It may have taken a global pandemic, but the migration to remote-first work is finally in full force. Employers are taking note of the upsides to the work in any way movement—like higher productivity, reduced absenteeism, and a much broader talent pool.
For global employers, it means that the Netherlands could be your source for untapped growth potential.
Why hire in the Netherlands?
It turns out that the Dutch might be hiding some of the best talent available. Workers in the Netherlands are considered:
Well-educated: According to the OECD, 78% of working-age adults (25-64) have completed a post-secondary degree. To back that up, both their test scores and employment rates are higher than the OECD average.
Productive: A 2019 study of 180 countries ranked the Netherlands as the second most productive country in the world.
Fluent: English continues to be the language of global business, and the Dutch have mastered fluency in English as a second language. Out of 112 countries, they rank #1.
Happy: The 2020 World Happiness Report puts the Netherlands at #6 among the happiest countries in the world. The Dutch have a strong sense of community and belonging paired with a good work-life balance. The rest of the world is just beginning to catch on to the idea that happy people equal productive people.
While you might be seeing dollar signs right now, there are a few logistical hoops to jump through before you can begin employing workers in the Netherlands.
One of the biggest sticking points is payroll tax. Let’s take a look at what you need to know to keep your global payroll compliant.
Types of payroll tax in the Netherlands
Payroll tax, or the amount of money withheld from an employee’s wages for taxation liabilities, can be broken down into three categories:
Social security contributions
Healthcare insurance premiums
Wage tax, or income tax, is a progressive system in the Netherlands. In 2022, the low-income tax rate starts at 2.3% and goes up to 52% for high earners. Income tax in the Netherlands is the highest in the world. But because it funds so many beneficial social programs, the Dutch don’t seem to mind.
In the Netherlands, the social security system covers income payments for temporary unemployment, as well as permanent incapacity to work from age-related retirement, illness or injury.
These funds are broken down into two different types of social insurance pools for temporary or permanent benefits. The rates vary and are reviewed and set twice per calendar year by the Dutch Tax and Customs Administration.
Employee insurance contributions: Mandatory for all employees. Provides funding for temporary unemployment.
National insurance contributions: Mandatory for anyone who lives and works in the Netherlands permanently. Provides funding for social insurance schemes like permanent disability or age-related retirement.
Currently (first half of 2022), the social security withholding for EU residents permanently working in the Netherlands is 27.65%. It covers contributions for old-age social security, survivor benefits and long-term disability.
Europeans are pretty mobile between EU member states. It’s not uncommon to encounter workers that are employed in more than one state or who travel between states for temporary employment. This makes assigning responsibility for social insurance a little tricky.
In this case, social insurance coverage defaults to the home country for EU residents temporarily working in the Netherlands. And if that arrangement becomes permanent, or the employee works in two or more member states, there are a few conditions that have to be met to keep this arrangement in place:
Work in their home country at least 25% or more
Provide at least 25% of their services to their home country
Receive at least 25% of their income from their home country
If these conditions aren’t met, the social insurance burden can change to the Netherlands. This means a temporary worker, who previously only paid employee insurance, would now have to fork over a little more for participation in national insurance.
Staying on the right side of national insurance withholdings can easily get complicated, depending on employment status, residency status and frequent rate changes.
Employer social security contribution
In addition to the taxes withheld from an employee's pay, your business will also be responsible for matching contributions to the social insurance fund in the Netherlands. While that’s not on the employees’ tab for payroll taxes, the two go hand-in-hand.
Here’s a quick look at what you can expect:
Unemployment insurance: Variable between 2.94%-7.94% based on contract length and required for all employees regardless of residency
Disability insurance: Required for Dutch residents, currently 8.55% for general industry occupations
Childcare allowance: Required for Dutch residents, currently 0.5%
These contribution rates can change, and there are some small differences for high-risk industries. Employer contributions are capped at an employee salary limit of € 57,232. This means that you will only payout to the capped limit for high earners on your payroll.
The Netherlands uses a mandatory private healthcare insurance system. This allows residents some freedom in choice for their healthcare providers but creates additional administrative work for employers.
You’ll need to withhold monthly premiums from your payroll and distribute payments to the appropriate insurers. You’ll also be working with the Dutch Central Administration Office (CAK) to comply with enforcement activities like:
Documentation of proof of insurance
Garnishing wages to pay fines
Automatic enrollment and payments to CAK for uninsured employees
The Dutch healthcare system doesn’t accept foreign insurance so all employees in the Netherlands will need to buck up for at least a basic care package. There is typically a grace period of four months for new arrivals to get on board with the Dutch health insurance requirement. After that, the CAK will become a thorn in your side until the employee gets coverage.
The bottom line on Netherlands' payroll taxes
It doesn’t really matter what country we’re talking about—taxes are taxes. Regardless of where you’re withholding, it can be a little headache-inducing to hammer out who pays what.
Luckily, payroll taxes in the Netherlands follow a familiar structure.
Employers are tasked with calculating and withholding tax payments and insurance premiums through the payroll process. These withholdings include payments for income tax, social security tax and mandatory private healthcare insurance.
Figuring out who counts as a permanent resident and how much to withhold can be complex—but it just may be worth it to gain access to some of the most talented and productive employees in the global talent pool.
Thinking about expanding into the Netherlands? Don’t miss this ebook: