Episode 13: Payroll in The Netherlands

Luisa Rollenhagen (00:07):

Hi everyone, you’re listening to another episode of Payroll Around the World, your go-to guide to how payroll works in a specific country. I’m your host, Luisa Rollenhagen, and together we’re going to explore the truly local side of payroll by taking you around the world, one country at a time, to talk to experts on the ground and learn from their experiences.  

After all, payroll can’t truly be global if it isn’t local as well. 

Today, we’re going to the Netherlands. Known for its picturesque canals, bicycle-friendly culture, and tulip fields exploding with color, the Netherlands also plays a powerful role in the global economy. As home to major multinationals, one of the world’s busiest ports in Rotterdam, and a thriving tech and innovation scene, the Dutch economy is a remarkable contender for a country of its size. 

Here’s a quick fun fact that I’ve always loved about the Netherlands: It was the site of the first recorded speculative bubble in history. Those famous tulips I just mentioned? In the early 17th century, “Tulip Mania” swept the country, with prices for certain tulip varieties soaring to astronomical levels, exceeding the value of houses, land, and other assets.  People invested heavily in the bulbs, citing them as the “next big thing,” only to have it all crashing down in early 1637. Just something to keep in mind the next time someone tells you about a hot new investment. 

Moving on! When it comes to employment, the Netherlands is recognized for its highly regulated and employee-centric labor market. Worker protections are robust, part-time work is common and normalized, and collective labor agreements are widespread, covering a large share of the workforce.

Karin Stam (02:04): 

We have in the Netherlands, I think about 900 collective labor agreements, and 85% of the Dutch employees are covered by one of these collective labor agreements.  

Luisa Rollenhagen: Like many other Western European countries, the Netherlands is also dealing with a shortage of skilled workers.

Davy Van Iersel (02:25):

We’re challenged with the demographic changes that we see. People get older. So the percentage that goes with retirement is really high, and that of course leaves us with a knowledge gap that we need to fill in lots of businesses.  

Luisa Rollenhagen: In order to fill this knowledge gap, the Dutch government has devised incentives to attract foreign skilled talent.

Tzula (02:48): 

I’m a highly skilled migrant, which is also a rather privileged class than the Netherlands. I’m pretty sure even my driver’s license exchange was easier because of being a highly skilled migrant. 

Luisa Rollenhagen (03:01):

We’ll explore exactly what these incentives are in a minute, and how they help foreign talent work and live in the Netherlands. 

But first, I’d like to introduce our experts for this episode. Welcome, Karin and Davy! Could you tell us a little about yourselves? 

Karin Stam (03:15):

My name is Karin Stam and I work at the Legal Watch department in the Netherlands as a knowledge manager of law and legislation. And I have to monitor legal changes and relevant case law of payroll taxes and social security and also pensions and labor law.

Davy Van Iersel (03:33):

And my name is Davy Van Iersel. I’m the proud General Manager of ADP in the Netherlands. I’m based in Capelle, which is close to Rotterdam. 

I’m very excited that ADP has a big market share in the Netherlands and that we serve a lot of people in the Netherlands with a correct, timely, and secure payroll. So I’m a proud GM of ADP Netherlands. 

Luisa Rollenhagen (03:55):

That’s great, thank you. I’m looking forward to learning more about payroll in the Netherlands today. To get us started, could you give me an overview of the current Dutch economy and labor market?

Davy Van Iersel (04:07):

If you look at the labor market in the Netherlands and the economy, I think we’re pretty similar to the rest of, let’s say the Western economies, but we definitely see some differences. First of all, our labor market is definitely really tough. We have a very low unemployment rate, meaning that people mainly work. So we have a huge participation rate in the Netherlands, I think one of the highest in the Western economies. So we really see that the Netherlands is progressing well. Also, in terms of the growing economy, we’re still growing, which is really good for the Dutch citizens, of course, but we also see that because of that, it’s very hard to get the right employees. We’re definitely short of workforce, and I think what you see with the Netherlands is a bit the country of part-timers. So a lot of people don’t work full time, but it’s pretty common to work three or four days a week or 20 hours a week, which is, let’s say, halftime, where you only work half days. On top of that, we also see that we’re challenged with the demographic changes that we see. People get older. So the percentage that goes with retirement is really high, and that, of course, leaves us with a knowledge gap that we need to fill in lots of businesses, as people who have a long tenure in certain companies have to be replaced in the next couple of years, and that’s already underway. So I think a very dynamic economy and labor market, but it’s a nice one to work in. 

