Business expansion into the Dutch market has many benefits, such as simplified bureaucracy, tax breaks, and regularly evolving public policy. The Netherlands’ high education standards and lifelong learning attitude have resulted in one of the most well-educated, skilled workforces in the world.
This country may well be at the top of your list of potential recruitment markets. However, hiring employees in the Netherlands entails setting up a legal entity and complying with local employment laws, which is overwhelming to manage on your own.
This guide helps you navigate employment in the Netherlands by summarizing the key points of Dutch labor law and explaining how to compliantly hire employees in this market.
Employment in the Netherlands: What to Know Before You Hire
Before hiring employees in the Netherlands, you must familiarize yourself with the country’s labor laws, including Collective Labor Agreements, payroll, employment tax, and leave entitlements.
Collective Labor Agreements in the Netherlands
Employment in the Netherlands is highly regulated by Collective Labor Agreements, or Collective Arbeidsovereenkomst (CAO) in Dutch. CAOs are employment terms that employers or employment organizations negotiate with trade unions.
Collective Labor Agreements in the Netherlands may apply to an entire trade or industry. This means your business may be subject to a CAO even if you have not negotiated with trade unions or joined an employment organization.
Foreign businesses hiring employees in the Netherlands must understand which CAOs they are subject to and specify this in their employment contracts to avoid fines and other legal repercussions.
Payroll in the Netherlands
Payroll in the Netherlands is relatively straightforward, with some distinct nuances:
- Minimum wage. Wages are by the day, week, or month rather than by the hour, and a different minimum wage applies to different ages. Rates are reviewed and set biannually.
- Payroll cycle. Payroll in the Netherlands follows a typical monthly cycle, with wages paid at the end of the month.
- Holiday allowance. All Dutch employees are entitled to an annual holiday allowance unless their CAO excludes it. Employers must clarify this detail in their employment contracts.
- Severance. Employees in the Netherlands are not entitled to severance except under certain conditions, such as nonmutual employee dismissal or termination due to employer misconduct.
Employment Tax in the Netherlands
Regularly evolving employment tax is one benefit of doing business in the Netherlands. Income taxes and other tax measures are reviewed and set every year.
As of 2022, income tax in the Netherlands is divided into two brackets with the following rates:
- Income up to €69,398: 37.07%
- Income over €69,398: 49.5%
The employee and employer must each pay social security tax. There are two social security schemes in the Netherlands:
- Employee insurance. This includes coverage for unemployment, sickness, and the incapacity to work. The employer pays contributions to the Dutch Tax and Customs Administration.
- National insurance. This includes old age pension, long-term care, orphan’s pension, and widow/widower’s pension. The employer withholds these contributions from the employee’s gross salary.
Many employers value the evolving employment tax in the Netherlands. However, it also presents a noncompliance risk. Businesses must regularly monitor annual rate changes to ensure compliance.
Leave Entitlements in the Netherlands
Foreign businesses venturing into the Netherlands must offer their employees the minimum statutory leave entitlements:
- Annual leave. Minimum annual leave is four times the number of weekly working hours. Does your employee work 40 hours per week? Then they are entitled to at least 160 hours of annual leave, which is equivalent to 20 days if they work eight hours per day.
- Maternity leave. Maternity leave in the Netherlands is 16 weeks in total (six weeks of pregnancy leave and 10 weeks of maternity leave).
- Parental leave. Employees with children up to eight years are entitled to parental leave of 26 times the number of weekly working hours. For the first nine weeks, they receive 70% of their salary from the Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen, UWV).
- Sick leave. Employees are entitled to at least 70% of their salary and holiday allowance while on sick leave. Employment contracts or relevant CAO terms may require a higher percentage.
There are other special leave schemes that Dutch employees may be allowed to exercise, depending on their CAO terms.
Find more extensive information on employment law in the Netherlands.
How to Hire Employees in the Netherlands
Employers can hire employees in the Netherlands in two ways: setting up a local entity or partnering with an employer of record. Additionally, foreign businesses may choose to engage independent contractors in the Netherlands.
Set Up a Dutch Entity
When pursuing employment in the Netherlands, a foreign business must first establish a legal presence in the country. The most common entities are a private limited liability company (Besloten Vennootschap, or BV) and a public limited liability company (Naamloze Vennootschap, or NV).
The entire process can take at least one month and involves multiple steps:
- Opening a bank account
- Registering with the Trade Register and Tax Office
- Notarizing Articles of Association
- Setting up employee insurance
- Conducting risk evaluation
The Netherlands also requires the use of a civil-law notary at most of these steps, so be sure to partner with a Dutch notary from the beginning.
What if you are not ready to invest in physical infrastructure and set up an entity? A simpler way to hire employees in the Netherlands is to partner with an employer of record.
Partner With an Employer of Record in the Netherlands
An employer of record (EoR) in the Netherlands is a Dutch legal entity that hires, pays, and manages your distributed workforce on your behalf. An EoR allows you to kickstart employment in the Netherlands and be fully operational in days—without setting up a legal entity in the country. This option lets you easily test the Dutch market before making long-term investments.
An EoR handles every aspect of employment in the Netherlands, such as onboarding, payroll, benefits administration, and risk mitigation. This allows you to focus on overseeing your employees’ day-to-day work.
An employer of record in the Netherlands is also familiar with Dutch labor laws and ensures you are up to date with all legislation changes and compliance requirements.
Learn more about what an employer of record is and how it works.
Engage Independent Contractors in the Netherlands
Some businesses may engage contractors in the Netherlands instead of employees for added flexibility and lower commitment. If you choose this route, be sure to avoid false self-employment penalties.
Dutch legislation provides a detailed list of conditions that classify workers as employees versus independent contractors in the Netherlands. For example, if you offer sick leave or control how your contractor performs tasks, local regulators will classify your contractor as an employee. As a result, you’ll face back pay and other legal fines.
Foreign employers must familiarize themselves with these conditions to avoid misclassification penalties.
Simplify Employment in the Netherlands
Setting up a legal entity in the Netherlands can take more than a month. Navigating things like CAO regulations and tax laws along the way is overwhelming. Plus, noncompliance can result in fines, back pay, and a damaged business reputation.
Make employment in the Netherlands simpler by partnering with Velocity Global. Our global Employer of Record (EoR) solution handles onboarding, payroll, benefits administration, compliance, and ongoing HR support so you can jumpstart your business venture into the Netherlands without increasing your workload.
Connect with us today to learn how to quickly and compliantly hire employees in the Netherlands.