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Guide to Employee Benefits and Compensation in the Netherlands

What are Employee Benefits?

Employee benefits are perks and benefits provided by companies to their employees over their regular salary. These additional perks may be financial or non-financial, depending upon the employer and company provisions.

Most countries’ labor laws guarantee additional benefits for employees, such as health insurance, minimum wages, paid vacation, retirement funds, maternity leaves, etc. Hence, organizations worldwide usually follow these standards to ensure employee satisfaction and avoid penalties and legal troubles.

In the long run, employee perks benefit both employers and employees. By offering industry-standard benefits, employers can keep their workforce happy and reduce the attrition rate significantly. On the other hand, employees feel valued when companies invest in their professional development.

The Netherlands is no exception to this industry norm. Thus, before setting up a business in the Netherlands, employers must understand its employee benefits in the Netherlands. 

This article highlights the intricacies of the compensation and benefits policy in the Netherlands.

Compensation Laws in the Netherlands

The country’s labor laws are the primary influencing factor for the compensation and benefits policy in the Netherlands. Everything related to employee benefits in the Netherlands is administered and mandated by the labor rules.

Before we get into the laws governing compensation packages in the Netherlands, employers must first understand different employment contracts.

Temporary employment contracts (tijdelijk contract):

A temporary employment contract exists between the employee and employer. Typically, the period for this contract is six or twelve months.
When the termination date arrives, an employer has three options:
– Provide the employee with a new temporary contract
– Provide a long-term contract
– Not offer a new contract 
Unless the collective bargaining agreement states otherwise, an employer must offer a permanent contract after three consecutive temporary or temporary contracts lasting up to three years.

Permanent employment contracts (vast contract)

Under permanent contracts in the Netherlands, employees are hired for an indefinite period with an organization. These contracts are binding until:
– The employee voluntarily resigns from the organization
– The employer fires the employees or decides to let go of the employees due to restaffing and budget issues.

Recruitment agency contracts (uitzendcontract)

In recruitment agency contracts, three parties are involved – the employee, the employer, and the lender or the recruitment agency. A work contract can be formulated between a recruitment agency and a company. The employee must also sign an agreement with the recruitment agency to perform the necessary duties for the chosen employer.

Zero-hour contracts (nul uren contract)

A zero-hour contract exists when an employee works part-time with an organization. There are no set working hours or days in these contracts. 
Employees must be available when their employer summons them. They are paid for the hours worked. However, even if an employee works less, they are compensated for a minimum of three hours per shift. In addition, employees are eligible for sick leaves and holidays. 

Freelancer contract (DBA modelovereenkomst)

Employers must have a contract to hire freelancers. The DBA act defines the relationship between a freelancer and the company, clearly stating that a freelancer is not a salaried employee, though they will be paid for their work.

The labor laws in the Netherlands issue guidelines for setting up a compensation structure in the Netherlands. 

  • As of 2022, the minimum wage in the Netherlands is 1,725 euros per month. However, the minimum wage in the Netherlands is determined according to the employees’ age and is revised every six months based on the inflation rate. 
  • In the Netherlands, employers must pay all employees the minimum wage and minimum holiday allowance. According to Dutch legislation, every employee is entitled to 8% holiday pay for the previous 12 months’ regular gross salary.
  • The average working week is 36 to 40 hours, depending upon the sector and company policy. Under Dutch law, the employees can work for 12 hours per day, making the weekly limit 60 hours. However, employees can follow this only for short-term or priority projects. Typically, they must follow the regular working hours Employees are paid overtime compensation if they work beyond the statutory working hours.

How to Design an Employee Benefits Program for Employees in the Netherlands?

Benefits packages for employees are essential components of predicting total compensation costs; thus, most firms face a significant difficulty when estimating the cost of these benefits.

To build a quality employee benefits program, employers must identify their employees’ needs and challenges in the workplace. While conforming to local labor rules, a compelling benefits package strikes the appropriate balance between the interests of both employees and employers.

To create the ideal compensation package in the Netherlands, follow these steps:

Step 1: Set clear goals.

The first step in creating an employee compensation policy in the Netherlands is to assess the company’s budget and decide how much money to set aside for employee benefits.

After determining an exact figure, companies must outline the advantages they wish to provide employees. When creating a compensation and benefit checklist in the Netherlands, employers should be mindful of the following goals:

  • Identifying potential skills
  • Keeping current recruits
  • Working within the budget constraints
  • Following all state and federal labor laws

Step 2: Get to know the industry standards.

