI approval must state the reasons for terminating the agreement, the most common being economic and financial circumstances on the part of the employer, or incompetence on the part of the employee.
After obtaining approval from the CWI, the employer may terminate the employment contract, with due observance of the statutory or agreed notice period, unless there is a ban on termination imposed by law (for instance, in the case of illness or pregnancy). Any dismissal by an employer without the approval of the CWI is null and void.
Fixed-term agreements
An employment agreement entered into for a fixed term ends by operation of law upon expiration of the contract term, without notice being required.
An employee can be given no more than three consecutive fixed-term contracts that end by operation of law (and therefore require no notice of termination). If more than three fixed-term contracts are concluded between the same parties, or if the total duration of successive contracts is three years or longer, the last employment agreement will be deemed to be for an indefinite period of time.
Urgent cause
An employment agreement can also be terminated with immediate effect for urgent cause, without notice or prior approval being required. The law gives a non-exhaustive list of examples of "urgent causes", such as theft, fraud, divulging trade or professional secrets, etc. In the end, it is the court that determines whether the facts of a given case actually constitute urgent cause.
Court termination
Each party may request the court to terminate the employment agreement on the basis of serious cause. A serious cause may be an urgent cause that has not been previously invoked to terminate the employment agreement, or a change in the circumstances of such a nature that the employment agreement should reasonably be terminated on short notice. If the court grants the request, it sets a date for the termination. The court may award the employee compensation (or a severance payment) to be paid by the employer. Although there are no statutory rules regarding severance payments, courts generally use the formula that awards the employee one month's salary for every year of service under the age of 40; one and one half month's salary per year of service between the age of 40 and 49 and two month's salary for every year of service above the age of 49.
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Q: What are the costs for employers regarding social security?
The Netherlands has a well-developed social security system, which provides essentially two categories of social insurance: national insurance programs covering all resident individuals, and employees' insurance programs, applicable to employees only. Under the employees' insurance programs all employees are insured against the financial consequences of sickness (Sickness Benefits Act (WULBZ) and Health Insurance Act (ZVW), long-term incapacity for work (Work and Income according to Labor Capacity Act (WIA), and unemployment (Unemployment Benefits Act (WW). This part of the social security is funded from contributions paid by employers (the biggest part) and employees.
Illness and incapacity for work
Under the Sickness Benefits Act (WULBZ), the employer is required to pay wages to the sick employee during the first two years of illness. For the first 52 weeks the employer is required to pay 70% of the last earned salary. After two years of illness, the WIA provides income security for those cases in which work becomes impossible.
Unemployment benefits
The WW insures employees who become unemployed against the financial consequences of that unemployment. To qualify for unemployment benefits, an employee has to meet strict criteria relating to the number of weeks worked and employment record.
Contributions
In the following table, the various compulsory contributions payable by employers and employees under the terms of the compulsory employee insurance programs are expressed as percentages of insurable wages (effective as of January 1, 2009).
| Employees Insurance Schemes |
Employer |
Employee |
Payable of a Maximum of |
| 1. WIA Basic Premium (Work and Income Fitness for Work Act) |
5.70% |
|
€ 183.15 p/day |
| 2. WAO Premium (Disability Insurance Act) |
0.15% |
|
€ 183.15 p/day |
| WGA Premium (Return to Work Scheme for the Partially Disabled) |
0.47% |
|
€ 183.15 p/day |
| Sector Funds |
1.07% (1) |
|
€ 183.15 p/day |
| 3. WW Premium (Unemployment Benefits Act) |
4.15% |
|
€ 183.15 p/day |
| Surcharge on Sector Fund premium |
0.34% |
|
€ 183.15 p/day |
| AWBZ (National Act on Exceptional Medical Expenses) |
|
12.15% |
|
| 4. ZW (Health Care Act) |
6.90% |
|
€ 186 per day / € 31,589 per year |
| ANW (Surviving Dependents Act) |
|
17.90% |
|
| Total |
18.78% (2) |
31.15% |
|
(1) Situation as of January 1, 2009. Please note that the amount is adjusted each year on July 1 and January
(2) We emphasize that this percentage is an average. Please consult a local expert for details.
- Work and Income Fitness for Work Act (WIA). This contribution consists of two separate components:
- The basic contribution, which is the same for all employers;
- The differentiated contribution varies by company for large-scale employers and by industry for small-scale employers depending on whether the employer is prepared to be WIA risk-bearing himself (this contribution is also either increased or reduced depending on the number of people in the business who claim WIA).
