Understanding the complexities of Dutch employment law Understanding the complexities of Dutch employment law

Understanding the complexities of Dutch employment law
14 Dec 2017

In the Netherlands, as soon as an employer starts using Dutch workers in any way and for whatever reason, they must conform to local employment law. Such reasons might include purchasing a Dutch company, working with a Dutch partner on a fixed-term project, or having one of that partner’s employees undertake maintenance work for your company even when its portion of the work has been completed - in which case their employee effectively becomes yours.

But whatever the motivation, it is important to remember that, in such circumstances, if your partner has employed the staff member concerned for 10 years, under Dutch employment law, it is as if you had employed them for 10 years instead. This situation generates three possible key pitfalls, of which it is vital to be aware:

1. Tax implications

The first thing you need to do when taking over responsibility for Dutch employees from a third party is to inform the tax authorities of how many personnel you are taking on as a percentage of their former employer’s total headcount. Registering with the authorities also enables you to declare your employment tax liabilities and to contribute to social security and health care funds.

If personnel have been transferred to you (company B) from another entity (A), it may be deemed that a “transition of business”or “transition of employment” has taken place, which will affect future social security contribution levels. These contributions are calculated based on the total amount of state benefits claimed by the former employees of entity A, which can result in higher payment levels.

2. Implications for dismissal/transition fees

Under Dutch labour law, employers may be required to pay a dismissal fee if they terminate an individual’s contract after they have been employed for two years or more. This fee also applies if someone has been employed for two years or more at the time their fixed-term contract ends.

This situation occurs because fixed-term contracts run for a cumulative period of up to two years, but any longer and they become open-ended employment contracts. If personnel are being transferred from one employer to another, they can argue that the length of their employment with company A should be added to the length of service given to company B.

This means that, in many cases, the most recent employer will be obliged to take the employee on under an open-ended contract. At the same time, they will also need to take into account how long an individual staff member has worked for company A when calculating how long they have been employed overall.

As a result, it may be necessary for employers to pay a more expensive dismissal, or ‘transition’, fee sooner than they thought. How much the transition fee will be, is calculated based on the total number of half years that an employee has worked for both employers.

For example, if a staff member is employed by company A for 11 years before being transferred to company B and having their contract terminated a year later, the transition fee would be based on 12 years of employment. Therefore, they would be entitled to 1/6 of their monthly salary x 24 half months, which is the equivalent of four months salary. This situation applies even if only a limited number of projects or activities have been transferred rather than an entire business.

3. Implications for subsidies

The third consideration that employers should be aware of is that a number of subsidies are related to employment terms. For instance, if a newly-appointed staff member is registered disabled, from 1 January 2018 their employer is eligible to discounts on their social security premiums of €6,000 a year (US$6,992) for three years in a row.

But once the individual’s employment with company A comes to an end so does company A’s entitlement to this subsidy. If employer B argues that it is eligible for the subsidy under the transition of employment rule, however, it will be permitted to continue claiming the subsidy for whatever remains of the three-year term.

On the other hand, subsidies can end up being lost if a transition of employment occurs in the middle of the year. For example, for employer A or B to claim a low-wage subsidy, a staff member has to have worked for a minimum of 1,248 paid hours with each one during the calendar year.

But if employer A transfers personnel administration (which includes registering with the Dutch tax authorities) to employer B on 1 July, it is likely that neither of them will be eligible for subsidies as the employee concerned is unlikely to have worked the full 1,248 paid hours for either of them. In other words, if 15 full-time employees move to employer B on 1 July, both employer A and B will likely lose possible subsidies of up to €30,000 (US$35,111).

So, as always, it definitely makes sense to know what you are doing.

 

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 the Netherlands, as soon as an employer starts using Dutch workers in any way and for whatever reason, they must conform to local employment law. Such reasons might include purchasing a Dutch company, working with a Dutch partner on a fixed-term project, or having one of that partner’s employees undertake maintenance work for your company even when its portion of the work has been completed - in which case their employee effectively becomes yours.

But whatever the motivation, it is important to remember that, in such circumstances, if your partner has employed the staff member concerned for 10 years, under Dutch employment law, it is as if you had employed them for 10 years instead. This situation generates three possible key pitfalls, of which it is vital to be aware:

1. Tax implications

The first thing you need to do when taking over responsibility for Dutch employees from a third party is to inform the tax authorities of how many personnel you are taking on as a percentage of their former employer’s total headcount. Registering with the authorities also enables you to declare your employment tax liabilities and to contribute to social security and health care funds.

If personnel have been transferred to you (company B) from another entity (A), it may be deemed that a “transition of business”or “transition of employment” has taken place, which will affect future social security contribution levels. These contributions are calculated based on the total amount of state benefits claimed by the former employees of entity A, which can result in higher payment levels.

2. Implications for dismissal/transition fees

Under Dutch labour law, employers may be required to pay a dismissal fee if they terminate an individual’s contract after they have been employed for two years or more. This fee also applies if someone has been employed for two years or more at the time their fixed-term contract ends.

This situation occurs because fixed-term contracts run for a cumulative period of up to two years, but any longer and they become open-ended employment contracts. If personnel are being transferred from one employer to another, they can argue that the length of their employment with company A should be added to the length of service given to company B.

This means that, in many cases, the most recent employer will be obliged to take the employee on under an open-ended contract. At the same time, they will also need to take into account how long an individual staff member has worked for company A when calculating how long they have been employed overall.

As a result, it may be necessary for employers to pay a more expensive dismissal, or ‘transition’, fee sooner than they thought. How much the transition fee will be, is calculated based on the total number of half years that an employee has worked for both employers.

For example, if a staff member is employed by company A for 11 years before being transferred to company B and having their contract terminated a year later, the transition fee would be based on 12 years of employment. Therefore, they would be entitled to 1/6 of their monthly salary x 24 half months, which is the equivalent of four months salary. This situation applies even if only a limited number of projects or activities have been transferred rather than an entire business.

3. Implications for subsidies

The third consideration that employers should be aware of is that a number of subsidies are related to employment terms. For instance, if a newly-appointed staff member is registered disabled, from 1 January 2018 their employer is eligible to discounts on their social security premiums of €6,000 a year (US$6,992) for three years in a row.

But once the individual’s employment with company A comes to an end so does company A’s entitlement to this subsidy. If employer B argues that it is eligible for the subsidy under the transition of employment rule, however, it will be permitted to continue claiming the subsidy for whatever remains of the three-year term.

On the other hand, subsidies can end up being lost if a transition of employment occurs in the middle of the year. For example, for employer A or B to claim a low-wage subsidy, a staff member has to have worked for a minimum of 1,248 paid hours with each one during the calendar year.

But if employer A transfers personnel administration (which includes registering with the Dutch tax authorities) to employer B on 1 July, it is likely that neither of them will be eligible for subsidies as the employee concerned is unlikely to have worked the full 1,248 paid hours for either of them. In other words, if 15 full-time employees move to employer B on 1 July, both employer A and B will likely lose possible subsidies of up to €30,000 (US$35,111).

So, as always, it definitely makes sense to know what you are doing.

 

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.