Luisa Rollenhagen (05:44):

Why are there so many part-time workers?

Davy Van Iersel (05:47): 

I think we are very open and very open to flexibility. Flexibility is one of the most important drivers for people to work at a company. So with that, they also want to have a great work life balance. And businesses in the Netherlands are open to that as long as they have the right people. But you also see that it varies from different age groups or different generations. You can imagine if you are in your mid thirties and you just had kids that you want to have more flexibility than when you’re 45 and your kid is already grown up or you don’t have kids, that people tend to work when they feel like working, but still adding the value to the businesses and they’re open to it. And in that tough labor market, that’s a common thing nowadays. 

Luisa Rollenhagen (06:38):

Flexibility is definitely becoming a significant factor for many employees. And what are some common challenges that multinationals might encounter when they first come to the Netherlands?

Davy Van Iersel (06:48):

I think if you look at multinationals, yes, you look at the culture in the Netherlands, we are definitely very direct, but we’re also very committed to what we do. And I think when you will come to the Netherlands for the first time, you would know immediately that we love taxes and we love regulations. So if you look at what multinationals definitely see, it’s that payroll is not as easy as it is in other countries because we have multiple labor laws, they change on a yearly basis and we have multiple policies that you don’t have in other countries. So that is a big challenge for multinationals, meaning that in terms of their integration in their IT landscape, for example, payroll systems and HR systems are not always easy to integrate in, let’s say, the global centralized systems. If you look at an example of such regulations, I think what you see in the Netherlands, which is pretty rare, is the expat scheme that we have, which also changes on a regular basis. 

But that is also difficult, first of all to understand, let alone that you have to put it in your system and it’s still very strict. So you really have to make sure that a partner like ADP for example, is supporting you in that, because it’s very specific. 

And therefore a legal watch for us is a very important department. Then another one that is different from other countries is our work-cost scheme. I think this is the scheme that has most questions by clients, even though the scheme has not changed too much over the years, but it says something about what can you give to your employees in a net type of way, and what can they reimburse without having the tax liabilities on it. It’s a very stable scheme. Still, companies really need to do this right. Otherwise, the taxes will really explode on reimbursements that have gone over the threshold of this scheme. So it always is a topic that is very high on the agenda. If you look at our clients, the days that we organize, the meetings that we do on this work cost scheme are very well visited. So it’s something to be mindful of at least. 

Luisa Rollenhagen (09:12):

You mentioned two things I’d like to explore further, namely the expat scheme and the work-cost scheme. Let’s talk about the latter first. Karin, I believe this might be your area of expertise. What can you tell me about this scheme?  

Karin Stam (09:26): 

Davey told us about the work-cost scheme, he gave an introduction, but it’s good to know that this work-cost scheme is mandatory since 2015 already in our Dutch payroll landscape. And this scheme prescribes to employers how to deal with reimbursements and provisions. And in short, the basic principle of this scheme is that everything you provide to your employee is taxable unless it’s not. And however, this scheme allows employers to reward their employees up to a discretionary scope without tax liability. For example, a Christmas gift, a company car, flowers on a work anniversary of the employee, are examples. But you must be aware of this scheme because if you reward more than the discretionary scope, you must, as an employer, you must pay a final levy of 80% over any amount above the discretionary scope on behalf of the employer. And of course, we provide our customers reports throughout the year, so each customer can monitor their own discretionary scope, but the scheme contains also specific exemptions and zero valuations, which are limitings mentioned in our Dutch law. 