WIA contribution is paid on a maximum amount of € 183.15 per day.
- Disability Insurance Act (WAO). The WAO provides benefits in accordance with the Invalidity Insurance Act. The employer pays contribution, 0.15% or up to a maximum amount of €183.15 per day.
- Unemployment Benefits Act (WW). The WW contribution is paid by the employer over a maximum of €183.15 per day.
- Health Insurance Act (ZVW). The wage limit is € 31,589. An income-dependable contribution of 6.9%, to be paid to the tax authorities by the employee, must be reimbursed by the employer. Insured persons, who do not receive this employers' contribution, will only have to pay an income-dependable contribution of 4.5%.
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Q: How is health care insurance organized in the Netherlands?
Dutch legislation in the field of health insurance is based on two major statutes: the Health Insurance Act (ZVW or ‘Zorgverzekeringswet') and the Exceptional Medical Expenses (Compensation) Act (AWBZ).
The ZVW makes it mandatory for everybody who resides or pays payroll tax in the Netherlands to take out health insurance. Every health care insurance company in the Netherlands that has stated that it will provide services under the Act has a legal obligation to accept anybody who applies for insurance.
An insured person pays a nominal premium directly to the insurer and also an income-related contribution. The insurer decides the size of the nominal premium. Employers are required to reimburse their employees in full for these contributions. See also under question on social security costs above.
The AWBZ applies to every person residing in the Netherlands. Services include the cost of long-term care and treatment. The contribution, collected by the Dutch tax authorities, is paid in full by the employees.
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Q: What fringe benefits are considered normal in the Netherlands?
To begin with, a nice long vacation: 25 days a year is average.
The General Old Age Pension Act (AOW) provides entitlement to old age pension for people who are aged 65 and over. Although there is no statutory obligation to do so, most employers provide for additional pension benefits relating to old age, surviving relatives, and long-term disablement.
Dutch companies also offer pension/pre-pension schemes. A recently introduced Life Course Plan (‘Levensloopregeling') helps employees end their professional life at an earlier date than their 65th birthday or finance a sabbatical period during working life.
Depending on the job, a company lease car is often offered as part of the overall benefits package.
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Q: When do administrative payroll requirements kick in?
The rules on when a Dutch payroll should be operated are rather complicated. However, in general, it is mandatory to operate a Dutch payroll in case:
An employer employs staff subject to Dutch social security; and/or an employer employs staff subject to tax in the Netherlands and the employer has a subsidiary or a permanent establishment for wage tax purposes.
Also, a wage tax withholding obligation exists in case the company volunteers to act as a payroll tax withholding agent on behalf of its employees.
Finally, when you want employees to benefit from the 30% ruling, operating an actual payroll in the Netherlands is mandatory.
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Q: What is a shadow payroll?
Operating a payroll in the Netherlands does not necessarily require that you make all salary payments via this payroll. A shadow payroll can be sufficient.
This applies to cases where an individual is assigned from one location to another, and his employer may be faced with reporting obligations in several countries. In general, a tax liability exists in the host location. In some cases, a tax liability may exist in other locations too. Also, often it is possible for the assignee to remain covered under the home country social security system. This can be possible under a totalization agreement (if concluded), or under a multi-national agreement like the EU directive on social security.
This implies that in case of international assignments payroll obligations can exist in multiple countries. This problem is usually solved by implementing an actual payroll (a payroll via which salary is paid, and withholdings are made) in one country, and a hypothetical payroll ("shadow payroll") in the other. This can be illustrated by the following example:
An individual earns 100 gross, pays 10 in home country social security contributions, and 30 in host country tax. He earns his salary via the home country payroll. In this example, his payroll situation will be as follows.
His home country pays 100 gross, and withholds 10 in social security and 30 in tax. The remaining net of 60 is paid into the bank account of the individual.
10 is remitted to home country authorities, and 30 is remitted to the host country company. The host country company reports taxable income to the authorities, and remits the 30, which was initially withheld by the host country company to the host country authorities.
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Q: Do the Dutch revenue authorities maintain strict deadlines in payroll matters?
Yes, the Netherlands has now followed other jurisdictions in being stricter on processing payrolls on time. So, it's important to discuss payroll registrations and payroll set-up with your payroll services provider prior to sending individuals to the Netherlands.
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Q: Is it possible to outsource payroll administration (including social security)?
