What global businesses need to know about payroll in The Netherlands

Given it only has a population of around 18 million, the Netherlands has long punched above its weight in both European and global business. It’s easy to see why: it’s perfectly positioned geographically, not only to a range of global powers like France, Germany, and the United Kingdom, but also to the EU headquarters in Brussels. Its population is very highly educated, and the Dutch have the best English language proficiency of any non-native English-speaking country in the world.

The Netherlands, with a very globalized economy that’s 80% services, has weathered the economic storm of COVID well, and so remains an excellent place to do international business. But you should be aware that many of its payroll and employment laws are complicated to get to grips with, and the penalties for non-compliance are severe. Make sure you’re up-to-date with this guide, which covers all the basics of doing payroll in the Netherlands.

Getting Started

Starting up a business in the Netherlands is relatively straightforward, and doesn’t require a visa or work permit for citizens of the European Union or the European Economic Area. Those outside of this can apply for a 12-month visa specifically designed for starting up businesses in the Netherlands.

Unless you’re a sole trader or a partnership, your business in the Netherlands will be incorporated either as a private limited company (‘besloten vennootschap’ or ‘BV’) or a public limited company (‘naamloze vennootschap’ or ‘NV’). BVs do not come with any minimum requirement for start-up capital, while NVs must be started with at least €45,000 (approximately £38,500; $48,500).

New businesses must register with the Dutch tax authorities (the Belastingdienst) and the Chamber of Commerce (the KVK). The registration fee with the latter for 2024 is €80.10 (approx. £69, $86). Citizens starting the business must also register with the Netherlands’ immigration service (the IND). 

Although many organizations prefer local bank accounts to be used for making payments to relevant authorities, this is not a legal requirement. 

The Netherlands’ financial year runs from January 1 to December 31.

Employment Considerations

As is the case in most developed economies, the Netherlands’ employment laws are designed to protect the rights of Dutch workers. One of the most important aspects is for employers to recognize that collective labor agreements take precedence over statute law if they are more favorable to the employee. Additionally, minimum conditions established by the collective agreement can only be improved upon in an individual contract of employment, and never worsened.

Employers must ensure new employees sign a salary tax declaration including their name, address, social security number, date of birth and whether the employee wants to use the tax discount. Employers should also request a copy of the employee’s passport and keep it on file for five years after employment has ended, in accordance with Dutch guidelines.

A standard five-day working week in the Netherlands is 40 hours, but can vary slightly, up to a maximum of 45. Any employee working less than 36 hours a week is considered part-time; notably, this includes 70% of the entire female workforce as of 2022.

Employees normally receive 30-minute unpaid lunch breaks each day. Legal working limits of 12 hours per shift and 60 hours per week apply, although the weekly limit is reduced to 55 hours per week averaged over a four-week period, and 48 hours per week averaged over a 16-week period. 

There is no specific legislation regarding overtime; rates are to be determined in individual contracts of employment, although it should be noted that overtime is relatively uncommon in the Netherlands. It’s not unknown for Dutch businesses to compensate employees who are consistently working long hours with much longer annual leave entitlements.

Employees can give one month’s notice to end their employment, irrespective of length of service. Minimum notice periods at the employer’s end start at one month, increasing to two months after five years of service, three months after ten years, and four months after 15 years. These periods can be increased to a maximum of six months if agreed by contract, although if extended, employer notice periods must be at least twice that of the employee equivalent.

Probation periods last a maximum of two months, or one month for temporary contracts of between six months and two years in duration. There are no notice periods required at either end during probation periods.

Compensation, Severance & Retirement

On January 1 2024, the Netherlands moved away from its previous system of monthly, weekly and daily minimum wage rates, and adopted an hourly rate that applies across the board. For the first half of 2024 at least, that rate is €13.27 per hour (approx. £11.40, $14.30) for employees aged 21 or over. Lower rates apply for younger workers, starting at €3.98 per hour for 15-year-olds and gradually increasing every year until they reach 21. The minimum wage rates are reviewed and adjusted by the Dutch government twice a year, with changes introduced on January 1 and July 1, so keep a close eye on any future changes.

