Running payroll in the Netherlands

With competitive corporate tax rates, a highly skilled workforce and a government-supported focus on research and development, the Netherlands represent a very attractive business location. Not to forget that almost 90 percent of the population have a very good command of English, which makes communication among global teams a lot easier. 

However, hiring in the Netherlands also comes with a few challenges, including having to run local payroll. The country’s complex social security system which is designed to provide for Dutch residents in case of sickness, unemployment, inability to work, retirement and more is only one of the things companies need to understand when setting uppayroll in the Netherlands.

Regardless of whether they’re planning to hire an employee in the Netherlands as a foreign employer or under a local legal entity, employers first need to register with the Dutch Tax and Customs Administration (Belastingdienst) which will then issue a Dutch fiscal number. This is a necessary step in order to be able to withhold taxes from employee wages. Companies with a subsidiary in the Netherlands also need to subscribe to the Chamber of Commerce (KVK). 

It is common practice to carry out an identity check for new employees. Employers also have to make sure that the latter possess a valid citizen service number (Burgerservicenummer, BSN). There is no legal obligation for employers to contribute to a pension scheme on behalf of their employees, but if they wish to (or if they are obliged to do so by a CBA), they have to register with the relevant institution beforehand. Setting up a local bank account is optional as payments to employees and authorities can also be made from a foreign bank account.

The Netherlands have a well-developed social security system which comprises various different institutions. Social security contributions are split between employee and employer. Pension contributions from the part of the employer are not mandatory unless there is a collective agreement in place. Personal tax from employment income is calculated based on a two-tier system.

Tax considerations

The Dutch tax system differentiates between resident taxpayers and non-resident taxpayers. While the latter are only taxed on the income they earn from (certain) activities within the Netherlands, residents pay tax on their worldwide income. 

Employment income is subject to two different tax rates which are 37.07% and 49.5%. There are no further local taxes on personal income. Highly-skilled workers coming to the Netherlands for work can make use of the so-called 30% tax facility which means that their employer can pay them 30% of their salary as a tax-free allowance. In other words: The tax relevant income for these employees can be reduced from 100% to 70%. 

* Please note: For earnings of up to EUR 35,472, tax is divided into 9.42% personal income tax and 27.65% national insurance contribution. 

Tax withholding and reporting

The Netherlands operate a PAYE-system (Pay As You Earn) which means that employers are responsible for deducting and withholding income tax from their employees’ wages (while taking into account the different personal allowances). The withheld amount then has to be remitted to the local tax authorities on a monthly basis. Usually, payments are made by the end of the month following the pay period. 

In parallel, employers have to report the withheld amounts via an electronic filing system. Late submissions are subject to fines. It is not mandatory to issue payments form an in-country bank account. 

Once a year, employers also have to file their WRCS (work-related cost scheme) declaration. Under the WRCS, employers are subject to a tax rate of 80% on all benefits and allowances they grant their employees. The levy usually has to be reported in the beginning of the following year. 

Employees must file their own annual personal tax return which is usually due by the 1st of May of the following year. For this purpose, employers must issue their employees an annual income statement after the end of the respective tax year. The Dutch tax year runs from the 1st of January to the 31st of December. 

Social security contributions

Resident employees are obliged to take out Dutch healthcare insurance - the employer must verify this. In addition, there are various other social security schemes in the Netherlands which provide basic coverage for all residents and which are funded by contributions from both employee and employer. 

The different schemes can be grouped into 2 different categories:

• National insurance schemes including National Old Age Pension Act (AOW), Chronic Care Act (WLZ), National Survivor Benefits Act  (ANW) and General Child Benefit Act (AKW)

• Employee insurance schemes including Unemployment Insurance Act (WW), Work and Income Insurance Act (WIA), Sickness Benefit Act (ZW) and Invalidity Insurance Act (WAO)
  

Please note that not all of these schemes are subject to direct contributions. While contributions to the employee insurance schemes are made solely by the employer (EUR 59,706 income ceiling applies - valid January 2022), contributions to the national insurance scheme are paid by the employee at a rate of 27.65% of their salary (EUR 35,472 income ceiling applies - valid January 2022). Employers have to deduct the contributions from their employees’ wages and submit them to the different social security agencies together with their own contributions no later than by the end of the following month. In total, the employer share of the social security contributions amounts to around 22% (for more details refer to the table below). 

Contribution levels to the national insurance are reviewed every year. The employee insurance schemes are reviewed every 6 months by the Ministry of Social Affairs and Employment (in January and July).

As mentioned before, some collective bargaining agreements may obligate employers adhering to a specific industry to contribute to a separate retirement fund for their employees. In this case, contributions have to be made according to the rules set by the respective pension scheme. Payments can generally be made monthly, quarterly or annually. 

Here is an overview of the different social security contributions levied on both employee and employer. Rates given are valid from January 2022. 

Employees in the Netherlands are entitled to various benefits. These include:

• Annual leave: minimum of 20 days (i.e. 4 weeks), but generally more, plus 9 public holidays (but no mandatory days off)

• Maternity leave: 16 weeks (6 weeks before and 10 weeks after birth)

• Paternity leave: 1 week fully-paid leave, plus 5 weeks unpaid extended partner leave

• Parental leave: 26 weeks of unpaid parental leave (from August 2022, 9 weeks will be paid)

• Sick leave: at least 70% of wages (no less than the minimum wage) for up to 2 years

For more information on employee benefits and other employment requirements in the Netherlands (including severance pay and termination procedures), check out our Global Hiring Guide.

Since the 1st of January 2022, the minimum wage for full-time employment in the Netherlands is set at EUR 1,725 per month, which equals EUR 398.10 per week and EUR 79.62 per day. These rates are valid for employees who are 21 years old or older. For younger employees, different minimum wage rates apply. 

Compensation for overtime work must be fixed in the individual employment contract as there are no legal regulations provided by the Dutch Labor Code. There also is no legal obligation to pay employees a 13th salary. However, the law stipulates that every employee must receive an annual holiday bonus equal to 8% of their annual wages.

Payroll in the Netherlands is processed once a month or every four weeks. Payments should be made in euros (EUR), which is the local currency. Payments in kind or in cash are not accepted. Bank transfers can be made either from a local or a foreign bank account. 

Both paper and digital payslips are legally valid. Employers are obligated to provide employees with a payslip the first time the employee receives their wages and for every pay period thereafter if any of the information detailed on the payslip changes (i.e. different earnings, different deductions etc.). The information stated in the payslip should include: 

• Gross salary 

• Salary components

• Holiday allowance

• Allowances

• Deductions

• Identification of both the employer and employee

• Pay period

• Number of working hours

• Type of contract

It is mandatory to keep payroll records for at least seven years.