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Comprehending Payroll in Netherlands

The Netherlands is a country located in north-western Europe is known for its windmills, Tulips and canals. It consists of twelve provinces with its capital in Amsterdam. Its official language is Dutch, and the official currency is Euro (EUR). The Netherlands has been a highly industrialized country occupying a central position in the economic life of western Europe. In 2021, it occupied the seventeenth largest position among other economies in the world, according to the World Bank. The Dutch employers are organized mainly in separate but closely cooperating organizations and employment is hugely impacted by labour organisations and work councils.

Let’s focus on the crucial aspects of payroll in the Netherlands.

Establishing as an Employer

To incorporate a company, it needs to be included in the Dutch commercial register through Chamber of Commerce registration, a unique eight-digit Chamber of Commerce (CoC) Number will be provided which is significant for carrying out business transactions

Employment Conditions

The Provisions provided below are regulated by Minimum Wage and Minimum Holiday Allowance Act, Work and Care Act and Dutch Civil code Book 7.

a. Working Hours & Overtime
Employees work for maximum 12 hours per day and 60 hours per week with average work week of 55 hours and is eligible for a rest time of 11 consecutive hours after normal work and 14 hours after night work. Flexible working hours are very common in the country.

Overtime norms are based on agreed employment terms or collective labour agreements (CLA). If an employee works for more than 1 hour between midnight and 6 am it will be counted as night shift and can last for maximum 10 hours.

b. Minimum Wage
Employer needs to ensure that salary paid to the employees does not fall below the minimum wages. The authorities review these limits twice a year in January and July.

From January 01, 2022, below limits are applicable

Age of the employee

Amount per Month

Amount per week

Amount per day

21 years and older

€1.725,00

€398,10

€79,62

20 years

€1.380,00

€318,50

€63,70

19 years

€1.035,00

€238,85

€47,77

18 years

€862,50

€199,05

€39,81

17 years

€681,40

€157,25

€31,45

16 years

€595,15

€137,35

€27,47

15 years

€517,50

€119,45

€23,89

c. Statutory Leaves
Employees are entitled to the following leaves under the general employment law:

Paid Leaves:
Maternity Leave: At least 16 weeks with 100% normal remuneration.

Paternity Leave: 5 days subject to extension of 4 more weeks, for children born after July 1, 2020, with a pay-out of 70% of the normal gross wage.
Short-term care Leave of not more than twice the number of hours worked in one week with at least 70% of remuneration.

Unpaid Leaves:

Adoption Leave: Unpaid leave for a maximum of 4 continuous weeks in a period of 26 weeks
Parental Leave: Maximum of 26 times of total number of working hours per week per parent per child, for children up to the age of eight years.
Long-term care Leave up to a maximum of 6 times the number of working hours per week in each period of 12 consecutive months.

 

d. Sickness Benefit

Employees are eligible for a sickness benefit of not less than 70% of salary for the first 2 years of illness and it cannot be less than the minimum wage during first year of illness.

e. Vacation entitlement & allowance

Annually, full time employees are entitled to four times the agreed working hours per week as holiday and it shall expire after six months of the calendar year following the year in which they were accrued. Employers need to provide 8% of the annual gross wage as minimum holiday allowance every month or accrue and pay it out in May or June, irrespective of leaves taken.

f. Notice period

Employee needs to give a minimum notice period of one month. However, the employer needs to give the termination notice to the employees based on the continuous length of employment as follows:
0 < 5 years: 1 month

5 < 10 years: 2 months
10 < 15 years: 3 months
As of 15 years: 4 months

Parties can agree in writing to a longer notice period, provided that the notice period of employee cannot exceed six months and that of the employer must be at least twice the length of the notice period of the employee.

g. Collective Labour Agreement

Collective Labour Agreements (CLA) are widely applicable in the Netherlands. A CLA is a written agreement between one or more employers and one or more trade unions about the labour conditions Accordingly, all the above provisions above may change based on the CLA.

