Hiring employees overseas will require you to calculate all statutory benefits and social contributions in the host country. This includes employee pensions for retirement where you will have to withhold contributions based on the employee’s salary. Netherlands has a mandatory state pension system, as well as voluntary company and individual pensions.
What are the different types of pensions in the Netherlands?
There are three different types of pensions in the Netherlands, which all combine to create what is known as one of the best pension systems in the world.
Dutch State Pension System (AOW):
The AOW (old age pension) is funded by all working residents who make tax and social security contributions. This is similar to social security in the US.
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A workplace pension can be funded by both employer and employee contributions, depending on AOW contribution amounts. This is company organized with a pension provider, similar to a 401k. Some industries have mandatory occupational pensions under collective bargaining agreements.
Employees can also have a private pension funded by personal contributions.
Banks and insurance companies usually manage these for the individual.
Who is eligible for pensions in the Netherlands?
AOW pension can be claimed by any resident age 66 years and 4 months or older. The amount of the pension will depend on how many years of work in Netherlands, and the formula is 2% a year so the pension will be fully funded after 50 years of employment. The maximum monthly payment upon retirement is around EUR 1000, thus the need for supplementary pensions.
What is the pension contribution rate in the Netherlands? 2021
The contribution rate in 2021 for AOW is 17.9% of salary, paid by the employee. If an employer has a workplace pension, employees will contribute 4-7% of base salary.
What is the AOW franchise amounts in the Netherlands?
The AOW ‘franchise’ is the pension scheme deductible of EUR 14,544 before the contribution rate is applied, and there is a salary cap of EUR 112,189. Because of this, employees wont pay the actual full 17.9% on their wages, as the first EUR 14,544 is not included.
Client Case: How do employers calculate their monthly pension contribution amounts?
Context: A client reached out to Shield asking how the employee’s monthly pension contribution amount is calculated for one of their employees.
Solution: We informed them that the employee pension contribution amount is calculated in the following steps:
- Find out how much of the employee’s annual salary must be applied to the 17.9% pension contribution rate
- Annual gross salary, minus the annual AOW franchise, equals the annual amount that the employee has to pay the 17.9% pension contribution on.
Do you need more information about the Netherlands?
If you are new to hiring in the Netherlands, you might have other questions such as:
Is it recommended to set up a workplace pension for remote workers to retain their loyalty long term?
Is the AOW franchise pro-rated monthly in payroll for contribution calculation?
Can an employee elect not to contribute to the AOW pension?
These types of questions come from our clients often, and we provide solutions through our in-country experts to keep them in compliance. We make international employment simple.
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Looking to hire an employee in the Netherlands? Get in touch.
The information in this article is subject to changes in local legislation.
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