The basics of a Dutch payroll
Every country has its own peculiarities in respect to salaries, labor law and wage taxes. Here below we highlight some matters employers shall be aware of when they are paying out salary or wish to hire employees in the Netherlands.
It is important that you will get proper guidance as your company can easily receive penalties or get into disputes with employees in case of violation of the relevant rules.
The employee of your Dutch company is required to have a nationality from one of the EU member states or shall have a work visa. The most common visa is the visa for highly skilled migrants.
Companies with a sponsorship status can relatively easily obtain highly skilled migrant visa for qualify employees. The request shall be made in advance and takes around 3 weeks.
Indefinite or definite contract
An employee can be hired via a definite or indefinite employment agreement. The total number of definite contracts is limited to three. The total duration of the definite contracts can not be more than 36 months.
In case of more contracts or a longer period, the employment agreement shall be considered to have changed in an indefinite contract.
The social premiums to be paid under indefinite contract are lower than under a definite agreement.
Under Dutch law it is not easy to terminate an employment agreement of an employee with an indefinite contract.
Minimal salary requirement for a director/shareholder
A director of a Dutch company that (in)directly holds shares in it can qualify as a director and major shareholder ('DMS’) and be bound to minimal salary requirements.
Note that for a large number of the DMS that are working in a Dutch company and residing abroad, the minimal salary requirements do not apply. This is because the Netherlands has concluded many tax treaties which limit the minimal salary requirements to local residents.
Gross or net salary
When offering a salary to employees, it is standard to offer a gross salary amount. The disadvantage for the employee is that he/she does not immediately know the net salaries that is received. On the internet net-gross salary converters can be found.
It is not recommended to agree net salary amounts with employees because the Dutch system is based on gross amounts. The use of net salaries can make the impact of collective labor agreements, child benefit and 30% rulings complex.
The employer should be aware that because of social premiums, the total salary expenses will be around 110-115% the gross salary amount.
Work-related costs scheme
An employer can grant tax-free allowances to your employees via the work-related costs scheme (WKR). Also, the employer may make gifts and reimbursements from which an employee may benefit privately. Think of tools, tablets, sports subscriptions or Christmas gifts.
An employer is only allowed to reward its employees up to a maximum percentage of the company's total salary expenses (the collective salary of all employees combined) without tax liability under the work-related costs scheme. This is referred to as the discretionary scope (vrije ruimte).
Commuting expenses can be compensated to the employee. If the compensation is based on public transport tickets or 19 cent per kilometer compensation, the compensation will not be considered as taxable income.
Note that the compensation has to be well documented in the administration of the company. For example, by means of copies of the relevant tickets.
It is attractive for qualifying expats to request a 30% ruling together with their employer. Under a 30% ruling, the top 30% of the salary will be considered to be an expense compensation for a period of 5 years.
Most often the employee has not obtained the ruling yet when the work for the Dutch company is initiated. The salary administrator will apply the normal taxation until the 30% ruling has been granted. Once the 30% ruling has been obtained corrections can be made.
Collective labor agreements
For some industries in the Netherlands there are collective labor agreements in place. If your company's activities qualify, it is mandatory to follow the conditions of the applicable collective labor agreement.
So check when employing your first worker, if a collective labor agreement applies.
Mandatory Pension scheme
In the Netherlands not every employer is obliged to offer its employees a pension scheme. If there is an industry-wide pension fund within the sector under which your employer qualifies, your employer is obliged to register you with the pension fund.
If the sector in which you work does not have an industry-wide pension fund, the employer is not obliged to offer you a pension scheme.
Most Dutch tax treaties state that the salary for director related work for the Dutch company shall be taxed in the Netherlands. Even if the work is executed in another country. So, in case the director gets a renumeration he/she shall have a Dutch fiscal number and make wage tax filings.
Any work that is not management related shall be taxed at the place of residence. So it can be necessary to have two payrolls set up: one in the Netherlands and one in the country of residence.
It is common to pay out salary in the Netherlands on a monthly basis. The date of salary payment is around the 25th/26th of the month. This allows the employee to pay the rent and health insurance premium for the upcoming month on time.
The employer is responsible for withholding income tax and social premiums of its employers, referred to as wage tax, on a monthly basis. Within a month after closing of a month, a wage tax return shall be filed and the wage tax shall be transferred to the bank account of the tax authorities.
Meet the deadlines to avoid any penalties and use the unique payment reference provided by the salary administrator for each payment.
Labor law or payroll support
Do you wish to receive support with one of the above matters or a fee quote for payroll services? Feel free to contact us.