You need to know this law and you need to know which reimbursements and provisions are specific exemptions, for example. And if I give a specific exemption, then you can think about reimbursements for costs incurs by working from home or travel allowances. And we also [unintelligible] zero valuations, so they do not affect the discretionary scope. And then you can think about work clothing and refreshments at work. And this scheme already is existing for 10 years now, but there are still a lot of questions and uncertainty among payroll administrators in our country. And in order to execute this scheme in a proper and a compliant way, professional knowledge is a must. And of course our ADP systems are compatible with this work-cost scheme. 

Luisa Rollenhagen (11:57):

It’s all the exceptions that always make something like this so tricky. So it’s definitely good to be working with a partner who knows exactly how and when the law applies. 

Let’s talk about the expat scheme that Davy mentioned earlier. We’ve already talked about the fact that the Netherlands attracts many multinationals, but that it’s simultaneously dealing with a bit of a skilled labor shortage. So how do you attract the best people? 

Davy Van Iersel (12:21):

Attracting those people also means that you have to do something to attract them. And the expat regulation is a good regulation to have, to benefit from, because if you’re an expat, it also means, of course, that you have a big decision to take. To start with, going overseas, sometimes with your whole family. And that also means that there are associated costs with that, that you want to be helped in also. So I think that’s one of the main things of, let’s say the Netherlands, that we are so open and there are also open for knowledge workers, but the details of the regulation, Karin knows them way better than I do. 

Karin Stam (13:03):

Well, the expert scheme is also known as the 30% facility. And the scheme makes it possible that an employer is allowed to pay maximum 30% of the salary tax-free for a maximum of five years. That’s the main ruling. And it’s meant to compensate extra-territorial costs because, for example, living in the Netherlands is more expensive than living costs in the home country. Or there can be a situation of temporary double house costs, or the employee wants to, needs to go to travel to the home country to meet the family over there.

Luisa Rollenhagen (13:48):

So how do expats actually feel about the 30% ruling? We wanted to find out how this scheme affects the working and living opportunities for foreign workers in the Netherlands and reached out to Tzula, a researcher from the USA who now lives in Delft. You heard a little preview from them earlier in the episode. This is their story: 

Tzula (14:09):

My name is Tzula Propp. I am 31 years old. My pronouns are they, them, theirs. And I am a researcher here in the Netherlands. 

So my background is as a quantum optics theorist and quantum information theorist specializing in open quantum systems, that’s systems with environments and measurement, how experiments tell us about the world before we measured them, what they reveal. And I came to the Netherlands to work on a quantum internet, a way of interlinking quantum computers so that regular people get access to their power instead of only fancy trillion dollar corporations.

Luisa Rollenhagen (14:54): 

So I think I understood half of what Tzula’s research is on, but it’s pretty safe to say that they definitely qualify as a highly skilled worker. And one of the key eligibility criteria for the expat scheme is that the employer must demonstrate the foreign worker possesses highly specialized skills that are difficult to source within the Dutch labor market.

Tzula (15:14):

I’m a highly skilled migrant, which is also a rather privileged class than the Netherlands. I’m pretty sure even my driver’s license exchange was easier because of being a highly skilled migrant. 

Luisa Rollenhagen (15:27): 

Tzula initially heard about the 30% ruling when they were interviewing for their role in the Netherlands.   

Tzula (15:33):

During the job interview, everyone was very excited about it. They’re like, yeah, you’ll get the 30% ruling. That’s great. And I thought, well, 30% of my income is not taxable, no big deal. But then taxes are actually pretty high here, so it is a big deal and it’s quite helpful. 

I will say that I took a rather large pay cut to move here. It’s about a 10,000 euro-ish pay cut to move here. Of course, this is worth it because of the quality of life being so much higher.

Luisa Rollenhagen (16:00):

Tzula’s employer applied for the expat scheme on their behalf, as is usually the case in these kinds of situations—the employer usually initiates and handles the application process, especially since the benefit directly affects payroll. 

Tzula (16:14):  

I’ve been on it since I got my position when I started working at the university I work at here. They said, are you eligible for the 30% ruling? And I clicked the link and it says, yes, you are eligible. And so I said, yes, I’m eligible. And then they applied for me. So it’s a very privileged position. I’m lucky they really wanted me here, and I’m able to stay here for another two years with another position at another university because they also really want me here, and I’m pretty sure they’ll help me do that as well. 

