Payroll in the Netherlands

What is payroll in the Netherlands?

Running payroll in the Netherlands means running onboarding, termination, severance, payments, managing benefits like pension and health insurance, making payroll deductions, maintaining compliance, and taxes for full-time employees and contractors. 

Companies have two options for running payroll abroad in the Netherlands 1) open an entity and partner with a PEO service provider for payroll or 2) use a global EOR service like Via. 

The Netherlands has some of the highest taxes in the entire world, which makes performing payroll in the country tricky. Understanding the complex national tax system, including the tax deduction rates for foreign businesses, is a must for setting up payroll here.

This article gives companies who plan to expand to the Netherlands an overview of how to set up and deduct payroll in the Netherlands, as well as some of the options they have of running payroll.

Payroll taxes in the Netherlands

The Netherlands has some of the highest taxes in the European Union. However, all of these taxes contribute to the extensive social security system, which provides many key benefits to employees.

Pay cycle

The payroll cycle in the Netherlands is monthly. Employers normally pay employees on the last day of the month. Employers can send payments to employees' bank accounts via direct deposit or write a paper check. Employers need to give their employees a breakdown of their deductions and payment through a pay stub as a record they can verify.

Tax year

The fiscal year in the Netherlands is from the 1st of January to the 31st of December.

Minimum wage

In the Netherlands, the minimum wage is $1,725 EUR per month for employees 21 and over.

Social security

Payroll taxes for the Employee Insurance Agency (social security fund) are split between contributions from both the employees and employer. The Dutch social security system covers healthcare, pension, leave, and disability.

Corporate tax

In the Netherlands, the standard corporate income tax rate is a flat 25.8%. All companies must pay this standard income tax rate annually when they are calculating their deductions at the end of the year.

VAT

The standard value added tax (VAT) or sales tax in the Netherlands is 21% for almost all goods and services.

However, some items are exempt from the standard VAT rate. For certain professions like healthcare, childcare, education, insurance and banking, there is a 0% VAT added to goods.

Withholding tax

The Netherlands has the highest income tax in the entire world, but that money goes directly into the social programs that are set up for Dutch residents. The country has 3 different types of income boxes, each with separate tax rates. Income tax (or wage tax as it is called in the Netherlands) is set up on a progressive scale and depends on the employee’s gross salary. The wage tax starts at 2.3% and goes all the way up to 52%.

Common employee income tax breakdown: 

• 37.07%: Up to $69,398 EUR

• 49.5%: Over $69,399 EUR

Working hours

Employees can not work more than 45 hours in 1 week. The standard work week is Monday-Friday with 40 hours per week.

Overtime

Overtime agreements must be made by the employer and employee in the employment contract. When work time limits are gone over, overtime compensation is compulsory.

Paid time off

Full-time employees are entitled to 20 days of paid time off per year. Many employers offer between 24 and 32 days of paid time off to their employees.

Any accrued leave from the following year must be used by July. Employers are required to inform their employees of this accrued leaves expiration.

The Netherlands has 11 public holidays employees also receive off.

Sick days

Employees are entitled to 70% of their salary when they are ill for up to 1 year. After 1 year, ongoing salary payments kick in to cover the difference for up to 104 weeks.

Many employers opt to make up the 30% difference in sick pay, so that their employees receive 100% of their pay when they are ill.

Maternity leave

Pregnant employees are entitled to 16 weeks of paid maternity leave. Maternity leave consists of prenatal and postnatal periods:

• Prenatal includes the 4-6 weeks before the due date

• Postnatal includes the remaining 10-12 weeks of leave following the due date

Maternity pay is paid for by the social security system.

Paternity leave

New fathers are entitled to 1 week of paid paternity leave after the child's birth.

Employees can have up to 5 weeks of unpaid leave once the paid paternity leave runs out. Although unpaid, they can claim this leave with the social security system for 70% of their salary.

All parents are entitled to at least 9 weeks of paid parental leave at 50% of their regular wages.

Options for setting up payroll in the Netherlands internally vs. externally

To pay Dutch employees from a foreign country like the United States, there are a few payroll solutions besides opening an entity.

Foreign companies can use a remote payroll system that runs out of the parent company, team up with a third-party that offers outsourced payroll (like a PEO), or partner with a global employer-of-record service like Via that handles the entire process.

Setting up internal payroll

For companies that have a commitment to opening an entity or establishing a business presence in the Netherlands, running payroll internally makes sense. However, this option requires setting up an entity, which can take a few months and requires in-depth knowledge about tax laws, as well as a large amount of investment capital.

In addition to managing compliance, you will need to hire an internal HR team to manage your business. This is a good option for larger companies that have a commitment to expanding in the Netherlands.

Setup a PEO/have another company run payroll

Another option is to use a PEO service that handles payroll and hiring, or to use an internal payroll processing company. These services handle all of the payroll and make sure the right deductions are being made.

However, PEO services and internal processing companies are considered partners with the parent company, and do not take full responsibility for legal compliance. If anything were to go wrong, the parent company is still held liable. Partnering with a PEO is considered a co-employment model, so the parent company will still need to set up an entity within the country.

Fully outsource payroll and benefits with an EOR like Via

Finally, you can hire employees using a global EOR service like Via. EOR services handle global payroll, benefits, and compliant onboarding. An EOR service already has established entities in the Netherlands.