How does payroll work in the Netherlands you might wonder. You are aware we have a solid social system, how does that affect the execution of the payroll?
How does payroll work in the Netherlands?
An employer starting to employ employees in the Netherlands first needs to obtain a Dutch wage tax number. Such a number is never issued automatically, always needs to be applied for with the Dutch tax office.
During this application procedure the Dutch tax office also inquires about the activities of the company. If there are multiple, then the main activity is of interest. Based on the activities a sector code is issued with the Dutch wage tax number. The sector code determines the social premium percentages.
Running the payroll
The payroll provider will ask the employer for the employment contracts. The employment contract is the basis of the Dutch payroll. In the Netherlands it is indeed possible to have verbal employment agreements, however, we think that is not a good base for business. I think the labor lawyer will like you less for that. Only the managing director shareholder is obliged to have a written employment agreement.
In the Netherlands the gross salary is the basis. On top of the gross salary is paid out in May or June the 8% obligatory holiday pay. That is different from the holidays an employee can enjoy.
The gross salary will result in a net salary and that needs to be paid not later than the last day of the month. Normal in the Netherlands is to pay on the 25th of the month. Even with Christmas banks will process this.
Are employers’ costs a fixed percentage?
This is a frequently asked question. No, they are not. Some social premiums are maxed at EUR 59.706 (2022) gross salary. When the salary exceeds this amount, over the excess no more social premiums are calculated.
The tax credits, general and labor, decrease the moment the gross salary increases. Pension contributions have a maximum amount per year over which they are calculated. This maximum amount is different from the social premium amount.
The wage tax rate is 37,07 from zero to EUR 69.398 (2022). From that amount the 49,5% wage tax amount applies.
Exercising stock options
Exercising stock options, very popular now, involves the experts. The employer first has to determine during which period in which country the value of the stock options was build up. Then per country the exercising will be taxed.
Employers are once in a while audited by the Dutch tax office. To avoid that not enough wage tax was withheld over the stock option exercising, the employer simply take the maximum percentage, 49,5%. Then in an audit they are not accused of not having withheld enough, with the question to pay up the difference. The employee can claim back too much withheld wage tax in the income tax return.
That said, the moment the employee leaves the Netherlands and exercises its right while being abroad. Dutch tax is to be paid over the exercising of the option.
Mind you, under the 30% ruling only 70% of the value is taxed. The moment the 30% ruling employee leaves the Netherlands, there is no more 30% ruling. Timing could make a difference.
Our payroll team
Running a payroll is not rocket science but neither a walk in the park. The system of the Dutch tax office makes the digital reporting already an obstacle for foreign employers. A crash course running a payroll could take many months, making it no crash course at all.
You need a team that is eager to assist you and we happen to have such a team! Our team ran by Laura is focused on the non-Dutch employer that needs assistance with running a Dutch payroll. A Dutch payroll is not like a Dutch treat, as the employer is paying for the employees tax. That implies the employer has questions. Either questions the employer has itself or questions the employees ask the employer.
Our team base language is English. Most questions you still need to think of, are standard for our team. Please connect to the payroll team with your payroll need.
Tax is exciting
We think tax is exciting. Exciting is hiring employees. That implies your business is growing and you need support. We very much appreciate it if we can assist you with this service need.