Some important information for foreign employers with employees domiciled in the Netherlands.
The decision by a foreign employer have one or more employees domiciled in the Netherlands can have significant and often unexpected consequences. This article further elaborates on these consequences. Many issues are handled superficially, as these have been dealt with in detail in previous blog posts. To consult previous blog posts, please use the following link:
Income and payroll taxes
To the extent that your employee is active in the Netherlands or outside your country of establishment, the Netherlands has the authority to tax your employee’s salary proportionately. This tax liability can arise relatively easily if, for example, your employee occasionally works from home or visits customers abroad. The only exceptions are for support tasks, such as processing meeting minutes or memoranda.
Permanent establishment / permanent representative
Are you an employer with a fixed establishment or a permanent representative in the Netherlands? Then you are subject to corporation tax in the Netherlands. This implies that you may be subject to payroll taxes, VAT and corporation tax in the Netherlands. This can also be the case if your employee is authorized to enter into contracts in your name in the Netherlands.
Social security may also be an important issue. If the employee domiciled in the Netherlands works at least 25% of the time in the Netherlands (for example, by working at home), then the employee – according to EU regulation – is exclusively subject to Dutch social security taxes and benefits. This would have far-reaching consequences.
Employers are required to notify the Netherlands Tax and Customs Administration and to apply social security withholding taxes to the employee’s entire salary. If an employee is enrolled in the social security programme in the Netherlands, the employer is required to pay premiums for national insurance and employee insurance schemes and to withhold health insurance premiums from the employee’s wages. It is irrelevant in this case whether or not the employer is subject to withholding tax requirements in the Netherlands.
The rules and regulations with regard to sick leave and occupational disability for the Netherlands are also applicable. Aside from tax issues, it is important to realise that the employee is entitled to Dutch benefits with regards to sick leave, occupational disability and unemployment.
In the Netherlands, an employer is required to continue paying an employee’s salary for at least two years in the case of extended sick leave.
Obligations when an employee is on sick leave
In the case of occupational disability, the employer is required to play an active role in reintegrating the employee into the workforce. In such cases, numerous compulsory provisions are applicable. As a certified occupational health and safety service provider, we can certainly provide assistance in such matters.
An employer is required to register a sick employee with the company’s occupational health and safety service or company physician. If the illness is expected to be of a more prolonged nature, then the employer is to devise a plan, in consultation with the employee, to help the employee return to work as quickly as possible. After 42 weeks on sick leave, the employer is required to notify the Employee Insurance Agency (UWV) after which the assessment of the situation is scheduled. After 88 weeks of sick leave, a request is submitted for benefits according to the Work and Income (Capacity for Work) Act (WIA in Dutch). An active attitude on the part of both the employer and the employee is mandatory.
Occupational disability of an employee has significant financial consequences for an employer. An employer can, however, take out a sick leave insurance policy to cover this risk. The premium percentage depends on the employer’s industry, business activity, absenteeism rate of the last few years and the total wage bill per year to be insured. We can help you select a sick leave insurance policy.
In our practice, we receive various questions from foreign employers. Which employment law is applicable in case of a dispute? Is a collective labour agreement applicable? Is an employee entitled to pension accrual in the Netherlands?
Foreign employers are also required to comply with the Dutch working conditions legislation as well as with other fiscal and legal regulations. Examples of the latter might include the minimum wage laws and the Working Hours Act applicable in the Netherlands.
One possible solution for outsourcing these issues is “payrolling”. Payrolling means an employee is legally employed by a payroll organisation that bears responsibility for all the above-mentioned formalities. We would gladly help you organize this.
The payroll company is the formal legal employer of the employee. It manages all of the required administration associated with employment and it bears the legal risks of employment that would otherwise be carried by the employer. The employee is outsourced to you (the employer) by the payroll company as the economic employer. You bear no fiscal or employer risks. This cancels, for example, your obligation of continued payment of wages and other obligations during an employee’s sick leave.
This article outlines a number of important issues for foreign employers with employees domiciled in the Netherlands. This is exclusively intended to draw attention to some of the relevant issues and is not intended as an exhaustive study.
It is crucial to diligently assess or to be professionally advised on the various aspects entailed when hiring one or more Dutch domiciled employees. Preparing well prevents unpleasant surprises!
For more information, please contact:
Drs. R.W.M. te Kaat
+31 (0)314 369111
+31 (0)6 112 74485