Is it all over for the ‘all-in salary’ in the Netherlands? Is it all over for the ‘all-in salary’ in the Netherlands?

Is it all over for the ‘all-in salary’ in the Netherlands?
14 May 2018

In 2006, the European Union’s Court of Justice ruled that ‘all-in salaries’ were, in principle, no longer permissible in member states. But in the Netherlands, the situation is not quite so clear-cut. In fact, as it is currently a hot topic, let’s look at the issue in more detail:

What is an ‘all-in salary’?

Under Dutch labour law, staff compensation consists of a number of elements such as salary, holiday allowance and holiday leave. When an all-in salary is agreed upon, employers make periodic payments to their employees, which consist of their salary, holiday allowance and the salary value of their assigned holiday leave.

This means that staff members are paid all of the wage elements they are entitled to in relation to the holiday period immediately. But this scenario creates an anomaly.

Firstly, every employee is entitled to paid holiday leave, but they are not given the money during the leave period as they already received it at an earlier stage. Secondly, the ‘normal’ procedure of employers paying a holiday allowance just before holiday leave is taken (it is mostly paid in May or June) does not take place.

Why has this scenario come about?

With all-in-salaries, employees are responsible for putting aside enough money to cover their holiday leave period, which includes paying their mortgage, insurance contributions, taxes and holiday expenses.

The European Court states that people will be unable to enjoy their holidays as they should if they fail to take these financial matters into consideration – and holiday leave is considered important for rest and relaxation purposes. As a result, anything that could have a negative impact on their ability to do so is not permitted. But an all-in salary could be considered to have this kind of negative influence.

What is the situation in the Netherlands?

All-in salaries usually apply to employees who are ‘on call’. They are also common in zero-hours labour contracts, in which employees are given work as and when employers need their services. Staff are only paid for the actual hours they work, which includes the wage elements of their holiday leave and holiday allowance.

In 2013 and 2014, the Dutch courts passed important legislation to approve the provision of all-in salaries, but added several conditions to clarify when they should be used:

  • Employers have an important responsibility to enable their staff to enjoy their full holiday period in order to recuperate;
  • It must be completely clear to employees that their periodic payments are ‘all-in’ so they fully understood that it is their responsibility to put money aside to cover costs;
  • Employees should not have to put aside large sums of money to cover holiday costs;
  • Employees must suffer no financially-adverse consequences as a result of having an all-in salary.

In other words, employers need to inform and advise their staff about how and when they are able to enjoy their holiday leave. They also need to make it clear in employees’ employment contracts which salary elements will be paid to them directly as well as explain that no payment will be forthcoming during their holiday leave period. Just as essential is to break down each individual payment and list them clearly on employee pay slips.

In the case of zero-hours contracts, employees are likely to put aside only small amounts of money – although it is currently unclear what the definition of ‘small amounts’ actually is.

Additional legislative change

Since 1 January 2018, the law concerning minimum wages and minimum holiday allowances has become stricter. Holiday allowances should now be based on wages that include overtime. The period during which minimum wage payments are made must also conform to the same rules as those for salary payments.

The impact of legislative change

These changes will inevitably affect some sectors such as physiotherapy, which have been using a similar, if more complex, approach to all-in salaries for many years. Here employees are mostly paid a share of their employer’s revenues, and all wage costs are paid out of that sum over an agreed period.

But because of the large sums that employees need to put aside, it is unlikely that such an approach will now comply with the law. In fact, recently-introduced test cases could threatened the all-in salary with extinction.

Compensation claims relating to lawsuits of this type can be large, up to €25,000 (US$30,936) or more - a figure that does not include legal costs. As a result, it would seem sensible not to wait to see what happens with case law, but to change your employment terms and conditions as quickly as possible.

Two recent test cases in the physiotherapy sector, which focused on unbundling wage elements, demonstrated just how complex it was to do. So it would make sense to act sooner rather than later.

 Niels Woudstra

Niels Woudstra is a senior advisor for Alfa Accountants and Advisors’ department of personnel and payroll and is based at its international headquarters in the Netherlands. He specialises in Dutch payroll and staffing matters and also lectures on labour law, social security, employment tax and HR management at a range of business schools.

