Imagine your best employee is leaving your country and moving to the Netherlands. She wants to keep working with your company, and your organization is set up for remote work. While you’d like to keep her on staff, this move to the Netherlands concerns you. Is the cost of keeping your employee going to mean payroll taxes in the Netherlands for your company? 

Keeping compliant with Dutch tax law can seem overwhelming if your organization is considering employing workers who live in the Netherlands. You may not know where to start. 

Trying to manage payroll for Dutch workers when your business isn’t established in the Netherlands is a challenge for any team, even sophisticated enterprise HR departments. 

There is a much simpler solution to remove all of this anxiety, confusion, and risk. You can use an Employer of Record (EOR) to legally hire and pay your Dutch employee on your behalf and ensure you stay compliant with local employment regulations at all times.

First, know you’re not alone — plenty of managers want access to the best global talent, and so many growth-focused businesses are looking to employ top remote talent in the Netherlands 

We’ve prepared a dedicated guide to help you understand how to pay your Dutch workers while minimizing your risk, but first, it’s critical that you have an understanding of the Netherlands’ specific tax requirements for remote employees and contractors. 

Why you must comply with Dutch payroll tax requirements 

Tax law in the Netherlands can be confusing. While some parts of the tax code — like permanent establishment requirements – may appear similar to other countries’ laws, other pieces of the tax code are specific to Dutch law. 

It’s important to get a full picture of Dutch tax law before jumping into employing a Dutch worker, and avoid mistakes commonly made when companies go remote without all the information they need. 

If you’re employing a worker in another country, you may be concerned about permanent establishment risk – the risk that your company is established enough in that country to be taxed. “Permanent establishment “ (also called “substance requirement”) is a tax term for businesses that have an ongoing presence in a country. 

This is something businesses want to avoid, because it means being taxed twice, once by your home country and once by the country you’ve triggered permanent establishment in.

Often permanent establishment is triggered by issues like the following:

Does the company have a fixed place of business in the country?

Does anyone regularly conduct business as an agent of the company in the country? 

How much control does the company exercise over its workers in the country? 

How does the company generate revenue in the country? 

How long has the company been doing business in the country? 

Does the company make strategic decisions from within the country?

Our guide to permanent establishment can help you understand more about this risk in general, but it’s important to note that permanent establishment is treated differently in every country. So, are you in danger of permanent establishment in the Netherlands? 

What triggers permanent establishment in the Netherlands?

The Netherlands sticks pretty close to the Organisation for Economic Co-operation and Development’s (OECD) guidelines for defining permanent establishment. For one thing, a company’s premises are a major trigger for permanent establishment; particularly if a company is making or selling something in the Netherlands.

For example, if your company’s premises (like retail outlets, points of sale, workshops, factories or outlets) are located in the Netherlands and capable of acting as a fully self-sufficient business, your business is classified as having permanent establishment in the Netherlands.

But permanent establishment can also be triggered simply by a representative of the company working from the country.

If your worker in the Netherlands is in a “contracting state,” meaning that they’re doing business on behalf of the company and in the name of the company, this alone can trigger permanent establishment risk, especially if they’re only working for your organization (although be aware that co-employment won’t necessarily impact your permanent establishment risk). 

A designer, engineer, or salesperson, for example, may trigger permanent establishment — even if they’re not working in isolation for your organization.

The penalties for non-compliance are stiff, so you need to take this risk seriously. 

If the Netherlands deems that your company has a permanent establishment and you’re not meeting your taxation obligations, this can be considered tax evasion or worse, tax fraud. Both crimes come along with huge fines and even possible jail time, apart from the obvious resulting public relations nightmare.

The lesson is simple. If you’re looking to work with Dutch employees or contractors, you should consult an EOR like Remote who have a team of internal local experts (or another Dutch employment law specialist) if you don’t own a legal entity in the Netherlands. The absolutely safest way to avoid permanent establishment is to work with a global employment solution that can help you understand the specific laws of the country in question.

Let’s talk taxes. In the Netherlands, both public and private companies pay a corporate income tax on their profits. This can also apply to foundation and associations, depending on the scenario. There are some organizations that are exempt from the corporate income tax as well, such as fiscal investment institutions. 

The corporate tax rate itself depends on a company’s taxable income: its taxable profit, less its deductible losses.

