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Every nation has its own special requirements in respect to salaries, employment law, wage taxes and social premiums. Here below we highlight matters newcomers in the Netherlands shall be aware of when they are paying out compensations or wish to contract employees in the Netherlands.
It is essential that you obtain proper advice as your company can easily receive wage tax penalties or get into conflicts with employees in case of violation of the relevant Dutch rules.
Work VISA
The workers of your Dutch company are required to have a nationality from one of the EU member states or shall have a visa. The most common work visa is the visa for highly skilled migrants.
Dutch companies with a sponsorship status can easily acquire highly skilled migrant visa for employees meeting the requirements. The application shall be filed in advance and takes around 21 days.
Definite or indefinite contract
A staff member can be employed via a definite or indefinite contract. Under Dutch law the total number of definite contracts can not be more than three. The total length of the definite contracts is limited to 36 months.
In case of more contracts or a longer period, the employment agreement shall be considered to have changed in an indefinite agreement.
The social premiums to be paid under a definite contract are higher than with an indefinite agreement.
It can be wise to start hiring under a definite contract. Under Dutch labor low it is not easy to end an employment agreement of an employee with an indefinite contract.
A director of a Dutch company that is also an (in)direct shareholder can qualify as a director and major shareholder (‘DMS’) and required to meet minimal salary requirements.
For a large number of the DMS that work in a Dutch company and reside abroad, the minimal salary requirements do not apply. This is because the Netherlands has concluded many tax treaties which limit the minimal salary requirements.
Net or gross salary
When offering a salary to employees in the Netherlands, it is standard to offer a gross salary amount. The disadvantage for the employee is that the net salary, the amount received on the bank account, is not directly known. Online several application for converting net-gross salaries can be found.
It is not recommended to conclude agreements based on net salary amounts because the Dutch system is based on gross amounts. The use of net salary amounts can make the impact of collective labor agreements, child benefit and 30% rulings unnecessary complex.
For the employer it is important to know that because of social premiums, the total salary expenses will be around 10-15% higher than the gross salary amount.
An employer can grant tax-exempted allowances to its employees via the work-related costs scheme (WKR). Furthermore, the employer may make gifts and reimbursements from which an employee can benefit privately. Examples of such rewards are tools, tablets, sports subscriptions or Christmas gifts.
An employer is only allowed to tax free compensate its employees up to a maximum percentage of the business’ total salary expenses (the collective salary of all employees combined). This is referred to as the discretionary scope (vrije ruimte).
Check the remaining amount with your salary administrator at the end of the year to fully benefit.
Travel expenses
Expenses of travelling to work and back home can be compensated to the employee. If the compensation is based on public transport tickets or a compensation of 19 cents per kilometer, it will not be considered as taxable income for the employee.
Note that the compensation has to be well documented in the administration of your company. For example, by means of prints of the relevant tickets or distance/working days calculation.
30% ruling
It is very attractive for qualifying employees that moved over from abroad to request a 30% facility together with their employer. Under a 30% ruling facility, the top 30% of the salary will be considered to be an expense compensation instead of salary. This for a total period of 5 years.
Most often the expat has not obtained the ruling yet when the work for the Dutch company is started. In such situation, the salary administrator applies the normal taxation until the 30% ruling has been granted. Once the 30% ruling has been obtained corrections are executed.
Industries under collective labor agreements
For some sectors in the Netherlands there are mandatory collective labor agreements applicable. If your company’s activities fall under a collective labor agreement, it is required to follow the conditions.
So when employing your first worker, check if a collective labor agreement applies.
Mandatory Pension fund
In the Netherlands there is no general requirement to offer your employees a pension scheme. This can be different if there is an industry-wide pension fund within your business sector. If so, as an employer, you are obliged to register the company with the pension fund.
If the industry in which you are active does not have an industry-wide pension fund, you are not obliged to offer your personnel a pension scheme.
Director’s salary
Most Dutch tax treaties state that the renumeration for director related work for a Dutch company shall be taxed in the Netherlands. Even if the activities are performed in another country.
Any work that is not management related shall be taxed at the place the activity is performed. So it can be required to have two payrolls in place for one person: one in the Netherlands and one in the country of residence.
In case the director gets a salary, he/she shall have a Dutch fiscal number and file monthly wage tax filings.
Pay day
It is a Dutch practice to pay out salary on a monthly basis. The day of salary payment is around the 25th/26th of each month. This enables the employee to settle the rent and health insurance premium for the next month on time.
Wage tax
The employer is responsible for withholding both the personal income tax and social premiums of its employers, referred to as wage tax. Within a month after closing of each month, a wage tax return is filed and the wage tax shall be transferred to the Dutch tax authorities.
Meet the filing and payment deadlines to avoid any penalties and use the right payment reference provided by the salary administrator for each payment.
Dutch labor law and payroll support
Do you wish to receive support with any of the above topics? Contact a Dutch payroll administrator or labor law specialist. Have yourself well informed in advance.
