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Employing your first staff is usually a business growth indicator but at the same time a burden of responsibility. To avoid delaying this decision, we propose to break this process down into manageable steps: compliance, tax deductions, payroll, and tax return.
This article emphasizes the employer’s responsibility to the Dutch tax authorities. The rules and numbers mentioned will be useful for you even if you delegate payroll stuff to some professionals because you will know the control points and the amount of work to be done. Let’s dive in!
Establishing Dutch Employer and Employee
When hiring for the first time you must register your company as an employer with the Dutch Tax and Customs Administration (Belastingdienst) and with the Netherlands Chamber of Commerce (KVK). You fill out a form and send it toauthorities.They process the data and then you receive the following:
a payroll taxes number
a 'Payroll tax return letter'
a letter stating your sector of the economy and the percentage for the Return-to-Work fund (Whk, if you are required to pay employee insurance contributions) which depends on the sector
NB! Tax and Customs Administration classify you into a sector and send you a decision with the code of the sector within 8 weeks after your registration. Until you receive the decision, you should define the sector affiliation by yourself and use the percentage accordingly.
Next move to enter into an employment contract. Make sure that the following clauses appear there:
an employee’s salary
a mark whether a Collective Labour Agreement applies
working hours and rest times
a mark whether you arrange an employee pension scheme
a type of employment contract (temporary or permanent).
Then you must collect some legal information from your future employee. Basically, there’s an official form, still, you can arrange the data in any other way, either in paper or electronic form.
Personal information is pretty standard: the employee's name and initials, date of birth, citizen service number (BSN), full address with postcode, and a request to apply for a payroll tax deduction. The document should be dated and signed by the employee.
You should verify the identity of your employee and keep a copy of the identity document. File the copy at the request of the Tax and Customs Administration.
NB! It is very important to send employees’ info to tax authorities before the first work day. Otherwise, an anonymous rate of wage tax/national insurance contributions is applied. And this is 52%!
Calculating Cost of Employment in the Netherlands
In the Netherlands, there are two general types of taxes related to employment - payroll tax and wage/income tax. Let’s start with the payroll tax, which is the social security premiums that you have to deduct for employees.
Social insurances secure an employee a temporary income during such cases as unemployment, illness, or incapacity for work, for example. Social security premiums are divided into employee insurance and national insurance.
Employee insurance is mandatory for every employee.
General Unemployment Fund contribution;Algemeen Werkloosheidsfonds, AWF or Awf-premie;2.7% low, 7.7% high;
Differentiated premium Invalidity Insurance Funf;Arbeidsongeschiktheidsfonds, AOF or Aof-premie;5.49% low, 7.05% high;
Surcharge Childcare Act;Wet Kinderopvang, WKO or premie Wko;0.50%;you can calculate the Wko surcharge on the joint Aof basis link=https://www.belastingdienst.nl/wps/wcm/connect/bldcontenten/belastingdienst/business/payroll_taxes/you_are_not_established_in_the_netherlands_are_you_required_to_withhold_payroll_taxes/when_you_are_going_to_withhold_payroll_taxes/calculating_payroll_taxes/calculating_employed_persons_insurance_contributions/calculating_employed_persons_insurance_contributions
Differentiated contributions under the Return to Work Fund;Werkhervattingskas, WHK or premie Whk;variable per employer,see your decision average 0.78% link=https://wetten.overheid.nl/BWBR0044036/2021-01-01;WGA national insurance component + ZW national insurance component calculation link=https://www.uwv.nl/werkgevers/eigenrisicodrager/eigenrisicodrager-wga/premiewijzer-gedifferentieerde-premie-werkhervattingskas.aspx
Healthcare Insurance Act;Zorgverzekeringswet, ZVW or Zvw-premie;5.50% low, 6.75% high;for everyone who lives and works in the Netherlands
National insurances are compulsory for those employees who live or work permanently in the Netherlands. There are three brackets for wage tax/national insurance contributions. Employees who fall under the two highest brackets, i.e. their annual wage is more than € 35,472 pay wage tax only.
Employees whose annual wage is € 35,472 or lower pay both wage tax and national insurance as follows:
Old Age Pensions Act contribution;Algemene Ouderdomswet, AOW;17.9%
Surviving Dependants Act contribution;Algemene nabestaandenwet, ANW;0.1%
Exceptional Medical Expenses Act contribution;Wet langdurige zorg, WLZ;9.65%
Employee’s and national insurance contributions and paid by employers on behalf of their employees to the Dutch Tax and Customs Administration. These contributions are part of the payroll tax. Now, let’s proceed to wage tax.
1a;up to and including € 35,472;37.07%
1b;€ 35,473 - € 69,398;37.07%
2;€ 69,399 or more;49.50%
To put simply, a Dutch tax resident pays 37.1% wage tax up to an annual income of € 68.507. If her/his taxable income exceeds € 68.507 a year, s/he pays 49.50% wage tax.
Running Payroll and Filing Payroll Returns
When you pay a wage to an employee for the first time after employment, you are obliged to issue a payslip. There’s no official form, you can do it in any kind that is convenient for you - in digital form, for instance, if your employee agrees. Make sure that you include in the payslip the following data:
the gross wages in money
the compilation of the gross or net salary like the basic wage, performance-related pay, benefits, etc.
the amounts withheld from the wages, such as wage tax/national insurance contributions, etc.
the hours worked
the statutory minimum wage and holiday allowance
your name and the employee's name
type of the employment contract
Come from this data to calculate taxes and contributions and file a payroll return. Since the process is not simple, Dutch authorities recommend using accounting software or arranging for an intermediary like an accounting firm or an independent tax specialist.
In the Netherlands, a wage is paid once a month. It’s required to be done by the end of the month, but employers usually do it in 20es of the month. Payroll tax contributions are due by the end of the month of the following payroll. Finally, you have to file a payroll tax return during the same time period.
How to Make Payroll Easier
Accounting software, as mentioned above, is an option not to drown in the flow of figures and deadlines. But, although modern apps are user-friendly and specialized, you still need some basic skills in account to use them. And you need to allow time for it, and also take full responsibility for any mistakes.
Conventional accountants can remove this responsibility burden, but still communicating with them takes a lot of time. Imagine, the process is not set up, you cannot log in to the accounting application, and s/he is on vacation… Troubling, isn’t it?
The automated system of storing/ processing documents with human professional support is the solution that we create in Enty. A single Control Panel streamlines a paper flow, while a team of certified accountants and lawyers monitor and prepare documents on time, correctly, and completely.