As of 2021, the corporate tax rate is as follows: 

If your taxable income is €245,000 or under, your corporate income tax rate is 15%

If your taxable amount is more than €245,000, your corporate income tax rate is € 36,750, plus 25% for the taxable amount exceeding €245,000

There’s a special consideration for companies that engage in innovative research (this is called the “Innovation box”). Companies covered by the innovation box are taxed at 9%. 

Where should your remote employees pay their taxes

There’s an easy answer to that if your worker is Dutch and living in the Netherlands. Anyone who lives in the Netherlands or receives income in the Netherlands is subject to income tax, paid to the Dutch Tax and Customs Administrations. This means your Dutch employees have to pay taxes, which they will do by filing a tax return, but because some of their tax is deducted from their paycheck, you’ll also be paying tax on their behalf. 

Dutch residents pay taxes on their income, their financial interests, their savings and their investments (these categories are called boxes). They also pay statutory fees out of their paychecks, such as pensions for old age, long term care and a pension for orphans and widows. 

You’ll be paying out of your employee’s paycheck for specific fees, like insurance and social security payments. 

5.49% - AOF laag (Disability insurance contribution) on a maximum of 59.607 EUR of taxable base

6.75% - Heffings ZVW premie (Dutch health insurance contributions) on a maximum of 59.607 EUR of taxable base

1,11% - Premie Whk gediff (Differentiated Premium Work Resumption Fund) on a maximum of 59.607 EUR of taxable base

0.50% - Uniforme opslag kinderopvang (Uniform Childcare Allowance) on a maximum of 59.607 EUR of taxable base

2.70 to 7.70% - AWF hoog (depending on contract) on a maximum of 59.607 EUR of taxable base

So, what exactly is the income tax your employees will be paying out of their paycheck? 

How much tax you’ll be paying depends on their wage bracket:

up to 2888 EUR credit - Employees are entitled to a "general tax credit" (heffingskorting) of -6.007% per euro extra gained between 21,317 EUR stopping and 69,398 EUR annually. This is to be deducted from the income taxes.

up to 4260 EUR credit - Employees are entitled to a "labor tax credit" (arbeidskorting), this is to be deducted from the income taxes, of:
Labour income Labour tax credit
Until € 10.351 4,541% x labour income
From € 10.351 to € 22.357 € 470 + 28,461% x (labour income - € 10.351)
From € 22.357 to € 36.650 € 3.887 + 2,610% x (labour income - € 22.357)
From € 36.650 to € 109.347 € 4.260 - 5,860% x (labour income - € 36.650)
As of € 109.347 € 0 

There are some other special tax issues that should be mentioned. 

Employees’ holiday allowance pay is taxed, just as their salary is.

The exact amount of tax depends on the salary of the employer, but it is higher than the regular tax rate.

You can learn more about your payroll and benefit obligations on our Dutch country explorer page.

Special rules for employees moving to the Netherlands

Taxes can get a little tricky when your workers have recently moved. 

Below are a couple of rules that will help you and your employees navigate a recent move and taxation.

The Netherlands offers a special tax rate for certain expats who have been recruited to work in the Netherlands for a specific role. It’s intended to compensate the employee for the expense of their move and the cost of living in the Netherlands. When certain conditions are met, the 30% reimbursement ruling allows an employer to grant a tax-free allowance equivalent to 30% of the gross salary, subject to Dutch payroll tax. 

This benefit is available for up to five years and entitles them to partial non-resident taxpayer status.  

If your employee qualifies, it’s up to you to help them apply for the benefit.

What if your employee hasn’t been living in the Netherlands for a full year? 

The 183 day rule, so named because the 183 days is the larger “half” of a 365-day year, means that if a worker has spent 183 days or more in a country, they are considered a tax resident for that year. The Netherlands observes this rule. 

Is social security tax mandatory in netherlands

Contractors in the Netherlands — classified as employees with flexible contracts – are entitled to more benefits than those in other countries. As of 2020, for example, you will pay less of an unemployment benefit contribution for employees with fixed-term contracts, and a higher unemployment contribution for employees with a flexible contract. 

On-call workers also should be offered a permanent contract after a year of working for your company, and if you terminate the contract you’ll be required to pay a transition fee to help temporary workers move to a new job.

As with traditional employees, remote workers can either be employees or contractors. 

