Growing your company to another country, such as the Netherlands, requires deep knowledge on employment laws, including payroll. In addition to making sure all employees get paid on time, companies must abide by all of the country’s local regulations.
Taxation rules in the Netherlands
The Netherlands has a robust social security system as well as employees’ insurance programs. Employers primarily fund employees’ insurance programs, but workers contribute as well. These programs range from sick benefits to the Health Insurance Act. Employers should budget around 20% to 25% for these social security contributions.
The Netherlands has 3 different kinds of income “boxes” that have separate tax rates. Overall, income tax rates are progressive and depend on how much an employee earns.
The Dutch Tax Authorities (DTA) recognizes all payments of salary, holiday allowance, allowances, bonusses, and commissions as normal salary that needs to be taxed.
The Netherlands payroll options for companies
There are 3 main options for setting up a Netherlands payroll. These include:
- Internal payroll: If you run a larger company, you may opt to handle payroll internally from your office in the Netherlands. This option often requires a substantial amount of time and money to understand and adhere to the Netherlands’ taxation and payroll laws.
- Local payroll provider: If you do not have the time or resources to run your own payroll, you can work with a local payroll provider. Bear in mind that with this option, you are still held liable for any compensation issues that may arise.
- Employer of Record: By partnering with an Employer of Record, such as G-P, companies can bypass local entity setup and start paying teams quickly and compliantly.
How to establish a payroll in the Netherlands
If you decide to set up a Netherlands payroll yourself, there are several rules that vary depending on the type of business structure you use. All businesses that hire employees have to register with the Tax and Customs Administration to obtain a payroll tax number. You’ll need to stay compliant with all income tax withholding and national insurance withholding laws as well.
A key aspect to a successful hiring venture and compliant payroll in the Netherlands is a sound employment contract that outlines entitlement and termination terms. Employers can only terminate indefinite employment contracts if prior permission has been received from the Employee Insurance Agency (UWV) or the cantonal court. Also, employees are entitled to a transition allowance based on their length of service.
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