Luisa Rollenhagen (16:45):  

For Tzula, schemes like the 30% ruling open up possibilities for foreign workers and allow countries to work with highly skilled people from all across the world, strengthening the flow of information and knowledge.  

I went back to Karin and Davy to delve deeper into this issue. So, as we just heard from Tzula, one of the conditions for the scheme is that the expat worker has a skillset that isn’t easily found in the Dutch market. What are some other conditions? 

Karin Stam (17:12):

The employee must be recruited from outside of the Netherlands and his salary must comply to minimum salary standards. And in addition of all these conditions which are mentioned by law, our Dutch government is making adjustments to this scheme, and these adjustments are or will be implemented on different moments. For example, the 30% will be reduced to 27% in the year 2027. And in the meantime, the current law is leading and it’s a very complex scheme and it requires from payroll administrators specific knowledge to do it in a right and proper way. And of course, our ADP systems are developed to support a scheme in order to avoid the risk of a penalty or additional taxes. 

Luisa Rollenhagen (18:09):

That’s really interesting, thank you. Since we’re on the topic of regulations that affect payroll, I’d like to talk a little about social security contributions in the Netherlands. How do they impact payroll? 

Karin Stam (18:21):  

We see in our social security system that the contributions for all these arrangements arising, and all these contributions are entirely at the expense of the employer. And on the other hand, we see that the entitlement too and the terms of social benefits for an employee, which, he must be insured, is becoming less extensive and more limited. Therefore, we see also that insurance companies are offering all kinds of additional insurances to compensate this gap. And yeah, before you run your payroll, we need to know if that’s the case in order to make a correct wage calculation by withholding the specific and the right additional premiums. And we need to be and stay informed about all these relevant additional insurances to make all the premiums in a correct way by withholding on the salary.

Luisa Rollenhagen (19:26):   

Got it, so we’re also seeing private insurance providers offering additional services. 

What about collective labor agreements? Are those prevalent in the Netherlands?  

Karin Stam (19:36):  

We have in the Netherlands I think about 900 collective labor agreements and 85% of the Dutch employees are covered by one of these collective labor agreements. And as an employer, you are obliged to check if the membership of one of these collective labor agreements is mandatory. And if it’s not, we see that some employers follow a collective labor agreement anyway. And those things are very important to know before we run the payroll. So we need to stay in touch with our clients to know which collective labor agreements we need to follow, or if an employer wants to follow a collective labor agreement.

Luisa Rollenhagen (20:26): 

I’m also curious to know about any reporting requirements that companies in the Netherlands need to comply with. So Spain, for example, was a European pioneer when it came to pay equality reporting requirements. The Netherlands is considered to be a very eco-conscious country, so I’d imagine companies have some sort of reporting requirement when it comes to sustainability goals? 

Karin Stam (20:48): 

I will mention two reporting requirements that authorities in the Netherlands wants to, that employers give reports of. And at first, reporting about all the travel movements which are related to the job of employees in case of organizations as 100 or more employees. And the purpose of this reporting is getting information about CO2 emissions of job-related travel movements per company. And the next step will be to reduce CO2 emissions of these movements or stimulating traveling free of CO2 emissions. And the second reporting requirements we are about to implement is the European Pay Transparency Directive. And the goal of this directive is to remove wage discrimination and to reduce the wage gap between men and women. And at the moment, this directive is under construction. And last note in this is that it’s good to realize that European countries are allowed to shape European directives by themselves and of course within the context of the directive. And I think we as ADP can be helping our clients to make it possible to make a report. 

Davy Van Iersel (22:13): 

Of course, we do it ourselves already. So if you look at the pay gaps, which we don’t have actually because everybody is plotted into our career scheme, where you’re located in a certain job level, which has a certain bandwidth in terms of what the earnings are for that bandwidth. And therefore we can also measure if you’re in that bandwidth, where’s the average of female and male employees so that we can definitely monitor and act on pay gaps if there are any.

Luisa Rollenhagen (22:42):

That’s good to know. Let’s talk a bit more about sustainability, like the travel-related CO2-emissions report that you just mentioned. What incentives are there for employers and employees to implement sustainable practices?

