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Payroll Tax in the Netherlands: A Guide for Global Employers

Hiring employees abroad entails running a compliant payroll, which includes calculation of payroll tax for both the employee and employer.  In the Netherlands, there are many components to payroll tax, which may be different from your home country.  For example, in the US ‘payroll tax’ only refers to payments that support social security and post-retirement health coverage.

In the Netherlands, payroll tax covers a broader set of withholding and contributions, (including income tax withholding) and if you are new to employing in that EU-member country, you will want to have a full understanding of the terminology and rates.  This guide will get you started but it is likely you will need local resources to ensure it is done correctly.

Employer’s payroll obligations in the Netherlands

The employer’s primary responsibility is to withhold all employee payroll taxes and contributions in the monthly payroll.  This is no easy task considering all of the different insurance types, calculations and rates, as well as income caps.

What are the different types of payroll tax in the Netherlands?

There are four different areas covered by ‘payroll tax’, and you will notice that it encompasses almost every type of social contribution and taxation.

Wage Tax

The wage tax is the term for withholding employee income tax, but it is included under the ‘payroll tax’ terminology/calculation in the payslip. Income tax rates range from 9% to 51%.

Social Security Contributions

The total social contribution for employees is 27.65%, which is broken down into different types of benefits (17.9% old age social security, .1% dependent/spouse, and 9.65% for long term care).

Premiums for Employer Insurance

Employer-paid social security contributions for insurance include unemployment insurance (2.94% or 7.94% depending on contract length), occupational disability insurance (8.55%), and childcare allowance (.5%).  Employer contributions are capped at an annual salary level of EUR 55,927.

Income Related Healthcare Insurance Contributions

Medical insurance contributions are EUR 1415 per year for the employee, and for the employer, it is 6.7% of income (capped annually at the employee salary of EUR 57,232).

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Who is responsible for payroll tax for temporary staff and subcontracted work?

The employer is not responsible for payroll tax withholding/contribution for either temporary workers or contractors.  Temporary workers will have their agency withhold the tax (and pay the employer contribution), and contractors will pay their own as self-employed.

How does the Balance Employment Act affect payroll contributions?

This act developed the different unemployment benefits the employer contributes for employees with either fixed-term or open-ended contracts.  Logically, the contribution for open-ended contracts is higher (7.94% vs 2.94%).

Client Case: Employer Contributions

Context:

We had a client with employees in the Netherlands that thought the payroll was in error because two employees with different compensation levels had the same amount of payroll tax deducted, specifically the employer contribution amount.  

Solution:

We explained to them that both employees’ salaries exceed the income maximum of EUR 55,927, so although they were compensated differently the payroll tax was the same since the employer contribution cap had been reached.

Do you need more information about the Netherlands?

If this is your first time attempting to run payroll in the Netherlands, you might have more questions such as:

Do payroll taxes and rates apply to expats as well as residents, and are their different rate structures or exemptions?

Do the income caps only apply to employer contributions?

Is the medical insurance contribution mandatory, or can an employer choose to provide private insurance?

Finding answers to questions like these is one of the reasons that our clients rely on our expertise in payroll, employment laws, and benefits.  We make international employment simple.

 

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