Contractors are hired to provide specific services for a client or business on a freelance, often short-term, basis. They often sign a contract with a client, promising to provide a specific service or product at an agreed upon rate in a specific amount of time. How and when they perform the work is up to them.

Employees are a different story. You set their hours, you tell them how to do their job, and can require them to manage other employees. In return, you provide employees with a steady paycheck and benefits, like insurance. You also pay some of their income taxes, as we discussed earlier. 

The Netherlands classifies these employees as workers with permanent contracts and flexible contractors, and in some cases, requires some contractors to be offered permanent positions after a year with their current employer.  

For more information about the difference between employees and contractors, check out our guide about contractors and employees. 

Penalties for misclassifying employees as contractors

Thinking that you can get around some of the above taxation issues by hiring employees as contractors? Please don’t! There are significant dangers to misclassifying your employees as contractors. While the Netherlands did protect companies who mistakenly misclassified employees, those protections have now ended with The Balanced Employment Market Act. This act offers more protections to contractors and you can also be subject to fines for misclassification.

The easy way to minimise risk and stay compliant

All of this can seem tricky and complicated, but it doesn’t need to be. The best way to keep yourself compliant with tax law is to have an expert on your side, a partner with roots in the Netherlands who can help you understand the tax code, its changes, and how you can make sure you’re doing everything right by both your employees and the Dutch government.

Remote can help your business hire international contractors legally, easily, and quickly.

The Netherlands is unique, but employing Dutch workers is simple

The Netherlands are a part of the European Union, but the country has always done its own thing: canals instead of roads, inventing its own painting style during the Renaissance, legalizing certain controlled substances. 

It’s no surprise that the Netherlands also takes a different approach to some labor laws. Its approach to contractors is just one difference from other countries’ stance on freelance workers. 

Keeping compliant with Dutch tax law can seem overwhelming if your organization is employing workers who live in the Netherlands. This guide takes the confusion out of payroll taxation requirements for your Dutch remote workers.

Guide To Payroll Taxes in the Netherlands

What are the unique costs of employing in the Netherlands?

The Netherlands has several leave schemes which require the employer to keep paying a portion of the employee’s salary during their absence from work. This applies to parental leave, maternity leave, sick leave, and short-term care leave. Dutch employees are also entitled to a holiday allowance every year. This is 8% of their gross annual salary, which you can choose to include in their annual salary or pay an allowance on top of their salary.

See also: The Netherlands maternity leave, parental leave, and paid time off entitlements

The cost of living in the Netherlands is higher in the more popular Dutch cities, such as Amsterdam, Hague, Utrecht, and Rotterdam. This is important to consider for any offer to someone who lives or will be relocating to any of these cities. Regardless, the Netherlands offers a conducive environment for remote work in most parts of the country.

To secure top talent, you want to provide supplementary benefits beyond the basics to make your offer more appealing. For example, work-life balance and lifelong learning are very important to Dutch employees. To meet that expectation, you can offer a wellness and learning allowance and increase the appeal of your offer. With Remote, you’re able to set up such allowances to be paid out to the employee every month.

See also: The best employee benefits to attract top global talent

Where does the Netherlands fit in the global talent market?

The Netherlands is a top source of highly skilled talent. The Dutch workforce is highly educated, productive, diverse, and multilingual (90% of the Dutch workforce is capable of speaking English). This makes the Netherlands an attractive option for innovative companies looking to build out their team. 

Together with Finland, Denmark, and the United Kingdom, the Netherlands ranks among the best-performing countries with the highest percentage of inhabitants who have above basic overall digital skills. In addition, the Netherlands is consistently rated one of the best remote work spots in the world, along with countries like Canada, the United Kingdom, Romania, Sweden, and Denmark.

Are Dutch salaries higher than those in other markets?

The gross minimum wage in the Netherlands was set to €1701 per month in July 2021. In countries like Luxembourg, Sweden, and Denmark, the minimum wage is above €2000 per month. On the lower end of the spectrum in Europe, countries like Greece and Portugal have minimum wages under €1000 per month. Average salaries do tend to be higher in the Netherlands, but these salaries also tend to be taxed heavily to find the country’s robust social programs.

Which industries have great Dutch talent?

The Netherlands may be a small country, but it’s one of the most powerful economies in Europe. The thriving economy in the Netherlands has enabled businesses not only to operate with ease, but also to access a pool of highly skilled workers. This is especially true in tech, thanks in part to government programs that encourage the development of tech research and skills.