Payroll Tax & Social Security

Dutch payroll tax and social security are closely integrated and comprises of the following components:

  1. Wage Tax and National Insurance Contributions
  2. Employed Person's Insurance Contributions and Income-Dependent Contribution pursuant to the Health Care Insurance Act (ZVW)

A. Wage Tax and National Insurance contributions

Tax year in the Netherlands is January to December. The general and special wage tax tables for both residents and Non-Residents with Daily, weekly, 4-weekly, monthly payroll frequencies are in place to determine the amount of wage tax and payroll tax credits. If an employee does not provide the required payroll data on or before the first day of employment, flat 52% tax applies without any tax credit.

National insurance contributions knows as “Volksverzekeringen” is a social security contribution for both residents and non-residents to insure against the financial consequences of old age, death, exceptional medical expenses, and costs of children. The contribution percentage forms part of wage tax table itself.

The Residents tax table has been provided under for reference:

Annual Taxable income
(Euros)

Wage Tax Rate

State pension age and older, born in 1946 or earlier

0 - 36.409

19,17%

36.410 - 69.398

37,07%

69.399 or more

49,50%

 

30% Ruling

Employees are eligible for a special tax exemption up to a maximum of 30% of their taxable wage subject to certain conditions, if they are hired from abroad to work in the Netherlands and it relates to extraterritorial costs owing to the increase in living cost, regardless of the actual amount incurred on stay outside their country of origin. Request for 30% facility should be made within four months from hire date, if not the exemption applies from first day of the month following the month of request.

B. Employed Person's Insurance Contributions and Income-Dependent Contribution pursuant to the Health Care Insurance Act (ZVW)

Employed person's Insurance contributions known as “werknemersverzekeringen” and Health Care Insurance contributions are social security insurance schemes applicable to both residents and Non-resident employees to insure against the financial consequences of illness, occupational disability and unemployment while the Health Care Insurance contributions are made either by employer or employee. Following are the contribution categories and is subject to the maximum monthly ceiling of 4.975,5 Euros

Category

Sub-Category

Employer Contribution Rate

Employee Contribution Rate

AWf Premium

Low

2,70%

0%

High

7,70%

0%

Ufo Premium

-

0,68%

0%

AOf Premium

Low

5,99%

0%

High

7,55%

0%

Health Care Insurance (Zvw)

-

6,75%

5,50 %

Differentiated Whk Premium

 WGA Premium

% Provided by tax authorities in the month of November (differs based on sector)

0%

Premium component ZW

0%

 

Penalty on late payments

Interest of 3% is levied on outstanding payroll taxes and social security, subject to minimum and maximum amount of €50 and €5.514 respectively. In case of recurring failure, an interest of 10% on the outstanding amount subject to a maximum of €5.514 applies.

Payroll Reports

Employers are obliged to submit Payroll Tax Return for the period specified on the tax authorities letter received in November each year, usually monthly or 4-weekly. The returns are filed digitally via Digipoort i.e., WUS channel or FTP channel. If no employees are employed during the tax return period or if no wages have been paid, then employer needs to file “nil” return. Similarly, if a wage tax return is not complete or incorrect, then employer can revise it voluntarily or on the request of tax authorities.

There is also an obligation to provide pay slip and annual statements to the employees and maintain a Wage Overview Statement (loonstaat) for record purposes.

Late filing or non- filing of returns is subject to a fine of €68. In case of a recurring failure to file returns, a maximum fine of €1.377 applies.

Other Pay-outs

Transition payment

Every employee has a statutory right to the transition compensation of one-third of gross monthly salary per year of service from the start of the employment relationship in the following situations

  • If the employer initiates termination, after dissolution by the subdistrict court or if an employment contract entered for a definite period is not extended.
  • If the employment contract is terminated on the employee's initiative because of culpable behavior by the employer.

Pseudo final levy - early retirement arrangements (RVU)

Employers can make arrangement with older employees for early retirement and in such case the employer is subject to pseudo final levy of 52% on the RVU benefits if the employee benefits exceed maximum threshold of €1.847 gross per month.

Concluding remarks

There is always an increased expectation to provide complete, accurate and up-to date information to Belastingdienst. Considering the complexity involved, the chances of non-compliance are quite huge. As a payroll provider, Ramco eases the process of payroll calculation and assists in accurate computation of payroll tax and social insurance contributions. Ramco takes all the payroll related employer’s responsibilities out of your hands and helps in adhering to report related compliance as well.