Employers must perform in-depth research about the compensation structure in the Netherlands. This will tell them what their competitors are offering to their employees, and accordingly, they can set the budget for the employee benefits package.  They can also conduct an internal assessment to understand their employee’s demands better. The survey’s data can show employers what their employees expect from the benefits program. 

Employers can use this information to:

  • What employee compensation and benefits in the Netherlands do Dutch companies need to meet their employees’ needs?
  • How can they recruit new talent better than their competitors?

After gathering this information, employers can develop an employee remuneration strategy that suits both new and existing employees. Companies can use this information to compare their benefits package to industry standards and build a unique compensation policy. It will increase employee productivity and make them professionally stable.

Step 3: Design a customizable compensation package

After doing the market research and internal survey, employers must design the main framework for workers’ compensation in the Netherlands.  

They must now guarantee that their compensation is adaptable enough to accommodate any gaps in requirements. Employees can select their desired additional benefits from the proposed structure in the compensation package. Furthermore, such a compensation plan is cost-effective since it eliminates underutilized benefits while ensuring that each employee has access to appropriate perks.

Step 4: Convey the plan

Open communication is pivotal for a well-planned compensation package. Employers should explain the policy structure and elements to all existing and new employees for feedback. They must incorporate the feasible suggestions and maintain open lines of communication with employees to include them in the planning process directly. This simple exercise can help employers gain their employees’ trust, loyalty, and respect.

Step 5: Evaluate the benefits package

Certain aspects, including the economy, employee demographics, and business climate, create dynamics that affect benefits offerings. Regular evaluation and assessment are crucial in determining the benefits package’s efficacy. This enables companies to assess if their pay plan meets their employees’ needs and whether any changes are necessary. Employers can make actionable goals to measure the success of the employee benefits program and make changes accordingly. 

Types of Guaranteed Benefits in the Netherlands

The mandatory employee benefits in the Netherlands include – 

  1. Minimum wage: In 2022, the legal minimum wage in the Netherlands for full-time employees over 21 is €1725 a month. Depending on the industry or corporate policy, full-time can mean a 36-, 38-, or 40-hour workweek. Salaries must be paid on time each month before the month ends.
  1. Working hours: Working hours in the Netherlands depend on the industry. Most full-time employees work 36 to 40 hours a week over four or five working days. Breaks are not counted in the actual working hours. However, if an employee takes a business lunch, it comes under the purview of working hours.Each employee is limited to a certain number of working hours each week. An employee’s maximum working hours are fixed at 60 hours. A single shift cannot exceed 12 hours, and an employee must have at least 11 hours of rest between shifts to maintain a healthy work-life balance.
  1. Paid time off: The right to paid leave is one of the cornerstones of employee benefits in the Netherlands. In the Netherlands, a full-time workweek is usually 40 hours. Employees working a 40-hour week are entitled to at least 20 days of paid vacation. Employers calculate minimum vacation days. If an employee works less than 40 hours a week, they will have fewer vacation days. In the Netherlands, several firms give 25 days or more paid leaves. This number of PTO days does not include public holidays.
  1. Netherlands holiday allowance: Every employee is entitled to a holiday allowance, or “vakantiegeld,” and the mandatory 20 days of paid vacation. This allowance provides employees with additional cash to help them make the most of their vacation. The minimum holiday allowance is 8% of an employee’s gross annual wage. So, if a person has worked for three months, they are only entitled to an 8 % holiday allowance on their gross income during that time.
  1. Sick leaves: Leave benefits in the Netherlands include sick leaves too. Employees must notify their employers as soon as possible if they intend to take a sick day, usually before starting the working day. However, they are not compelled to inform their employer of their situation. An employee is entitled to 70% of their salary for two years if they are unwell for an extended period due to disability or burnout. The minimum wage applies for the first year of chronic sickness, meaning employers must pay employees at least the minimum wage for that year.
  1. Maternity leave: Maternity benefits in the Netherlands are split up into two parts – Dutch pregnancy leave and maternity leave. Mothers are entitled to a time off of 14-16 weeks. Expectant mothers can avail of pregnancy leave four to six weeks before the expected due date. The difference of two weeks is added to the maternity leave if the employee chooses to work until four weeks before the due date. After giving birth, a mother should take at least ten weeks of maternity leave.
  1. Paternity leave: Paternity leave is available to partners of pregnant female employees. After their kid’s birth, new fathers or partners are entitled to a whole week (5 working days) of paid parental leave. Additionally, employees can take up to five weeks of unpaid paternity leave. These five weeks can be spread over the first six months after the child is born. Employees taking unpaid leave can claim up to 70% of their salary from the Employment Insurance Agency (UWV).  
  1. Social Security Contributions: The Netherlands has an extensive social welfare system. All employees are covered by social insurance, of which the employer contributes half while withholding the other half from the employees’ pay. The funds are used to support the National Old Age Pension (AOW), the Chronic Care Act (WLZ), and the National Survivor Benefits Act (ANW). When someone reaches retirement age and becomes chronically ill, these funds ensure a basic level of wellbeing. In addition, they provide adequate support to jobless bereaved spouses or dependents under 18. The rates and allowances are set each year.
  1. Health Insurance Act contributions: In the Netherlands, employees primarily manage health insurance. However, employers must contribute under the Health Insurance Act (ZVW). All citizens must enrol in a health-care cost insurance plan with an approved Dutch private insurer under the statute. Every employed person as well as retirees pay an income-based contribution to the Dutch tax office for the health care insurance act (Zvw). The average yearly cost of health insurance for a Dutch person is around 1,400 euros, or $1,615. Low-income people receive additional government aid to help them pay their bills. 