Another industry with great Dutch talent is the agricultural sector, one of the oldest and most innovative sectors in the country. World-class research institutes and universities have made the Netherlands a world leader in agricultural innovation. Over time, some of the biggest food companies such as Néstle, AB InBev, Unilever, and Heineken have established a presence in the Netherlands and hired talented people to run their operations. Some other industries that have succeeded in attracting top talent are the logistics and the creative sectors.

What’s the best way to scale this and retain top talent in the Netherlands?

The Dutch government has done an impressive job of maintaining a stable economy and creating incentives that encourage innovation. This has made the Netherlands an attractive place to work. To retain top talent in this competitive environment, you should review the benefits you offer Dutch employees to make sure they are at least on par with your competitors. 

With the popularization of remote work, companies are realizing that having a global workforce can be a competitive advantage. The good news is that, to enjoy this advantage, you don’t have to go through the strenuous process of setting up a new legal entity or managing the employees’ payroll. Remote can handle all your Netherlands payroll needs.

With Remote, you never have to worry about how to navigate local labor laws, how to manage payroll across different countries, or what taxes to remit to the government. By taking on your global employment needs, Remote makes international hiring seamless. Contact us today to learn more about our global employment solutions in the Netherlands and countries all across the world.

In a country like the Netherlands, with various social schemes that protect and provide for employees and citizens, managing payroll goes beyond making sure people get paid at the end of the month. There are employment costs specific to the Netherlands employers must pay to the tax authorities. These are what we refer to as “non-wage” costs.

Understanding what these costs are is the first step in ensuring you’re well prepared to hire and be compliant in the Netherlands. In this article, we will showcase the advantages of employing Dutch workers as well as the labor costs required to do so. One thing is for sure, though: the benefits of hiring employees in the Netherlands far outweigh the costs.

What are the total costs of employing Dutch workers?

The total cost you will incur when employing a Dutch worker is made up of the employee’s salary plus several non-wage costs. These non-wage costs are premiums that fund Dutch social schemes and are paid by the employer. Contribution rates vary depending on the type of employee contract.

See also: Everything you need to know about employee benefits in the Netherlands

Unemployment Insurance (WW): Employers contribute 5.34% (based on 92% of an employee’s salary) for employees on a fixed-term contract and 0.34% for employees on an indefinite contract.

Health Insurance Act (ZVW): Employers contribute 7% (based on 92% of the employee’s salary) toward state health insurance.

Work Capacity Act (WIA): This insurance covers employees who have been disabled or out of work for more than 104 weeks. Employers are required to contribute 7.53% (based on 92% of the employee’s salary) toward this fund. Included in this contribution rate is a surcharge of 0.5% that goes towards childcare allowance.

Sickness Benefits Act (ZW): Employers are required to continue paying sick employees a portion of the salary for a maximum of 104 weeks.  

Statutory Long-Term Sickness Insurance: Employers must provide employees with statutory long-term sickness insurance. Costs for this insurance can vary.

Return to Work Fund (WHK): The employer contributes 0.91% (based on 92% of the employee’s salary) toward this fund to cover the cost of enabling the government to secure income for employees who are sick or incapacitated.

Employer social contributions are capped at an annual salary of €58,311.

In terms of the total cost of labor in countries across Europe, the Netherlands is on the high end of the spectrum along with Luxembourg, Belgium, and Sweden. Non-wage costs in the Netherlands, make up about 20.68% of a Dutch employee’s salary. Compare that to a French employee’s salary, where it is about 33%, or 6.1% for a Maltese employee’s salary.

Compensation for employees in the Netherlands

Terminating an employee is not a pleasant experience. As an employer, the last thing you want on your hands is a disgruntled worker who has been terminated unfairly. As much as you want to avoid this situation, though, you need to plan for the worst-case scenario. That starts with understanding the rights and obligations of both parties involved.

If you’ve read our guide on leave entitlements in the Netherlands, you know Dutch labor laws are friendly to employees. Accordingly, the Dutch termination process begins long before the news is broken to the employee. In this guide, we outline what you should know before considering termination and the type of termination that is appropriate for each use case.

