TABLE OF CONTENTS
- Important Dutch Legislation for Managers - An Overview
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If you have international employees hosted in the Netherlands, it is a good idea to acquaint yourself with Dutch labor legislation. Dutch labor laws are quite different to those in the US and may seem wildly unfamiliar when you first encounter them. In a nutshell, Dutch legislation is very protective of the employee and a lot of regulations exist to make sure employees are protected and aware of their rights.
When you first start working with Dutch legislation, it's likely that some of requests will puzzle you and at other times you may wonder what all the fuss is about. Luckily, an emphasis on cultural sensitivity is part of what makes B Lab awesome, and the employee-first mindset is very much in keeping with the attitude and aspirations of the P&C team at B Lab.
We hope that you will find this quick guide a useful starting point for managing your Netherlands-based reports. Please keep in mind that this article is not exhaustive; the POps team is happy to answer questions and provide support to teams for any information not covered by this article. Please reach out to us with any questions by opening a new ticket.
Important Dutch Legislation for Managers - An Overview
Labor Agreements can be for definite or indefinite period of time. It is common to start employment with a 1-year (definite duration) contract, with the intention to extend into an indefinite duration agreement after that time.
Definite Duration Labor Agreements:
- A trial period can’t exceed a period of 1 month and is of equal duration for both employer and employee. Take note: legislation on the duration of the trial period changes regularly.
- Consecutive agreements cannot include multiple trial periods. A trial period is only valid for the first contract.
- During the trial period, both parties can terminate the agreement without reason and at a moments’ notice.
Fixed-Term Labor Agreements:
- Fixed term agreements terminate automatically by operation of law at the end of the period.
- The employer must notify the employee in writing at least 1 month before the expiration date about whether they intend to continue the working relationship.
Additional Notes on Fixed-Term and Definite Duration Agreements:
- Labor agreements automatically terminate by operation of law at the legal pensionable age.
- Termination during the duration of the agreement is possible for both parties if this has been agreed upon in the signed labor agreement. The appropriate notice period needs to be taken into consideration. The employer must also request permission for termination from UWV (an institute for the management of Social Insurance) or a court of First Instance.
Indefinite Duration Labor Agreements:
- Indefinite duration agreements allow for a trial period of 2 months (but ONLY if it is the first agreement the parties have entered into).
- It is common to first offer a fixed-term contract before entering into indefinite duration contract.
- Labor agreements automatically terminate by operation of law at the legal pensionable age.
- Termination during the duration of the agreement is possible for both parties. The appropriate notice period needs to be taken into consideration. The employer must also request permission for termination from UWV or a court of First Instance. Alternatively a labor agreement can be terminated in mutual agreement between employee and employer.
Annual salary comprises the monthly salary plus vacation allowance.
By law the employee is entitled to an annual vacation allowance which constitutes 8% of the base salary. This vacation allowance is paid additional to the base salary. Pension premiums, social benefits, and so on are all calculated according to the base salary PLUS the 8% vacation allowance.
Vacation allowance is accrued on a monthly basis between June 1 and May 31. Usually, the allowance is paid out in June, after the May salaries have been calculated. If an employee leaves or enters service throughout the year, the allowance is pro-rated to the number of months in service.
Calculation example (all numbers are gross amounts):
- Agreement with candidate for total annual salary of €50.000 including vacation allowance
- Monthly salary is €50.000 / 12,96 = €3.858,02
- Annual base salary = €3858,05 x 12 = €46.296,30
- Vacation allowance = €3703,70 (8% of €46.296,30)
The legal minimum number of vacation days in the Netherlands is 4 times the number of weekly contractual hours. A full-time person is entitled to a minimum of 4 x 40 = 160 vacation hours (20 workdays). The base number of vacation days for B Lab Global (hosted) employees is 20 days annually (based on FT status).
Additional vacation days (i.e. above these 20 days) are called “extra-legal” vacation days.
Accrued but non-taken legal vacation days expire by June 1st of the following year. Extra-legal vacation days expire only after 5 years.
Even though we can’t force an employee to take up all vacation days, we highly encourage them to take up all vacation days within the year they are accrued to avoid back logs.
