The Netherlands payroll and benefits guide
What global businesses need to know about payroll in The Netherlands
The Netherlands only has a population of around 18 million, but it’s an important economic player, both within Europe and globally. In many ways, it’s a tale of two cities: Amsterdam is considered a major European financial center, and companies such as Microsoft, Google and IBM have placed their continental headquarters there. Less than 80 kilometers to the south-west, Rotterdam is Europe’s biggest seaport and a major global destination of shipping and logistics.
The Dutch have long invested in innovation, technology and education, which has resulted in a highly-skilled workforce and an economy that is more than 80% services. You’ll find a greater proportion of proficient English speakers here than in any other non-native English-speaking country in the world, while the Netherlands’ EU membership and use of the euro gives it political and economic stability.
Payroll and employment regulations in the Netherlands have undergone some substantial changes of late, including frequent increases to the minimum wage, and adjustments to the tax breaks given to foreign workers. This guide to running payroll in the Netherlands covers the latest developments, plus other key facts you need to know.
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. Citizens starting a business should also register with the Netherlands’ immigration service (the IND).
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 £38,300; $51,100).
New businesses must register with the Dutch tax authorities (the Belastingdienst) and the Chamber of Commerce (the KVK). The registration fee with the latter is between €50 and €100, depending on business structure and services required. You should also expect to pay between €500 and €1,500 in notary fees, and between €1,000 and €5,000 in legal fees to help you draft, approve and submit all the relevant documents. These include company name reservation, articles of association, shareholder agreements and proof of address. This will help you obtain the registration certificate, corporate tax registration and VAT number.
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 1st to December 31st.
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, spread over five eight-hour shifts, but it can vary slightly, up to a maximum of 45 hours. Any employee working less than 36 hours a week is considered part-time. 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.
Although it is a legal requirement to provide additional compensation for overtime, there are no specific overtime rates enshrined in law. How many extra hours should be worked, and how much extra the employee should earn, is up for negotiation in contracts and collective bargaining. Overtime is relatively rare in the Netherlands, and it’s not unknown for Dutch businesses to compensate employees who are consistently working long hours with much longer annual leave entitlements.
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. 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.
Compensation, Severance & Retirement
Minimum wage rates in the Netherlands are increased regularly, and new rates generally take effect on January 1st and July 1st each year. The main rate for the second half of 2025 will be €14.40 per hour (approx. £12.30, $16.40); lower rates apply to younger workers, starting at €4.32 per hour for 15-year-olds and gradually increasing every year until they reach 21.
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.
The Dutch authorities have recently made changes to the Work-Related Costs Scheme (WKR), which allows employers to provide a range of benefits tax-free. This allowance has been increased to 2% of an employee’s annual salary, up to a maximum of €8,000 on a salary of €400,000 (approx. £341,000; $454,000).
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. There is a maximum cap on the total amount that can be paid—for 2025, that cap has been raised from €94,000 to €98,000 (approx. £83,500; $111,000).
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.
The income tax system in the Netherlands is relatively simple, although rates are fairly high. There are three bands as of 2025:
- 8.17% on earnings up to €38,441 per year (approx. £32,700, $43,700)
- 37.48% on subsequent earnings up to €76,817 per year (approx. £65,400; $87,200)
- 49.5% on all further earnings beyond €76,817 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: 2.74% to 7.74%
- Healthcare insurance: 6.51%
- Work resumption and sickness benefit: 0.11% 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, although these rules have been changed as of 2024. The initial rule is that 30% of gross earnings made by an employee in the Netherlands is exempt from income tax, and only the remaining 70% is taxable. However, the tax-free proportion now reduces to 20% after 20 months working in the Netherlands, 10% after 40 months, and disappears entirely after 60 months. It’s also important to note that the employee must have lived more than 150km away from the Netherlands for at least 16 of the 24 months prior to arrival.
The corporate tax rate in the Netherlands is currently 25.8%, and the VAT rate is 21%.
Holiday and Leave Considerations
Minimum paid leave entitlement in the Netherlands is 20 working days per year, although many companies choose to offer substantially more than that; offering more than 30 isn’t unusual. Employees are entitled to a holiday bonus of 8% of their annual salary, which is accrued on a monthly basis and should be paid out in May in time for the summer. Unused holiday time can be carried over into the first six months of the following year.
There are 11 days of public holidays each year; those that fall at the weekend are not usually replaced by an alternative day off on a weekday. Whether employees are paid for time off on public holidays is determined by collective bargaining and contractual agreements.
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. This should be paid by social security at full salary—however, the social security contribution is capped at €256.54 per day (approx. £220; $290). In cases where employees would normally earn more than this, many employers choose to make up the shortfall. Paternity leave is one week paid at full salary by employers, plus five further weeks where new fathers can claim social security benefits up to 70% of their normal salary.
There is also a parental leave entitlement of 26 weeks. The first nine weeks are paid by social security at 70% of normal wage (also capped at €256.54 per day), and should be taken within the first 12 months post-birth. The other 17 weeks are unpaid and can be used before the child’s eighth birthday.
Payroll in the Netherlands: A summary
The payroll and employment changes in the Netherlands have been incremental rather than revolutionary, but that doesn’t mean that staying on the right side of compliance isn’t important. It’s vital to stay abreast of changes like these not only in the Netherlands, but in all the countries in which you operate. If you feel that you could do with some help and expertise in this endeavor, then the services of a global payroll should be your first port of call.
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.
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