Comprehensive Guide to Payroll in the Netherlands

The Netherlands is a perfect destination to expand your business into European territories. Employers can hire top talent for their foreign subsidiaries thanks to the diverse multilingual talent pool, large consumer market, and easy access to a highly-skilled migrant permit in the Netherlands. However, when employing people, employers must set up an industry-standard payroll process in the Netherlands in compliance with the rules and regulations of the country. 

As a Global PEO, we’ll assume the compiance risk and use our one-click payroll system in the Netherlands to streamline employee payments and related operations.

‍How is Payroll Calculated in the Netherlands?

Employers must first understand the difference between gross and net salaries while setting up a company payroll in the Netherlands. 

Gross pay is what employees earn on paper before an employer withholds taxes, benefits, and other deductions from the salary. On the contrary, net pay is the amount they take home after the necessary deductions. These deductions include:

• Income tax, or wages tax, is a progressive tax system and usually ranges between 2.3% to 52%. The tax rate increases for an individual with an increase in income.
• A social security amount is deducted from the employee’s pay. These funds are broken down into employee insurance contributions and national insurance contributions. As of 2022, social security for EU residents working permanently in the Netherlands is 27.65%. 17.9% goes towards old age security, 0.1% goes to the Survivor Benefits Funds, and the remaining 9.65% is credited towards long-term care.
• Healthcare insurance is mandatory in the Netherlands. Employees need to withhold a certain amount from their monthly salary for the private healthcare insurance system. 

When creating a Netherlands payroll process, you must consider all important elements like minimum wages, working hours and overtime, holiday pay, bonuses, deductions, employee benefits, etc. In addition, since payrolling involves multiple factors and complex calculations, employers must maintain payroll records after each pay period to avoid potential miscalculations.

Different elements make up the salary structure in the Netherlands. 

Minimum wage

The statutory gross minimum wage in the Netherlands is now increased to 1,725.00 per month for employees 21 years or older. Entrepreneurs who employ local staff in the Netherlands must pay the basic minimum wage. The average monthly salary of employees in the Netherlands in 2022 is about €2,894. However, the salary varies according to the sector, professional experience, employee age, and hours worked.   

Overtime

The additional hours an employee works apart from their regular working hours are considered overtime. Overtime is usually considered part of a higher-level employee’s remuneration. Because the law does not control overtime, the rates are set by work contracts or collective bargaining agreements. These rates are typically 50%, 100% of an employee’s salary or time off, whichever applies in specific use cases. 

If an employee works overtime without the supervisor’s permission, they are not liable for overtime compensation. If the overtime is less than one hour after their regular working hours, or if they are classified on a salary scale of 11 or higher, they will not be paid overtime. The employee must maintain records of their overtime hours.

Holiday pay

In the Netherlands, employees receive holiday compensation, also known as vakantiegeld. Employers pay this allowance to help employees enjoy their holidays to the fullest. The minimum holiday pay amounts to 8% of the employee’s gross salary. Employers typically pay this amount as a flat sum between May and June, but they may also offer it monthly in installments depending on your contract.

Interns and freelancers are not entitled to holiday pay in the Netherlands.

The 13^th-month pay

Under specific contracts in the Netherlands, some corporations offer an additional year-end bonus to employees, known as the  – 13th-month pay. It is usually given in November or December before the holiday season in addition to the holiday allowance and equals 8.33% of an employee’s income. However, the bonus amount depends on the payroll policies and procedures in the Netherlands.

To design a standard Netherlands payroll process, employers must create a basic outline of the core steps involved. 

