Dutch employment law and employee taxes upon employing local Dutch employees or assigning employees to the Netherlands.

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UKTI Benelux Webinar Series
Employingpeople in the Netherlands
September3,2015
In partnership with:

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Presenters
Chris van Wijngaarden
Tax Lawyer
Taxand Netherlands
Matthijs Roest Crollius
Employment Lawyer
Doorn en Keizer

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• Individual employment
- Definite / indefinite
- Probation period
- Collective Bargaining
• Employee tax obligations in the
Netherlands
- UK employer (Ltd.)
- Dutch employer (BV)
• Supply of labour (WAADI)
• Social security
• Wages / vacation
• Restrictive covenants
Agenda
• Termination
• Workers representation
• Immigration
• 30%-ruling
• Questions

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• three key elements: work in person, wages and authority
• ‘relationship of authority’: the most defining element of the
employment contract
• decisive is the possibility of being able to give instructions
• intention of both parties at the time of formation, in combination
with the manner of implementation, is of vital consideration in
establishing whether or not a relationship of authority has been
created
Individual Employment

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• oral and written employment agreements both are valid
• certain terms are null and void if not agreed upon in writing
• article 7:655 DCC: obligation employer to provide a written overview
of the terms of employment mentioned in this article
• article 7:610a DCC: legal presumption of the existence of an
employment contract
Individual Employment

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• a definite or an indefinite period
• a definite period: ends automatically after expiration of the period or project
• “ketenregeling”, 2 situations:
1. definite term agreements within a time interval of ≤ 6 months and exceeding a total duration of
24 months, including time intervals -> automatically, last agreement = for an indefinite term
2. > 3 definite term agreements succeed each other within time intervals of ≤ 6 months ->
automatically, last agreement = for an indefinite term
• Probationary period:
• formally agreed in the terms of the employment contract
• definite term < 6 months: no probationary period possible (was possible before 1 January
2015)
• definite term > 6 months < 2 years: maximum one month (two months only if permitted by a
CBA)
• ≥ 2 years or indefinite-term: two months
• exceeding these maximum periods: null and void
Individual Employment

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Individual Employment
• CBA is applicable in the event:
– the employer and employee have mutually agreed on its applicability (incorporation clause in
employment agreement);
– the employer and employee are both member of the parties to the CBA;
– the employer is (a member of the employer’s organization, which is) a party to the CBA, but the
employee is not; or
– the Minister of Social Affairs and Employment has declared the CBA binding
• the Collective Bargaining Agreement Act
• the Collective Bargaining Agreements (declaration of universally binding and nonbinding status) Act
• Please note, it is possible to deviate from certain laws by CBA and parties to a CBA can set up a CBA
redundancy committee
Collective Bargaining Agreements

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Employer tax obligations
• No presence in NL (No Dutch legal entity and no permanent establishment (PE):
- PE: fixed place of business through which the business of an enterprise is wholly or partly
carried on
- PE: person with the authority to conclude contracts in the name of the enterprise
Registration for employer social security contributions with the Dutch tax
administration
UK employer Ltd.

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Employer tax obligations
• Taxable presence in Netherlands for Corporate tax purposes by having a Dutch legal entity
• Taxable presence in Netherlands by having a permanent establishment
Registration for employer social security contributions
Withholding obligation for wage tax (PAYE)
Dutch entity (BV) or Permanent establishment

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Supply of labour to the Dutch market
• The new Obligation to Register Intermediaries Act ('Wet registratieplichtintermediairs') in the
Netherlands came into effect on 1 July 2012:
• This new law affects non-resident temporary employment and secondment agencies and foreign
companies supplying one or more specialized workers who work under the supervision of the clients in
the Netherlands:
• These companies are obliged to register with the Dutch Chamber of Commerce:
• Failure to register will result in high fines EUR 12K per violation. Both the company supplying workers
and the Dutch hirers risk fines:
• The Dutch Tax Authorities have a proactive approach; they send wage tax registration forms to foreign
employment and secondment companies that have registered with the Chamber of Commerce.
Waadi legislation

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Supply of labour to the Dutch market
• Also applicable in case of supplying independent contractors to the Netherlands
• Depending the way of registration, governmental organizations will start pro active
approach, Tax administration, obligatory industry pension funds etc.
• Registration should be reviewed carefully!
Registration with the Dutch Chamber of Commerce

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Supply of labour to the Dutch market
• In case of supply of labour under the supervision of the Dutch client:
- Wage tax withholding obligation and registration with tax authorities
- Social security withholding and remittance obligation
- Dutch Chamber of Commerce registration obligation
- Risk on obligatory industry pension funds
- Collective labour agreements may applicable
- Also applicable in case of supplying independent contractors to the Netherlands
Registration obligations for tax and social security

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Dutch social security system
National insurance
• levied from employee through the income tax brackets, approximately EUR 10K per
year.
• Covers: Old age pension, Widow and Orphans, Long Term Care
Employee insurance
• levied from employer, approximately 20% of the income capped at income of EUR
51K
• Covers: Unemployment benefits, sickness, incapacity to work

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EU social security legislation
EU directive 883/2004
Determines the social security position in international employment situations:
- Assigned within the EU possible to remain subject to home country social security for 24
months with possible extension;
- Working in 2 or more countries whereby > 25% in home country, home country social
security will be applicable;
- Apply for A1 certificate in home country to proof home countries system applies while
working abroad
- Several other rules for specific cases

