For companies looking to expand their business to Europe, the Netherlands represents a premier destination for the growing multinational organization. Not only does it contain major entrance hubs to the continent, but the nation is very welcoming to foreign investment and is home to a well-educated, hardworking population.
Despite the benefits, employers establishing operations in the Netherlands will be met with a number of challenges, from complying the country’s complex labor laws to ensuring employees receive accurate and timely compensation. To avoid the challenges and resulting penalties for non-compliance when administering Dutch payroll as part of your comprehensive global payroll solution, consider the following important aspects employers should know.
The first step toward payroll success in the Netherlands is to get the business set up. Although Dutch law doesn’t require employers to establish a branch office or legal entity, it is advisable to do so. Either way, the company must have a designated representative in the country to act as a liaison with the Tax Office and Social Security Office.
Companies must also register with the Dutch Tax Office to ensure employer and employee contributions are collected on a regular basis. While organizations may want to open a local bank account in order to make the necessary payments to local authorities, it is not required.
The Netherlands’ employment laws are designed to protect the rights of Dutch workers. One of the most important aspects is for employers to recognize that collective labor agreements take precedence over statute law if they are more favorable to the employee. Additionally, minimum conditions established by the collective agreement can only be improved upon, and not worsened, in an individual contract of employment.
If an employee is recruited from abroad to work in the Netherlands, he or she may be entitled to the 30% tax ruling – a tax break whereby expats are taxed only on 70 percent of their income to mitigate the higher cost of living in the Netherlands. Both employee and employer must jointly request the application of the 30% rule from Dutch Tax Office.
Onboarding & Terminating Employees
When welcoming new employees to the company, the employer must have those new workers sign a salary tax declaration, which requires their name, address, social security number, date of birth and whether the employee wants to use the tax discount. Employers should also request a copy of the employee’s passport and keep it on file for five years after employment has ended to maintain compliance with Netherlands guidelines.
In terms of dismissing employees, no termination can take place without approval from the regional employment offices. Although termination by mutual agreement does not require authorization, some form of documentation is useful to prove compliance with the stipulations of the collective agreement, such as periods of notice and payment of outstanding wages.
Compensation & Payments
Payroll periods typically include one payment per month, and it is the employer’s responsibility to enter the payment data and sign each form before sending to the bank. To pay employees, a company may choose to set up a local bank account that is compatible with Equens, the payment service provider used throughout the Netherlands.
Dutch employment laws outline the maximum number of working hours, which are typically between 36 and 40 hours per week with overtime pay for up to 48 hours, as well as the country’s minimum wages (currently € 358,05 per week for those age 23 and over). The laws also dictate the right to paid leave (a minimum of 20 days per year) as well as a holiday bonus equal to 8 percent of the employee’s annual earnings.
Tax & Social Security Considerations
Upon employing staff in the Netherlands, the company will need to register with the local tax office, or Belastingdienst, which will provide the necessary forms and tables needed for proper reporting. The employer is responsible for deducting taxes through payroll on a pay-as-you-earn (PAYE) basis, with the amount determined by the total gross income minus personal allowances. The employer must pay tax contributions to the local tax office on a monthly basis, with payments due by the end of the month following payroll. Another important factor to keep in mind is that if an employee and their spouse are both resident taxpayers, they are taxed separately on their employment income.
It is the employer’s responsibility to make the appropriate deductions for social security, but the guidelines are complex as they are comprised of two parts. The first is the country’s national insurance scheme, which covers all Dutch citizens; the second social security scheme applies to all employed persons in the country, regardless of their citizenship. In either case, both schemes cover old age, survivor’s pension, healthcare, disability and child benefits, with the amount of social contributions determined by total earnings.
|Date||Netherlands' Public Holiday Schedule|
|January 1st||New Years Day|
|A Sunday in April||Easter Day|
|Monday after Easter Sunday||Easter Monday|
|April 27th||King's Birthday|
|40 Days after Easter||Ascension Day|
|50 Days after Easter||Pentecost Sunday|
|7th Monday after Easter||Whit Monday|
|December 25th||Christmas Day|
|December 26th||St. Stephens Day|
While establishing a business presence in the Netherlands can be challenging, a firm understanding of the numerous rules and regulations can help any company get on the right track toward success. For help incorporating Dutch payroll into your global payroll strategy, look to a trusted service provider with expertise throughout Europe.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.