The Netherlands

The Netherlands is a country in northwestern Europe that houses 12 provinces. To many people, the Netherlands is more known as “Holland.” It consists of four large cities, namely, Amsterdam, Rotterdam, The Hague, and Utrecht. 

Amsterdam is considered the hottest spot for business, primarily because of its affluent population and location, and because it is the nominal capital of the country. The Hague, on the other hand, is the busiest seaport in Europe which also makes it a smart place to operate business in. Finally, located in the Randstad conurbation’s eastern side, Utrecht is the fourth largest municipality in the Netherlands and is therefore not a bad choice to operate as well.  

Guide on Payroll

The Dutch employment legislation is known to often make changes in payroll law. For this reason, non-Dutch enterprises consider this as the most complex employment legislation in the entire Europe. Case in point, every 12 months, the Dutch employment lawmakers make changes in regulations in employment, payroll, compliance, and other facets related.

Luckily, this guide will help you track these challenges and changes concerning payroll in the Netherlands. This article will also cover the Dutch tax system, wages, regulations, and other salient topics. 

The 30 percent Ruling

The 30 percent reimbursement ruling is, in a nutshell, a tax advantage for highly skilled expats moving to the Netherlands to apply for a specific employment role in any institution. When they meet the necessary conditions, they are eligible to collect a tax-free allowance of 30 percent of the gross salary subject to Dutch payroll tax. Migrants can see this as a reimbursement that intends to be compensation for the “extra costs that international employees can incur when moving to a new country for their work”. 

Relocation has never been a problem in the Netherlands due to this ruling. Expats are getting reasonable compensation while also receiving impressive benefits. However, this ruling stipulates the following conditions when deliberating migrants’ eligibility for the 30 percent reimbursement.

  • The employee must have satisfactory expertise in the chosen field. 
  • The employee must have a maximum taxable salary of €37.743.
  • Employees below 30 years of age with a master’s degree must have a €28,690 taxable minimum wage. 
  • The employment contract must indicate eligibility for the 30 percent reimbursement ruling. 
  • The employer was from outside The Netherlands but is already based and registered in the Netherlands as a foreign employee. 

Holiday and Leave 

Whether part-time or full-time, Dutch employees will receive at least four weeks of paid holiday every year, given that the employee has billed a reasonable number of their working hours. If you are a full-time employee in The Netherlands, you are also entitled to have 20 paid holidays. More importantly, employees are also granted a holiday bonus of 8 percent their annual salary. They will also receive at least 70 percent of their total earnings for a maximum of 2 years when in sick leave.

Employees on maternity leave are also entitled to 16 weeks of fully paid leave. Paternity leaves, however, are only allotted one week of fully paid leave. These leaves are shouldered by the social security from the 12 months’ previous contribution. It is also mandated that employers shall comply with the legal agreement and rules concerning official public holidays. Note that these agreements may also be arranged between the employer and employee. 

Nevertheless, here is the list of the public holidays in the Netherlands:

  • New Year’s Day (January 1)
  • Good Friday (April 2)
  • Easter Day (April 4)
  • Easter Monday (April 5)
  • King’s Birthday (April 27)
  • National Remembrance Day (May 04)
  • Liberation Day (May 05)
  • Mother’s Day (May 09)
  • Ascension Day (May 13)
  • Pentecost Sunday (May 23)
  • Whit Monday (May 24)
  • Father’s Day (June 20)
  • All Saint’s Day (November 07)
  • Christmas (December 25)
  • St. Stephen’s Day (December 26)

Social Security

Similar to other countries, employers and employees in the Netherlands are also required to pay social security contributions from their salaries. These contributions, however, vary according to factors like contract type and company sector specification. The three main social security categories include social welfare benefits, public insurance benefits, and employee insurance benefits.  Their contributions fall under the following funds:

  • Sickness benefit
  • Child care
  • Health Insurance
  • Disability insurance
  • Pension contribution 

Based on the 2020 income tax report in the Netherlands, 9.7% or €34 712 will be deducted from an employee salary of at least $40 500. Similarly, for a salary of more than $80 000, a deduction of 37.7%  or €68 507 will be made. For all employees earning more than $80 000, the Netherlands legislation system will deduct a 49.5 percent tax. 

Public Health Care

Another good thing about working in the Netherlands is all employees and contractors are provided with basic health insurance packages. This guarantees that no matter what happens to your health, you are always insured, at least financially. This is a feature that is not necessarily present in all countries. In fact, only a few countries, including the Netherlands, employ this regulation. 

When an employee opts not to acquire any health insurance package, the government has the right to intervene and instead deduct directly to the employee’s salary the payment for health insurance. Health insurance for foreign employees in The Netherlands is not, at all, a concern since most insurers offer a universal package that includes a health insurance option. 

Of course, these are regardless of the employee’s age, sex, gender, state of health. For as long as the employee is of the right age, they are offered the employee package, including and especially health insurance. 

Additionally, in January of 2006, the Netherlands government promulgated a financial system that is deeply concerned in public health care. This promulgation specifically stipulates a “dual system” which states that employees should receive regular long-term and short-term medical treatments. In long-term treatments, the costs for semi-permanent hospitalization or disability such as  expenses to purchase a wheelchair are covered by state-controlled mandatory insurance. Additionally, private health insurance companies are obligated to provide a package with specific insurance treatments for a maximum of 41 percent of all medical treatment expenses. 

Other Important Things to Know

As previously mentioned, the payroll system and regulations in the Netherlands change every year or more precisely, every 12 months. These regulations, however, are only applicable to employees aged 21 and above. Younger employees therefore receive significantly lower monthly wages. It is also worth mentioning that the national minimum wage in the country ranges from €1,680 to $1950 per month, which is way higher than other countries, especially those in the third world.

Employers who want to terminate an employee must seek approval from regional employment offices. Terminations mutually agreed by both the employer and the employee, however, no longer need intervention from authorities. 

Severance pay, which is more commonly known as “transition compensation,” can be computed using the S-factor and R-factor formulas. An employee who earns €4,000 with an S-factor of one and two-thirds, and an R-factor of €4,320 will receive a transition compensation of  €7,200.

(READ: Severance pay calculation in the Netherlands

Final Thoughts

The payroll system in the Netherlands is undoubtedly more complicated than in the other countries. The tasks can be exhausting, especially for company owners new to venturing into the global market. In this regard, the key to success is basically just calculating the risks as correctly and efficiently as possible. 

Accomplishing these tasks alone is not a wise decision. Luckily, Rivermate offers these exact same services. It is even better that Rivermate is based in the Netherlands.

Talk to us at Rivermate now so we can help you and your business by guiding you as you hire remote employees and perform global payroll.