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• employers must pay the salaries of sick employees for a maximum period of 104 weeks
• first year: 70 percent of the last earned wage, with a minimum (minimum wage) and an
upper limit (70 percent of the gross maximum daily wage of EUR 199.95 gross or
approx. EUR 52,000 or UK£ 38,000 gross per year)
• second year: same, but the minimum wage floor is not applicable
• variations: pregnant women
• employers must make serious efforts to integrate sick employees back into the
workforce; employees have to cooperate
Social Security
Short-Term Sickness Benefits

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• employees 23 - state pension age (2015: 65 years + 3 months) are entitled to minimum
wages
• employees younger than 23 years are entitled to minimum youth wages (= percentage
of the minimum wage)
• as of July 1, 2015: €1,507.80 gross per month (adjustment every half year)
Wages and Vacation
Minimum Wages

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• every employee entitled to a minimum holiday allowance of 8 percent of wages (by
law, over a maximum of 3x Minimum Wage, but most employers pay over 100% of
actual wage)
• in general: calculated annually (June 1 to May 31) and paid in May/June
• or: paid out every month
• accrued holiday allowance due upon termination of an employment agreement
Wages and Vacation
Holiday Allowance

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• annual vacation: at least four times the number of days regularly worked per week
• entitled to receive salary during these vacation days
• accrual of vacation during a call for military service, sickness, or pregnancy
• statutory vacation may be saved only up to July 1 of the next calendar year
• non-statutory vacation may be saved for up to five years after the calendar year in
which it was accrued
• limitation period of five years remains applicable to all outstanding vacation accrued
before January 1, 2012
• termination of employment: all remaining vacation must be paid to the employee.
Wages and Vacation
Vacation

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• conditions: agreed in writing and employee must be an adult
• upon renewal of a fixed-term contract: advisable to reconfirm (include or enclose!)
• a different set of duties during employment may result in a “significantly heavier burden”: need to explicitly
negotiate new terms for the non-compete clause
• duration: usually 6-12 months
• geographical area: not wider than necessary
• products: not more than necessary
• may be declared partially or wholly void, if it unfairly prejudices the interests of the employee (other option: a court
may award compensation to an employee)
• non-compete is only permitted in definite term employment agreements if necessary for substantial business
interests + written explanation (NB this was not required before 1 January 2015)
• cannot be invoked if the employer is seriously culpable for the termination/discontinuation of employment (article
7:653 subsection 4 DCC)
• compensation can be granted by a court (not in case of seriously culpable behaviour employee)
Restrictive Covenants
Non-Compete

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• Non-solicitation
• Working for others
• Confidentiality
• Intellectual Property
Restrictive Covenants

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• Unilateral termination
 Employee:
• resignation
• dissolution by a court
 Employer:
a. notice and later consent of employee
b. notice after permission from the UWV
c. dissolution by the Subdistrict Court
• Dissolution for either party for breach of contract
• Mutual consent
• Death of employee or employer
Termination of Employment

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An employer will need to take the following steps for a termination of an employment
agreement:
• Step 1: there must be a “reasonable termination ground”
• Step 2: check possibilities for suitable reassignment
• Step 3: notice by the employer
• Step 4: consent or rejection by employee
• Step 5: termination route
If consent is not be expected or expected to be withdrawn: skip step 3-4 and go from step 2 to step 5!
Termination of Employment

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Statutory, limited termination grounds:
a. economic reasons;
b. incapacity for work for more than 2 years;
c. frequent sickness absence;
d. inadequate performance;
e. culpable conduct or negligence of the employee;
f. refusal to perform work due to a serious conscientious objection;
g. damaged working relationship; and
h. other reasons (only rarely), which are such that it cannot be required from the
employer to continue the employment contract
Each ground has its own further criteria, which must be met (and proven)!
Limitation of grounds is not applicable during probationary period!
Termination of Employment

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• Up to mid 2014 the allocation of taxation of termination payments, the Netherlands
looked 4 years back and allocated the right to levy taxes to the countries in which the
employee had worked;
• As of mid 2014, this allocation period has been reduced to a 12 month period prior to
termination.
Taxation on termination payment

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• obligation to establish a Works Council (“WC”)
• both full-time and part-time employees are counted
• members of the WC are chosen by and from the employees
• elections of WC members: a vote by secret ballot
• < 50 employees: 3 members; 50-100 employees: 5 members; max 25
members
Representation of Workers
Companies with 50 employees or more

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• employers are prohibited from hiring foreign nationals without a
work permit (risk to obtain a fine up to € 12,000 per foreign national)
• exceptions to this work permit rule exist (e.g. citizens of EU, EEA,
Switzerland; not Croatians)
• employers are required to request work permits
• work permits must be denied for certain enumerated reasons
• work permits may be denied for certain enumerated reasons
• work permits may be issued only for limited periods
Immigration

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• Special regulation for employees hired from abroad or assigned to
the Netherlands;
• 30% of gross Dutch taxable wages can be paid out free of taxes as
cost reimbursement;
• To cover extra-territorial costs (housing, home leave, etc.);
• Conditions, a.o.:
- Dutch taxable salary should exceed +- EUR 40K;
- Residency 24 months prior to work / live in NL >150 km from Dutch
border
- Reduces maximum tax rate effectively to 36,4% instead of 52%
30%-ruling (Expat regime)

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Questions

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Contact Details
Taxand Netherlands
www.taxand.nl
Piet Heinkade 133
1019 GM Amsterdam
The Netherlands
chris.vanwijngaarden@taxand.nl
+31 (0) 20 435 6404
Doorn en Keizer
www.denklaw.nl
Piet Heinkade 135
1019 GM Amsterdam
The Netherlands
m.roestcrollius@denklaw.nl
+31 (0) 88 730 4600