Legal reasons to terminate a Dutch employee

In the Netherlands, there are six ways to terminate an employee: 

Dissolution of the employment contract by court ruling

Dismissal-based permission from the Public Employment Service (PES)

Dismissal during the probationary period 

Expiration of a definite employment contract 

An employer is within their right to terminate an employee’s contract immediately in the case of gross negligence in the performance of duties, theft, damage of property, or physical violence. These are classified as “urgent reasons” and allow employers to take swift action.

If an employee violates clearly communicated company regulations, such behavior can result in summary dismissal. The employer must still communicate the reason for dismissal in writing to the employee. 

It is not uncommon for an employee to contest this type of dismissal in the subdistrict court. Forward-thinking HR teams point to the importance of “clearly communicated company regulations” in such cases. There is some subjectivity in this classification, but you can reduce uncertainty with well-documented processes. 

In some situations, the employer can ask the cantonal court to dissolve the employment agreement on reasonable grounds. The court can rule in favor of a dismissal based on the following: 

There are strict rules that apply when dismissing an employee because of underperformance. For one, the employer must document in detail the steps that have been taken to guide the employee towards improved performance. An employee’s illness cannot be used as a justifiable reason for underperformance. It is advisable to document performance evaluations and give the employee sufficient time to improve their performance. If it is also not possible to move the employee to another role within the company, then the court may grant approval for dismissal based on underperformance. 

What constitutes non-permissible conduct needs to be communicated to the employee before it can be used as a valid reason for dismissal. A handy way to do this is to have clear guidelines outlined in the company’s handbook. 

When there’s a strong difference in opinion, a clash of personalities, or a specific incident that puts a permanent strain on the working relationship, this can result in a fair termination. The first course of action is to seek a resolution through mediation. If the issue cannot be resolved, a disrupted relationship can be a valid ground for dismissal. 

If an employee’s ongoing absence from work due to an illness is heavily impacting the company, the court can rule in favor of dismissal. The employer will be expected to demonstrate that operations are impacted because it’s impossible for the employer to have the employee’s workload covered..

When an employee refuses to work for conscientious reasons, the two parties must first attempt to arrive at a solution together. If resolution proves impossible and the employee’s absence harms the company’s operations, the employer can apply for dismissal.

Terminating an employee in the Netherlands sometimes requires permission from the Public Employment Service (PES), also known as “Uitvoeringsinstituut Werknemersverzekeringen” in Dutch, or “UWV.” These are the termination cases that require permission:

When the company has suffered major financial losses, a decrease in work, organizational downsizing, or technological changes, the employer has to apply for a dismissal permit from PES first before giving notice to an employee. Finalizing this process typically takes around six weeks. Time spent obtaining a dismissal permit can be deducted from the applicable notice period. 

If an employer needs to dismiss at least 20 employees within 3 months due to economic reasons, the event qualifies as a collective redundancy. To go through with this process, the employer must report the case to PES and any relevant trade unions representing affected employees.

According to Dutch law, an employer is expected to continue paying an employee during their period of illness for up to two years. This usually amounts to at least 70% of the employee’s salary. The employer is obliged to put measures in place to reintegrate the employee and facilitate their return to work. These reintegration measures must be clearly documented in case termination is eventually needed. If the employee is still unable to carry out their duties after two years (and is not likely to recover within 26 weeks), the employer is allowed to request permission from PES to terminate the employee’s contract.

It is possible to terminate a Dutch employment contract amicably through mutual consent. Both parties must agree to enter into a settlement agreement in writing for the termination to be valid, and the employee’s consent must be explicit and clear. 

With a settlement agreement in place, it is not compulsory to observe the notice period or rules regarding severance payments. If both parties decide to include a severance payment, this must be stated in the agreement. There is also a two-week reflection period, during which the employee is allowed to dissolve the settlement agreement. 

Probationary dismissal in the probationary period

There are no conditions for termination during the probationary period in the Netherlands. The employee or employer is at liberty to terminate the contract without adhering to the standard notice period. The employee has a right to be informed of the reason for dismissal.

Expiry of an employment contract for a definite period of time

It is not compulsory to renew a definite contract under Dutch employment law. If the employer has no plans to renew an employee’s definite contract, the employee must be informed, even though the end of the contract signifies a termination. If the company wishes to terminate a definite contract before the end date, it can only do so if conditions were previously agreed upon in writing. In such cases, the notice period is one month.