Davy Van Iersel (22:56):

That’s a very good question, and I think sustainability is something that we all should work on to start with because the planet, we can only live once, but also our kids and their kids, et cetera, need to live on this planet. And I think we have a lot of challenges already. So it’s a thing that affects all of us, but it also needs all of us to make changes there. So if you look at the Netherlands for example, there are not really, let’s say incentives for companies. I’m not saying that it’s the opposite completely, but what you see is that you can be, for example, penalized or restricted to compete in certain tenders if you don’t meet certain sustainability levels.  

So then it’s more or less a penalty that you get. But the biggest incentives are there actually for the employees or the people that live in the Netherlands. You see that you are getting benefits if you have solar panels, if you drive an electric car, then you get a certain tax deduction that would stimulate people to switch over to electric cars sooner. Also at ADP, if you look at the way of commuting, yes, we definitely stimulate the public transportation, but we also stimulate people to drive electric cars. Our fleet has almost become fully electric. If you still drive a gasoline car, then we’re now also investigating a way to swap your gasoline car to an EV so that we as ADP and also via our employees can both benefit because we will reduce our CO2 emissions together and the employee will benefit in his wallet because of certain tax deductions by driving an electric car. 

Luisa Rollenhagen (24:45):

Also, let’s talk about bicycles. The Netherlands has an incredible cycling infrastructure, all the Dutch cities I’ve been to have been so cyclist-friendly, and I’m sure there must be some sort of scheme to encourage people to choose cycling over driving, right?

Davy Van Iersel (25:00):

What we have in terms of bicycle schemes in the Netherlands, if there are two different ones, one is that you can buy a bicycle to a certain amount, and Karin, please help me on the amount because I thought it was 750 euros that maybe it has gone up over the years and that is tax deductible of your gross pay. But we also have now a bicycle scheme that is, let’s say lease a bike, there you can lease your actual bike. Yes, of course we are the Netherlands, so you are obliged to pay tax over your company bicycle, but it’s way lower. It’s 7% top of my head, and Karin is my conscience here. So that is definitely beneficial compared to the 22% that you pay on a car. So that makes it, again, a good incentive for a person to buy a bicycle because it’s also from your gross pay that the lease pay is coming from. 

Karin Stam (25:53):

Those are different ways to compensate a bike, but it’s very complex to explain in two minutes. But also the work scheme is a part of this compensating for bikes. So there are different ways, but the Netherlands is a very flat country, so therefore we take the bike for many reasons to travel.

Luisa Rollenhagen (26:17):

Absolutely, it’s a great country for cycling.  

So if someone were to run a payroll department in the Netherlands for the first time, what would your advice to them be?

Davy Van Iersel (26:27):

In short, connect to a professional partner. Because if you look at the Netherlands, we have so many regulations, and not only so many regulations, but they also change over time. And as stated already, we love taxes in the Netherlands, so if you miss taxes and you do something wrong, you’re being penalized. So I think it’s really good value for money to connect to a party like ADP as a specialist to help you running your payroll because there’s nothing worse than an incorrect, not in time payroll for your employees. So be aware of that. It also has to do with employee engagement, of course. So connect to professional partners would definitely be my advice.

Karin Stam (27:08):

Davey mentioned the most important thing. It’s killing if you are running payroll in a way which is not the right way, because then you have a lot of trouble not only with all our government but also with your employees. And if that’s the case, you are in big trouble.

Luisa Rollenhagen (27:29):

Yeah, you definitely want to make sure you’re getting it right. 

I also want to talk about something that’s very unique to ADP Netherlands, if I’m correct. It’s something called “The First Payslip,” and it’s a public announcement that ADP Netherlands releases every year. What can you tell me about this?

Davy Van Iersel (27:47):

I think that the first payslip is definitely an announcement that we have made over, I don’t know how many years already to be exact, but it’s always really joyful, especially of course when you work for ADP, that this event is so big that it even gets to the national news shows, so in newspapers, in lots of social media, et cetera. So it’s really something that people look forward to, to see what does the regulation changes, the tax changes, what does that mean for me as an employer? So if you can really transparently explain what the changes are, why you are getting more or less net pay, of course, because we always do the first payslip based on the fact that your gross salary is assumed to be the same as, let’s say in December of the last year compared to January. Because then you can really make the comparison what the changes are if your net salary will increase or decrease. 

