Managing contractors and avoiding misclassification penalties 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.

Classification criteria

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

1. The work must be done personally by the employee.

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

3. The worker receives a salary.

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

It can be a challenge to determine a worker’s classification in the Netherlands. As part of its new laws, the Netherlands has developed an online tool to assist employers. You answer a series of questions, and the tool will give you one of the following three findings:

1. Your answers indicate the work can be performed by a self-employed contractor outside of an employment relationship.

2. Your answers indicate that the work cannot be performed outside of an employment agreement.

3. Your replies do not make clear what the work relationship is.

If you are still unsure whether an employment relationship exists, you can request additional guidance from the government. The findings of the tool are currently non-binding, however, meaning companies cannot use their results as a defense against false self-employment.

For the purposes of enforcement, intent is irrelevant. Even if you thought the worker was a contractor, further investigation may reveal that an employment relationship exists. If that is the case, you will be liable for payroll taxes, fines, and penalties. In addition, you may be subject to lawsuits, especially if you were found to misrepresent the relationship knowingly.

Employment agreements and services contracts

Dutch law does not always require employment agreements for employees or contractors. However, if there are any disputes, it is on the employer to prove that there was no employment agreement. Therefore, it is in your best interest to use a written employment agreement with all workers. If you do not have an employee relationship, you can use a services contract to outline the work to be performed and the terms of payment.

If you choose to use an employment agreement, current recommendations suggest using a sample contract or model agreement from the tax authorities to help ensure compliance. These sample contracts are widely available for general use. Remember, though, that the use of a sample contract does not guarantee correct classification.

Keep in mind that an employment agreement that classifies a worker as a contractor does not protect you if an employment relationship is found to exist. Employers should not rely on this document alone.

Additional assistance on employee classification

If you are still uncertain, you may request guidance from the tax authorities with the caveat that even this does not necessarily guarantee compliance. You may submit the following information for a judgement within six weeks:

• The name of the organization and the client

• The type of organization: for example, a trade association or an intermediary

• The name, address, telephone number, and e-mail address of your contact person

• If you submit the agreement as a client or contractor, your RSIN/BSN

• Whether the agreement is intended for one or more clients

• Whether the agreement is intended for one or more contractors

• A clear and complete overview of all agreements

• A description of the contractor's work

• A description of the circumstances under which the contractor will carry out the work

• Whether the agreement was concluded through mediation

• Which specific regulations or certification requirements apply

• On which model agreement your agreement is based and what you have adjusted

Consequences of contractor misclassification

The consequences of misclassification will be very serious. Additionally, enforcement of misclassification laws in the Netherlands can be robust and proactive. Employers in the Netherlands can’t afford to ignore accurate classification.

Misclassification fines and consequences in the Netherlands

If you have misclassified an employee as self-employed, you could be liable for taxes and social security. You are also required to provide the array of statutory rights given to employees. These include leave, minimum wage, and more.

You will have more difficulty terminating the worker if your contractor relationship is later found to be an employee relationship. Dutch employees enjoy many provisions to protect their job security. These can include notice periods and severance pay in the Netherlands.

See also: The consequences of misclassifying employees as contractors

Misclassification penalties and bans in the Netherlands

The new robust enforcement of contractor misclassification laws in the Netherlands is expected to target serious offenders who knowingly violate the rules. However, all employers are at risk for penalties. Negative publicity could also harm companies found to be in violation.

Loss of intellectual property (IP)

Another major risk of misclassifying a contractor is the loss of intellectual property (IP). In an employee relationship, businesses retain the rights to work product and intellectual property. However, these same protections do not always cover work done by contractors to the same degree. In an employment status dispute, your intellectual property could be in danger.

Remote’s IP Guard, included in every Remote employment contract, helps you maintain the maximum protections for IP created by international workers. You can find more information about protecting your IP on the Remote blog.

Managing and paying employees and contractors in the Netherlands

To learn more about employing workers in the Netherlands, check out our Netherlands country explorer page.

Contractor tax and benefits requirements in the Netherlands

Like most countries, the tax rules and benefits for contractors are different from those for employees. That’s why it’s even more important to get classification right.

Contractors in the Netherlands do not pay payroll taxes. As an employer, you would not need to worry about income taxes or social security deductions. Additionally, you aren’t required to award benefits, such as severance pay, or give notice in the event of employee termination.

However, contractors are protected by minimum wage laws. Contractors must earn at least the hourly minimum wage for their work. If your contractors perform piece work, you must document how many hours it takes them to complete and pay at least the minimum wage.

While in your workspace, contractors are also protected by the same health and safety laws that protect employees. This means you must do the following:

• Provide a proper workspace and safe equipment.

• Prevent physiological and psychological strain and stress.

• Take steps to avoid accidents with hazardous or harmful substances, radiation or contagious diseases.

Failure to provide the above can result in fines and penalties.

Manage benefits for contractors and employees

By now, you understand the complexity of the emerging laws around worker classification in the Netherlands. So how do you manage your benefits programs against this backdrop?

Follow these steps, beginning with accurate classification:

• Use the employee classification tool.

• Make use of the sample contracts to assist you.

• Request additional guidance if needed.

• Schedule regular reviews with employees and contractors to affirm the employment agreement.

• Extend statutory benefits to all workers correctly according to their classification.

When the stakes are high, it can be stressful to navigate new legislation. But it helps to have a partner fully versed in existing and emerging law to help you. At Remote, we have teams of experts in the Netherlands who closely follow emerging laws and guidelines.

The simple way to pay and manage contractors

Using a global hr platform like Remote is one of the easiest ways to pay and manage contractors in the Netherlands and around the world. We can help you employ and pay your international workers legally, easily, and quickly. We can also help you with employee relocation, so an employee moving to a new country can continue to work for your business without interruption.

Create a successful remote contractor culture

Successful employment relationships aren’t just about compliance and the letter of the law. To create an environment where remote contractors feel engaged and valued requires deliberate thought and effort. Work on fostering relationships, improving inclusion, and removing barriers.

Pay and manage contractors in the Netherlands with Remote

The Netherlands offers a variety of opportunities for companies looking to expand into new labor markets or to attract some of the many top candidates living there. Thanks to evolving laws, though, companies must be careful about correctly classifying their workers.

Remote takes the guesswork out of working with international contractors and employees. To learn more about how Remote can help you pay and manage contractors in countries all over the world, reach out to our team for more information.