The first step is to establish a subsidiary in the Netherlands. Once it is done, the mandatory steps to set up a payroll include:

• Step 1: Employers must register with the Dutch Chamber of Commerce (KVK) to obtain the necessary Get a company identification number, including KVK, RSIN (Rechtspersonen en Samenwerkingsverbanden Identificatie Nummer), BTW number and BTW-id (VAT identification number), and LEI (Legal Entity Identifier) numbers for your organization.
• Step 2: Set up local or state tax IDs
• Step 3: Collect tax and financial information from employees. Also, register your company with the prevailing tax systems in the country.
• Step 4: Review the hourly schedules of all employees. Also, check the overtime schedule to calculate the additional overtime amount for employees.
• Step 5: Calculate all employees’ gross pay and net pay, factoring in the necessary deductions.
• Step 6: Choose to create a company payroll structure in the Netherlands scheduled for your company.
• Step 7: Determine the payment method and cycle for different employee types (full-time, part-time, etc.) 
• Step 8: Determine the payroll tax to withhold from the employees’ salaries, including wage tax, social security contributions, and healthcare insurance contributions.  
• Step 9: Finalize the monthly dates for paying your payroll taxes in the Netherlands. Pay the payroll tax contributions to the local tax office and file for payroll tax returns simultaneously.

Since your subsidiary’s establishment and incorporation process in the Netherlands may take weeks or months, it can delay your hiring plans to start business operations. 

Multiplier will help you establish payroll and hire global talent without setting up a subsidiary as a global PEO firm. Our in-house experts will handle all the processes involved in payroll, tax, and compliance matters.

Establishing payroll in the Netherlands is a long-drawn process that demands meticulous planning and calculations. 

A basic rundown of an industry-standard payroll process: 

• Registration of all employees into the payroll system: Employees must first register with the HR department to use the company payroll system. The payroll system collects information from all employers as a government record. For registration, employers must provide the following information about the staff:

1. 1. Number of employees
   2. Payroll software
   3. Timeline for payroll
   4. Names, dates of birth, and other personal information of employees

• Calculate the gross pay: Employees’ gross wages are earnings before taxes and retirement contributions are deducted. The gross wage is what you write on an employee’s offer letter. It is usually measured in hours, pay periods, or calendar years. In your gross salary computation, employers must add taxable fringe benefits. For instance, if you compensate your employees for mobile phone or parking expenses, you must include these bonuses in their overall salary.
• Calculate the deductions: After determining an employee’s gross salary, employers must account for all applicable deductions. This could include taxes or other employee perks, such as social security, health insurance, pension premiums, etc.

• Double-check to eliminate miscalculations: Before final payroll processing, ensure to cross-verify all the necessary elements to avoid mistakes. Complete the payroll reconciliation process by reviewing your tax documents, general ledger, and payroll register. Once you’re sure of the calculations, you can process employee payments. The payroll software system allows employees to view their pay stubs.

• Disburse payslips: Employers must issue payslips to all employees either as hard copies or in digital format. A payslip must include a breakdown of the employee’s salary structure, including basic salary, allowances, TDS, etc. Most companies in the Netherlands now use integrated payroll processing software that allows employees to view their monthly payslips. 

• Payroll records: Once all of the payslips have been given, employers must record every transaction in the Netherlands payroll records. Preserve this document for at least five years. They serve as proof that all employees received the correct salary amount.

Several payroll contributions and deductions come into play when hiring employees:

Taxes in the Netherlands

In the Netherlands, all employers must withhold taxes from their employees’ pay every month in advance. The Netherlands follows a progressive tax system where the taxes are divided into two brackets. 

If an employee’s income in the Netherlands is less than or equal to 69.398 euros per year, the income tax rate lies between 37.1% to 37.07%. Also, if the employees’ salary goes beyond that number, they must pay 49.5% as income tax.

National insurance contributions

In the Netherlands, national insurance is social insurance. When someone reaches retirement age or becomes chronically ill, taxes help support a basic degree of well-being. These taxes also provide a basic income to unemployed, widowed spouses or dependents under 18 and assistance with child-rearing.

These contributions are deducted from your employee’s pay. The money is used to pay for the National Old Age Pension (AOW), the Chronic Care Act (WLZ), the National Survivor Benefits Act (ANW), and the General Child Benefit Act (AKW).

Each year, the rates for national insurance contributions are set. For example, in 2022, the social security contribution rate for EU citizens stands at 27.65%.