And I think there we have a big assignment as one of the market leaders and thought leaders to really show what effect it has on your net pay in terms of the legislations and tax changes. And also, as an example, what you see sometimes, it’s certain groups of people that are in a certain way threshold, that get more or less paid, or if you are a part-timer, you get more or less, but a full-time worker gets more. And then it’s also explained why. So this transparency is very important to give that to people and it’s very much appreciated. If you look at the amount of media attention it gets, it’s every year huge.

Davy Van Iersel (29:38):

Definitely. And I think what we have seen now also, and of course the landscape is changing in terms of how to reach all the people in the Netherlands, so to speak. So when we did the first payslip, it was a presentation, interviews, and yes, we got to the national news, but we now also have to reach Generation X and Z people. So we even work with influencers to talk about financial planning and connect that to the first payslip, so that we reach everybody that is in the working environment in the Netherlands.

Luisa Rollenhagen (30:11):

It’s an education service that goes beyond simply presenting data. It’s about promoting financial literacy across generations. That’s very admirable.  

We’re reaching the end of the episode, but before we go, I’d like to ask you one last question: What do you personally love about working in payroll?

Karin Stam (30:31):

Well, for me, I think constantly changing laws makes it challenging. And you have to be aware of all these changes, and this makes my job never boring. Always, every day, I think, oh, what’s new? What do we see? What is our government talking about? And what can we expect, maybe in short term or maybe in the long term. So it makes for me that I always have a challenging job.

Davy Van Iersel (31:02):

And if I may add to that, I think payroll is a bit of an underestimated process in a lot of companies because it always should go right, but if it doesn’t, then we really have a challenge because in our experience, first of all, we as ADP are there to deliver the correct and timely and secure payroll, which is completely compliant to the, let’s say, privacy regulations that we have. So that’s already something to be really proud of if that’s all done, because the impact is huge, especially if you look at certain companies where the wages are, let’s say, a bit lower than in other job aspects. And then you see that the pay is, for example, every 25th of the month between 10 and 11. And if it’s not there at 11, people start calling at one minute past 11. So it’s really a critical business process, and I think that’s underestimated a lot of times. And I think it’s also something to be proud of that we have been capable of doing that for so many years already in a timely, correct, and secure manner. And if I look even already, if I walk across the street where I live in, I think 40% of the people get paid via ADP. So it’s really something to be proud of that you see so much dependency on such an underestimated process.

Karin Stam (32:27):

And I think in addition to Davy, that it’s so normal to get your salary and that it’s okay, but people don’t realize how many rules and regulations you have to take care of and how many people are working to make sure that your payroll slip is compliant. So it’s so normal that people think, oh, it’s just one push of the button. But there is a lot of work behind the scenes what needs to be done to make ADP and this payroll, the payrolls of ADP compliance. And that’s what I’m proud of.

Luisa Rollenhagen (33:10):

That’s so true, we hear that time and time again. The invisible hand of payroll is actually working really hard behind the scenes, and sometimes it’s nice to have a peek behind the curtain and acknowledge all the people doing their best to make the process seem so simple and seamless. 

Thank you so much for chatting with me today, Karin and Davy! It can be tempting to think that all EU countries are pretty much the same when it comes to payroll rules, but—as we’ve seen many times in this series—each country has its own characteristics and local customs. It was really interesting to hear about the Netherlands’ sustainability incentives and to hear Tzula’s perspective as a skilled expat worker. 

I hope you got a bit of a deeper insight into how payroll in the Netherlands works today. If this episode has piqued your interest or your company is considering expanding into the Netherlands and you want to learn more about payroll there, please go to the ADP Netherlands website nl.adp.com, and don’t forget to subscribe to learn more about payroll around the world with each new episode.  

You’ve been listening to ADP Payroll around the World produced by ADP and Storythings.