Yes. There are a large number of service providers in the Netherlands who specialize in handling payroll services for other companies. These services can include salary administration, providing salary slips, salary calculations, calculating wage tax and social security contributions, periodic checks on tax and social security compliance, etc. Some of these service providers specifically cater to foreign companies in the Netherlands.
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Q: What are the main rules of the Dutch Individual Income Tax system?
In the Netherlands, residents pay individual income tax on their worldwide income. Nonresidents pay tax on income from Dutch sources. Although tax on employment income is normally withheld at the source, taxpayers are usually still required to file an individual income tax return after the completion of a tax year. This allows taxpayers to report additional income, claim certain deductions, and to offset the pre-levied wage tax against income tax due.
When trying to get a good understanding of the Dutch individual income tax system, it is important to understand that the Dutch tax code distinguishes between three different types of income or ‘boxes' of income, each with a different tax rate.
The first box comprises of income from entrepreneurship, income from employment and income from a principal residence. This income is taxed at progressive tax rates with a maximum of 52%. This is also the category where most of the deductions can be claimed.
The second box only applies to individuals that own a significant shareholding in an entity.
The third box applies to passive investment income. Under this box however, no actual interest, dividend or capital gain income are taxed. Taxable basis in the third box is the average value of assets on January 1 and December 31 of a particular year. The average value is deemed to generate 4% return on investment, which is taxed at 30%.
The overall tax burden, resulting from Box I, II and III is then reduced by certain credit amounts for the taxpayer and his or her partner (even though the partner has no income of his or her own). Therefore, even though only one of the partners may have employment income, it can be required for the spouse to file an income tax return too, in order to claim certain credit amounts.
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Q: What is the filing deadline for individual income tax returns in the Netherlands?
The Dutch fiscal year corresponds to the calendar year. Individual income tax returns for a particular tax year need to be filed by April 1 of the subsequent year. However, it is possible to apply for an extension of time to file a tax return, which is normally granted until March 1 of the following year.
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Q: What taxes does an employer need to pay on behalf of an employee?
First of all, an employer withholds pay-as-you-earn tax, as well as the employee share in Dutch social security contributions (if applicable) on the income of the employee. This tax is then remitted to the authorities. Even when an individual is on a US payroll, a formal obligation remains in the Netherlands to operate a ‘shadow payroll'.
Also, when the employer is employing individuals, covered by Dutch social security, the company needs to pay the employer share in social security contributions to the government.
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Q: Is it expensive to employ individuals in the Netherlands because of the relatively high tax rates?
Admittedly, the Netherlands has a reputation as a high tax country - with its top tax rate at 52%. On the other hand, the taxable basis in the Netherlands is limited. For example, capital gains are tax free, and mortgage interest paid for a principal residence is fully tax deductible. The 30% ruling reduces the taxable base for foreign employees even further, resulting in an effective top tax rate of 36.4% on employment income.
Also employer costs are relatively limited. Employer social security contributions, for example, are capped.
Overall, the tax burden can compete favorably with many European jurisdictions.
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Q: What is the average salary that I will have to pay my personnel in the Netherlands?
The salary of an employee in the Netherlands varies from sector to sector, as well as regionally. For instance, the average pay in the ‘Randstad' is higher than other regions in the Netherlands. Salary increases are based on the consumer price index as well as individual performance.
The salary includes mandatory benefits that an employer must pay by law or collective agreements like social security. Dutch employers typically also provide several voluntary benefits like compensation for a "13th month" each year, at 100% of normal monthly salary. Most companies make use of a payroll service provider which for a nominal fee ensures payments and withholdings are in line with legal requirements.
According to a survey by Mercer Human Resource Consulting (April 2005), the average employment costs in the Netherlands are € 34,725 (full-time male employee including pay for vacation and public holidays) covering € 29,354 pay, € 3,023 for social security and € 2,348 for voluntary benefits.
Watson Wyatt Brans & Co, a global consulting firm that provides services in the areas of employee benefits, human capital strategies and related technology solutions, tracks the gross employer labor costs at median level in several Western European countries. According to Watson Wyatt, the median annual labor costs in 2006 for a General Manager, Head of Marketing and Office Administrator in the Netherlands were as follows:
| Position |
Total Gross Employer Costs in € |
| General Manager |
209,913 |
| Head of Marketing |
134,204 |
| Office Administrator |
42,554 |
| Median annual base salary + employer social security contribution + employer pension premium |
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