Employed person’s insurance contributions

The employer’s insurance contribution covers employees against the financial repercussions of occupational disability, unemployment, and illness. Employers make these contributions and have no bearing on your employee’s salaries. They fund the Sickness Benefits Act (ZW), Disability Insurance Act (WAO), Work and Income according to Work Capacity Act (WIA), Unemployment Insurance Act (WW), and the Return-to-Work Fund (Whk).

Contributions to the Unemployment Insurance Act (WW) are 2.94% of salaries for permanent contract employees and 7.94% for temporary contract employees. The WAO/WIA contribution, including the child care benefit, is 7.27%. The Dutch tax authorities calculate the contribution to the other acts per employer.

Health care insurance act (ZVW)

In the Netherlands, health insurance is mandatory. Dutch tax residents pay a part of health insurance every month. Employers cover the other half of the insurance. This contribution goes toward their employees’ health insurance, generally known as the Health Insurance Act (ZVW).

For 2021, the ZVW contribution will be 7% of the gross annual pay. It is capped at €58,311 per year. You will not be obliged to pay more than €4,081.77 each year, regardless of how much more an employee earns.

Permanent establishment

When a new company gets established, there is a risk if the company is recognised enough to be eligible for taxes. Businesses tend to avoid being in such a situation and they want a place in the country and they want a recognition. Company’s premises can be a possible trigger for permanent establishment. If you are company is conducting full-fledged operations in Netherlands and is also well established in the country, it is eligible for permanent establishment. With a PEO like Multiplier, you can navigate the situation smoothly.

In the Netherlands, payroll contributions involve one payment before the end of the month. Work done between the first and last day of the month is generally paid at the end of the month. Employees often receive their payslip and salary once a month rather than every two weeks, as in most parts of the world.

Netherlands Payroll Options for Companies

Employers have three options to set up payroll in the Netherlands:

• Local payroll outsourcing: If you do not have the resources or time to establish payroll, you can contract with a local company in the Netherlands to outsource payroll operations. While the local payroll firm will handle payroll management and other operations, you will be accountable for the company’s errors.
• Internal payroll: If you run a big firm with more time and resources, you might be able to handle internal payroll from your Netherlands office. However, this option is generally expensive and time-consuming.‍
• Global PEO: You can outsource your payroll to a global PEO. It handles all of your compliance requirements, employee payroll, global team management, etc. Partnering with a global PEO like Multiplier can make your payroll processing an easy experience.

When recruiting people for companies in the Netherlands, you must mention the employment contracts, the necessary entitlement, and termination terms. 

The statutory notice period in the Netherlands is one month. If an employee decides to leave the company and has only served the organization for less than five years, the notice period is one month. However, if the employee has been associated for more than five years, they must serve a notice period of two months. A shorter notice period is allowed if agreed upon in the collective agreement. 

Employers can only terminate employees with a fixed-term employment agreement included in the contract. Employees are entitled to severance pay for termination without formal notice, better known as transition pay. This allowance depends on the employee’s monthly salary and the number of years they served in the company. The employer will pay 1/3 of the gross monthly salary per year from the employee’s first day of employment.

In Netheralands, employers can terminate employees only on valid grounds. Such grounds include reasons like poor conduct, denying to perform the work given by the superior, excessive health issues which leads to absence from the workplace, closure of the company, etc.

Expansion to the Netherlands will be complex if you are unfamiliar with payroll processing in the Netherlands. Instead, look for industry leaders that are well-versed in the local market to assist you.

You can evaluate the services of many payroll processing firms online and select the one that best meets your company’s requirements.

Organizations can outsource payroll through a global PEO firm in the Netherlands. Multiplier is well-known in the Netherlands for providing PEO services to multinational companies in over 150 countries. Our experts can also manage employee onboarding, payroll processing, and other tasks.

Our one-click, SaaS-based PEO services will make your Netherlands payroll process an end-to-end seamless operation.