Employee Benefits for Expatriates

The employee benefits program in the Netherlands is extended to expats. Health coverage and all the benefits listed above are available to foreign employees working in the Netherlands. Some other benefits offered to expats are:

  • Language training
  • Relocation benefits
  • Accommodation benefits

How are Employee Benefits Taxed in the Netherlands?

The income tax is charged on the employees’ gross pay, and it varies from 9 percent to 51%. 

The social security contributions are 27.65% which is further broken down into different parts: 17.9% for old-age social security, 1% for the spouse, and 9.65% for long-term care. The employer contributions also include a 2.94% or a 7.94% contribution towards unemployment insurance. The percentage is decided based on the employment contract.

Restrictions for Netherlands Benefits and Compensation

The federal minimum salary and the maximum weekly working hours are two of the most strict limitations in Dutch compensation law.

The two limits mentioned above are enforced across the country. As a result, before recruiting employees in the Netherlands, companies should familiarize themselves with the local legislation on benefits and remuneration.

Supplemental Benefits for Employees in the Netherlands

Netherland employers provide some supplemental benefits to their employees. Some of these benefits include:

Travel expenses

In the Netherlands, most employers reimburse employees for travel expenses if they live more than 5 kilometers from their workplace. Companies frequently reimburse their employees’ travel expenses by covering the price of public transportation. Employers may also reimburse employees if they are traveling from their vehicles. The Tax and Customs administration has set this limit to 0.19 euros per kilometer.

Pension plan

The state general old-age pension is available to everyone who has worked in the Netherlands for a sufficient period (AOW). The age at which people get pension benefits continuously increases until 2024 when it will be fixed at 67.
Employees can build a state pension by investing in a pension fund. They can do this independently or have it organized by their company/employer. The employee’s income legally determines the maximum pension contribution. If a Collective Bargaining Agreement (CAO) covers your employee, you may be obligated to provide a pension plan. Having a pension plan is a significant selling point for your business.

13th month’s salary

The 13th-month salary is a year-end bonus that an employee will receive based on the month’s gross wage. The holiday allowance mandated by Dutch law should not be confused with the 13th month’s income.
Even though the 13th-month salary (in Dutch) is included in some industries’ Collective Labor Agreements (CAO), it is not compulsory for all employers.

How Multiplier Can Help with Benefits Management in the Netherlands

Working with Multiplier will make navigating the Netherlands’ labor regulations and remuneration framework easy. Our skilled team can assist in running your business successfully while adhering to all local labor rules.

We provide the infrastructure needed to onboard talent in other countries without the requirement for a subsidiary. Hence, you can explore new markets while attracting talent at a lower cost.

Frequently Asked Questions

According to the labor laws in the Netherlands, the minimum wage is 1,725 Euros per month.

Employees can work for 40 hours in the Netherlands. However, in exceptional circumstances, the employees can work for a maximum of 60 hours a week.

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