Payroll periods typically include one payment per month, and it is the employer’s responsibility to enter the payment data and sign each form before sending it to the bank. To pay employees, a company may choose to set up a local bank account that is compatible with Equens, the payment service provider used throughout the Netherlands.

Unusually for a European country, 13th-month bonuses are expected in the Netherlands, and should be paid towards the end of each year, either in November or December. The terms of these should be set out in employment contracts, or in collective bargaining agreements if applicable.

In cases of termination, approval must always be obtained from the regional employment offices. Although termination by mutual agreement does not require authorization, some form of documentation is useful to prove compliance with the stipulations of the collective agreement, such as periods of notice and payment of outstanding wages.

Severance pay in the Netherlands is known as ‘transition compensation’ (transitievergoeding). An employee receives one-third of a month’s salary per full year of service, plus a calculated proportion of earnings for any incomplete year.

Tax and Social Security Considerations

Employers are responsible for deducting taxes through payroll on a pay-as-you-earn (PAYE) basis, with the amount determined by the total gross income minus personal allowances. The employer must pay tax contributions to the local tax office on a monthly basis, with payments due by the end of the month following payroll. Another important factor to keep in mind is that if an employee and their spouse are both resident taxpayers, they are taxed separately on their employment income.

Income tax in the Netherlands is currently applied progressively across three bands, which as of 2024, are as follows:

9.32% on earnings up to €38,098 per year (approx. £32,800, $41,000)

36.97% on subsequent earnings up to €75,518 per year (approx. £65,000; $81,500)

49.5% on all further earnings beyond €75,518 per year

The system of Dutch social security contributions is complex, and all contributions are paid by the employer: rates are variable depending on the earnings of the employee involved. These include:

• Invalidity insurance: 5.46% to 7.11%
• Unemployment fund: 2.64% to 7.64%
• Healthcare insurance: 6.68%
• Work resumption and sickness benefit: 0.21% to 3.36%
• Childcare premium: 0.5%

These rates apply to everyone who works in the Netherlands, although treaties are in place with some other countries to ensure that foreign workers aren’t required to pay social security contributions in two different countries simultaneously.

Employees recruited from abroad who are classed as highly-skilled migrants qualify for a tax advantage known as the ‘30% reimbursement’ ruling. In this case, 30% of gross earnings made by an employee in the Netherlands is exempt from income tax, and only the remaining 70% is taxable. This tax break must be applied for from the tax authorities, jointly by employer and employee, and can be received for a maximum of five years. There is no impact on tax contributions from the employer’s perspective as a result of employees receiving this.

The corporate tax rate in the Netherlands is currently 25.8%, and the VAT rate is 21%.

Holiday and Leave Considerations

Full-time and part-time employees in the Netherlands are entitled to a minimum of four weeks’ paid holiday each year, calculated by the number of hours they work. This means an entitlement of 20 days for full-time employees, although providing substantially more than this is commonplace, even up to and beyond 30 days a year. On top of this, employees are also entitled to a holiday bonus of 8% of their annual earnings, which should be paid in May. 

Sick leave is paid at a minimum of 70% of earnings for a maximum of two years, although if this figure falls below the national minimum wage level during the first year, it must be topped up to that level. However, most collective bargaining agreements tend to allow 100% of pay for the first year of sick leave and 70% for the second.

Maternity leave in the Netherlands runs for 16 weeks, starting between four and six weeks prior to the due date. Paternity leave runs for one week which should be taken within the first four weeks after the birth. Both of these are paid at full salary, based on social security contribution amounts from the previous 12 months. The maximum amount payable is €256.64 per day (approx. £220; $275). A right to five weeks’ unpaid parental leave, available to either parent within six months of birth, was introduced in July 2020.

The Netherlands has 11 days of official public holidays per year, although pay for these is regulated by labor and collective bargaining agreements rather than by legal entitlement.

In Summary

It’s no surprise that the Netherlands is such a popular place to do international business, and stands out as an excellent location for a European hub. However, as this guide ably demonstrates, there are some complexities in payroll and employment law that it’s vital to stay on the right side of. If you feel this might be tricky, especially if you already have to comply with regulations in many other territories, then the expertise and support of a global payroll provider can be invaluable.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.