The probation period in the Netherlands is typically used as a trial period. This allows both parties to terminate the contract without notice or reason. It is possible to exclude a probation period clause in the contract, although it is not advisable. Removing the probation period makes dismissal more difficult by progressing the employee to full status immediately.

The maximum probationary period allowed under Dutch employment law depends on the contract length:

Indefinite contracts have a probation period of two months.

Definite contracts of less than two years have a maximum probation period of one month.

Definite contracts of two years or more have a maximum probation period of two months.

It is possible for the probation period to be considered null and void. This can happen in the following scenarios:

When the probation period is not agreed upon in writing

On a temporary contract of six months or less

When the employee’s contract is switched from a temporary one to a permanent one

When the contract is extended without any changes to the employee’s work responsibilities

Termination notice period in the Netherlands

A notice period applies when an employee wants to resign from their position or when the company wishes to dismiss an employee for a justifiable reason. The notice period is mandatory and typically indicated in the employment contract. If the employment agreement does not include notice period requirements, the statutory minimum of one month goes into effect. The notice period applies to both employees with permanent contracts and, in some cases, to those with definite (fixed-term) contracts. 

There are a few scenarios in which termination of an employee in the Netherlands does not require notice: 

The employee resigns immediately (also known as summary resignation) 

Notice periods for employees in the Netherlands

An employee currently on probation has the right to terminate their contract (by resigning) without a notice period. The notice period that applies in the case of permanent contracts depends on the duration of the employee’s contract or previously agreed upon notice period with the company. Typically, the notice period for an employee is one month and always starts on the first of the month.

If a longer notice period has been agreed upon, the employer’s notice period must be twice as long as the employee’s. For example, if the employee’s notice period is four months, then the employer’s notice period would be eight months.

Notice periods for employers in the Netherlands

Under Dutch labor laws, an employer is required to give notice when terminating an employee’s contract. The amount of notice required depends on how long the employee has been with the company. 

If employed for less than five years, the notice period is one month.

If employed between five to 10 years, the notice period is two months.

If employed between 10 to 15 years, the notice period is three months.

If employed for 15 years or more, the notice period is four months

HR teams must adhere to the notice period rules. Failure to do so can result in extra compensation for the employee. For example, if an employee with a notice period of one month is informed on the 18th of August that they will be terminated on the 1st of September, the company would be in violation. In this case, the employee would need to be allowed to continue work until the 30th of September, which is when the one-month notice period would end. 

Giving notice to employees on definite contracts

Definite contracts have a clear end date, but when a contract is valid for six months or more, the employer is obligated to inform the employee at least one month in advance if their contract will not be renewed. If an employer fails to give notice on time, the employee is entitled to compensation calculated based on their contract and how late the employer was in giving notice. 

It is also possible for a definite contract to be later deemed as “indefinite” under the scrutiny of Dutch employment law. When a definite contract has a maximum gap of three months between contracts or if the sum total of the employee’s definite contracts amounts to three years, a definite contract could be considered indefinite. In these cases, the termination process is the same as with an indefinite contract. 

When are employees entitled to transitional pay in the Netherlands?

Employees who are dismissed are sometimes legally entitled to what the Dutch call “transition pay,” which is different from severance pay. Transitional pay compensates an employee for their loss of employment while they transition to new employment. 

An employee must have worked for a company for at least two years to be eligible for transition pay. Dutch transition pay is different from severance pay under Netherlands employment law in that severance pay is given in the event of a mutually agreed dismissal. An employee is entitled to transition pay in the following cases:

A fixed-term contract has been terminated.

The employment contract has been rescinded by the court at the employer’s request.

The employee has terminated their contract due to gross misconduct by the employer (in serious culpable acts or negligence, the court may grant additional transition pay known as “fair compensation”).

The employer has been permitted by PES to give the employee a notice of termination.

An employer is exempt from paying transition pay in the following cases: 

The employee’s contract was terminated by mutual consent of both the employer and employee.

The employee was dismissed because they acted with serious culpability or gross negligence.

The dismissed employee is under 18 years of age and worked part-time for 12 hours a week on average.

The employee’s temporary contract is renewed before the old one expires.

How is Transition Pay in the Netherlands Calculated?

The amount of transition pay an employee is entitled to is based on their age, years of service, and gross monthly salary. When an employee is dismissed, they are entitled to 1/3 of their monthly salary for each year of service, up to €84,000. If the employee earns more than €84,000 per year, then the transition pay limit is equal to their annual salary. 

