Having an understanding of the payroll and tax laws of the Netherlands will guarantee that your business will comply with all the relevant regulations and ensure that your business will not incur any penalties or break any laws. Here are some of the most important regulations you need to familiarize yourself with while conducting business in the Netherlands.
Payroll in the Netherlands
When starting a business in the Netherlands, every non-resident employer must register with the Dutch Tax and Customs Administration. Once registered, your company will receive its payroll tax number, which is necessary when filing payroll tax returns. Along with this, you will also receive documents relating to your appropriate business sector, payroll periods, and the deadlines for filing taxes.
When hiring within the Netherlands, it is also mandatory for employers to acquire a SOFI-number or burgerservicenummer (BSN) for each of your employees. The BSN is needed for tax purposes and must be obtained within three days of hiring an employee.
Here are some details you need to be aware of in terms of payment:
- Salary Payout
The minimum wage for employees is dependent on the age of the individual.
- For an 18-year-old, their monthly wage must be no less than €850.50.
- For a 19-year-old, it’s €1,020.50.
- For a 20-year-old, it’s €1360.
- Finally, for employees aged 21 and above, it’s €1,701.
- Overtime Pay
Unlike most countries, the Netherlands doesn’t have specific laws for overtime pay. Instead, overtime pay must be stipulated by the employee’s contract. Overtime pay must at least be equivalent to the employee’s standard wage.
Alternatively, the employee can be compensated with paid leave days. Employees can only work a total of 12 hours per day or 60 hours per week. However, employees cannot work 12-hour shifts consecutively. Over four weeks, the employee can only work
an average of 55 hours per week.
- Fixed-term Contracts
Under Dutch law, a permanent contract must be given to an employee after three consecutive temporary contracts. It is also applicable if the worker has received temporary contracts within three years. Additionally, all employees must be treated equally. Payroll employees should have equal standing as permanent workers.
- Unemployment Benefits
As a welfare state, the Netherlands will cover the unemployment benefits for employees. Unemployed individuals are entitled to 75% of the average wage they’ve earned over the last 12 months for the first two months of unemployment. After the two-month period, they are entitled to 70% of their last paycheck. Unemployment benefits can last up to a maximum of 38 months.
- 30% Facility
The 30% facility is a tax incentive for highly skilled employees hired outside of the Netherlands. This rule gives incoming workers, who meet certain requirements, a tax break wherein only 70% of their total income will be taxed for up to five years.
Social Security in the Netherlands
For employees, the social security contribution rate is 27.65% which is broken down into three different types of benefits:
- 17.90% for old-age social security
- 0.10% for surviving dependent social security
- 9.65% for long-term care
For employers, they have to pay for the following benefits:
- 6.95% for health insurance
- 3.60% for unemployment insurance
- 0.77% for sector fund premium for unemployment insurance
- 6.96% for disability insurance
- 1.25% for return to work fund
Tax Practices in the Netherlands
As a business owner, it is essential to familiarize yourself with the different types of taxes imposed in the country.
In the Netherlands, income tax is divided into three different boxes (categories) based on the source:
- Box 1: It applies to income generated from employment, homeownership, and profits.
- Earnings up to €68,507 are taxed at a rate of 37.1%.
- Earnings above this limit are taxed at 49.5%.
- A general tax credit of €2,837 to all employees.
- Box 2: Substantial interest
- You have substantial interest if you own at least 5% of shares in a company.
- You pay 25% of the income generated by substantial interest.
- Box 3: Income from savings and investments
- Taxed at a maximum of 31%
The standard corporate tax rate is 25%. A lower rate of 15% is applied if the company earns €245,000 or less annually.
Entrepreneurs or self-employed individuals are subject to the same rates for income tax. However, under the Decree on Social Assistance to the Self-Employed (Besluit bijstandverlening zelfstandigen or Bbz), they are eligible to receive certain benefits. Under Bbz, you are entitled to loans, credits, and low-income supplements.
As of 2020, the Netherlands has reduced the interest on late payment of taxes. It’s 8% interest for corporate tax and 4% to as low as 0.01% on other taxes. Interest is applied from the due date to when it is credited to the Dutch Tax Authorities.
Why Outsource Your Payroll in the Netherlands
Payroll processing is tedious, requires in-depth knowledge, and must be conducted in a meticulous manner. When you partner with third-party PEO professionals like INS Global, you will save time, effort, and money. We have comprehensive experience in payroll processing and dedicated staff to manage them. You can also be assured that you are compliant with every regulation imposed by the Netherlands, avoiding penalties and possible legal complications. Get in touch with us today to know more.