In 2006, the European Union’s Court of Justice ruled that ‘all-in salaries’ were, in principle, no longer permissible in member states. But in the Netherlands, the situation is not quite so clear-cut. In fact, as it is currently a hot topic, let’s look at the issue in more detail:

What is an ‘all-in salary’?

Under Dutch labour law, staff compensation consists of a number of elements such as salary, holiday allowance and holiday leave. When an all-in salary is agreed upon, employers make periodic payments to their employees, which consist of their salary, holiday allowance and the salary value of their assigned holiday leave.

This means that staff members are paid all of the wage elements they are entitled to in relation to the holiday period immediately. But this scenario creates an anomaly.

Firstly, every employee is entitled to paid holiday leave, but they are not given the money during the leave period as they already received it at an earlier stage. Secondly, the ‘normal’ procedure of employers paying a holiday allowance just before holiday leave is taken (it is mostly paid in May or June) does not take place.

Why has this scenario come about?

With all-in-salaries, employees are responsible for putting aside enough money to cover their holiday leave period, which includes paying their mortgage, insurance contributions, taxes and holiday expenses.

The European Court states that people will be unable to enjoy their holidays as they should if they fail to take these financial matters into consideration – and holiday leave is considered important for rest and relaxation purposes. As a result, anything that could have a negative impact on their ability to do so is not permitted. But an all-in salary could be considered to have this kind of negative influence.

What is the situation in the Netherlands?

All-in salaries usually apply to employees who are ‘on call’. They are also common in zero-hours labour contracts, in which employees are given work as and when employers need their services. Staff are only paid for the actual hours they work, which includes the wage elements of their holiday leave and holiday allowance.

In 2013 and 2014, the Dutch courts passed important legislation to approve the provision of all-in salaries, but added several conditions to clarify when they should be used:

  • Employers have an important responsibility to enable their staff to enjoy their full holiday period in order to recuperate;
  • It must be completely clear to employees that their periodic payments are ‘all-in’ so they fully understood that it is their responsibility to put money aside to cover costs;
  • Employees should not have to put aside large sums of money to cover holiday costs;
  • Employees must suffer no financially-adverse consequences as a result of having an all-in salary.

In other words, employers need to inform and advise their staff about how and when they are able to enjoy their holiday leave. They also need to make it clear in employees’ employment contracts which salary elements will be paid to them directly as well as explain that no payment will be forthcoming during their holiday leave period. Just as essential is to break down each individual payment and list them clearly on employee pay slips.

In the case of zero-hours contracts, employees are likely to put aside only small amounts of money – although it is currently unclear what the definition of ‘small amounts’ actually is.

Additional legislative change

Since 1 January 2018, the law concerning minimum wages and minimum holiday allowances has become stricter. Holiday allowances should now be based on wages that include overtime. The period during which minimum wage payments are made must also conform to the same rules as those for salary payments.

The impact of legislative change

These changes will inevitably affect some sectors such as physiotherapy, which have been using a similar, if more complex, approach to all-in salaries for many years. Here employees are mostly paid a share of their employer’s revenues, and all wage costs are paid out of that sum over an agreed period.

But because of the large sums that employees need to put aside, it is unlikely that such an approach will now comply with the law. In fact, recently-introduced test cases could threatened the all-in salary with extinction.

Compensation claims relating to lawsuits of this type can be large, up to €25,000 (US$30,936) or more - a figure that does not include legal costs. As a result, it would seem sensible not to wait to see what happens with case law, but to change your employment terms and conditions as quickly as possible.

Two recent test cases in the physiotherapy sector, which focused on unbundling wage elements, demonstrated just how complex it was to do. So it would make sense to act sooner rather than later.

 Niels Woudstra

Niels Woudstra is a senior advisor for Alfa Accountants and Advisors’ department of personnel and payroll and is based at its international headquarters in the Netherlands. He specialises in Dutch payroll and staffing matters and also lectures on labour law, social security, employment tax and HR management at a range of business schools.