For example, an employee who earns €5000 per month and has worked at the company for five years would be entitled to a severance payment of €8333.33. This is calculated by multiplying five (the number of years worked) by 1/3 and then multiplying the result by the gross monthly salary of €5000. 

In the Netherlands, tax authorities view transition payments as income and tax them as such. If the employee decides to spend their transition pay on professional education, they do not have to pay taxes on that income. When processing an employee’s transition payment, the company should also include outstanding holiday pay, profit distributions, and annual bonuses.

Let Remote help manage your employees in the Netherlands

We agree that terminations are never easy, but setting clear expectations and following the law to the letter can make things easier for both sides. It’s important you know what the process entails before you need to terminate an employee so your company is adequately protected. 

The great thing about working with an EOR like Remote is that we not only handle the process of onboarding and payroll, but we also manage terminations through our locally-owned Dutch entity, guaranteeing your terminations always follow the rules. Our team of HR and employment law experts in the Netherlands takes on the responsibility of handling this complicated process by working closely with PES to make sure all the paperwork is processed with accuracy and any outstanding payments are paid out to the employee to maintain compliance at all times.

Want to learn more? Check out our Netherlands Country Explorer for additional information on Dutch employment.

Terminating an employee in the Netherlands (or anywhere else) is not a pleasant experience. As an employer, the last thing you want on your hands is a disgruntled worker who has been terminated unfairly. As much as you want to avoid this situation, though, you need to plan for the worst-case scenario.

How to Terminate an Employee in the Netherlands

How to terminate an employee in the Netherlands

The Dutch labor market is attractive for many reasons. Not only is 90% of the population proficient in English, but the Netherlands has one of the top education systems in the world. No wonder many companies are already hiring employees and contractors in the Netherlands.

If you are considering opening a new office or starting a new team, the Netherlands might be for you. But Dutch workers are classified in many ways, and each classification is treated differently.

Not only is the law in the Netherlands already complicated, but it’s also in flux. That makes everything even more difficult. Luckily, we’ve developed a comprehensive guide to employee classification in the Netherlands to help you stay on top of this fluid situation.

Key facts about worker classification in the Netherlands

Employers must always pay close attention to the classification of workers, because companies have different responsibilities to employees than they do to contractors. Generally, you have a greater obligation to employees that includes deducting payroll taxes, granting leave, and paying a minimum wage. Additionally, employees have greater and stronger legal rights and protections.

The consequences of misclassification vary by country but can be serious. For example, in the United States, the IRS can levy fines and penalties associated with failure to file a W-2 and subsequent unpaid payroll taxes.

Employees who were misclassified and were therefore denied the rights associated with employment such as leave, benefits, and severance pay are entitled to compensation. Employers risk fines and lawsuits resulting from such misclassification.

See also: When should you convert a contractor to an employee?

The new Balanced Employment Market Act (WAB) in the Netherlands took effect in January of 2021. This act was intended to crack down on false self-employment and associated abuses. As such, employers are now responsible for correctly classifying employees.

To help employers, the government provided a pilot program for a web tool to help clarify if an employment relationship exists. There is a moratorium on enforcement, fines, and penalties until October 2021. After that time, employers will be liable for misclassification.

A worker is considered an employee if the work they do for you meets all the following criteria:

The work must be done personally by the employee.

There is a relationship of authority in which the employer determines how the work must be performed and the employee must comply.

If the relationship does not meet all of these criteria, you may be able to classify the workers as a contractor. These workers are considered to be self-employed. If an employment relationship is found to exist, however, this would be called false self-employment.

Determining worker classification in the Netherlands

Not only is the law regarding contractor classification in the Netherlands already complicated, but it’s also in flux. That makes everything even more difficult. Luckily, we’ve developed a comprehensive guide to employee classification in the Netherlands to help you stay on top of this fluid situation.

Netherlands

Guide To Payroll Taxes in the Netherlands

Compensation for employees in the Netherlands

How to terminate an employee in the Netherlands

Managing contractors and avoiding misclassification penalties in the Netherlands

How to set up and manage payroll in the Netherlands

Written by • Preston Wickersham

The Netherlands maternity leave, parental leave, and paid time off entitlements

Everything you need to know about employee benefits in the Netherlands