Upon leaving or entering service throughout the year, vacation accrues on a pro-rated basis to the number of months in service. This is automatically calculated in the payroll according to legislative guidelines. Upon leaving service, it is common that both manager and employee agree on whether accrued and unused vacations days will all be used up or paid out at termination.
There is no limit to the number of sick days a person can have throughout the year. Dutch legislation stipulates that during sickness, wages must be paid at a minimum of 70% of the normal wage. Sick leave therefore does not count towards PTO, as is common in the USA.
There are other types of paid and unpaid leave, such as pregnancy, maternity, paternity, parental leave, short- and long term care for family, and so on. Maternity leave is not considered sick leave.
Any sick days must be reported and registered with the Dutch Arbo service. This registration is obligatory and needs to be carried out on the first day of illness.
Dutch employers are responsible for payment of sick leave up to a period of 2 years (in case of long-term sick leave). At least 70% of the wage is paid in the case of sick leave. The employer is responsible for managing the process to enable the employee to return to work as soon as possible. There is extensive legislation concerning this, specifying in detail the different steps and accountabilities both the employee and the employer must take.
The employer - and thus managers - are expected to play an active role in ensuring that the employee can return to work as soon as possible. This involves regular check-ins and supporting the employee.
Due to the complexity of this legislation, the extensive protection provided to the employee, and the significant cost to the employer if not handled correctly, HR is closely involved in managing sick leave processes.
For more information on sick leave at B Lab for Netherlands-based employees, please see the Sick Leave article.
Other Types of Leave
- Pregnancy and Maternity leave: 16 weeks paid pregnancy and maternity leave. Pregnancy leave can be taken at the earliest 6 weeks and at the latest 4 weeks before the due date.
- Adoption leave: 6 consecutive weeks paid.
- Partner leave: 5 working days paid.
- Additional partner leave: maximum of 5 times the number of normal weekly working hours.
- Parental leave: 26 times the contractual weekly working hours unpaid (1040 hours based on 40 hours/week contract). This leave is for an extended period of time and the manner in which it is taken is agreed upon beforehand.
Flexible Working Arrangements and Part-Time Work
The Netherlands is the country with the highest number of part-time employees in the world. The latest statistics show that 25% of women and 72% of men work full time (more than 35 hours/week).
All employees in the Netherlands are legally entitled to request a reduction (or, if working part-time, increase) in their working hours, a change in their work location, and/or a change in the spread of their working hours.
This can be requested once every 12 months, provided the employee has been in service for at least 26 consecutive weeks. The employer can refuse this request, but only if it seriously affects the operations of the business; if refusing the request, the employer must provide a written explanation for the denial of the request at least 1 month before the intended change.
Dutch employees are entitled to benefits as of day 1 of service. There is no waiting period to be vested. Benefit rights for part-time and full-time employees are equal but are pro-rated to the number of hours worked per week.
Overtime regulations are applied differently in the Netherlands than in the USA. In the Netherlands it is possible for a salaried employee to be entitled to overtime (this does not change the persons’ status to hourly!).
There is no strict legal definition on which type of positions are eligible for overtime, except when stipulated in Collective Labor Agreements (not applicable at B Lab).
Generally, jobs requiring a higher educational background and managerial positions are considered to be paid sufficiently to compensate for working more than 40 hours/week. This is rather arbitrary and the employer must/should specify in the labor agreement whether overtime is applicable or not. Our B Lab Global Dutch labor agreements all stipulate that there is no entitlement to overtime. It is also recommended that employers have a policy in place stating if, and under which circumstances, additional hours or overtime will be compensated.
In any case, working more hours than contractually stipulated (whether 40 or less) should be incidental and must not exceed 60 hours/week or 12 hours/day. There are no legal specification regarding how long or how often an employee can work for his or her hours to to be defined as “incidental”, “extended” or “structural.”
Part-time employees: If the situation of working more than the contractual hours becomes structural or endures for extended periods of time, the part-time contract should be reviewed and, if necessary, adjusted to reflect the actual working hours / work load. This should always be undertaken in cooperation with the employee.
Full-time employees: Full time employees are not eligible for overtime: if this occurs more than just incidentally, the additional hours worked are compensated by time-for-time (for example, a work week of 60 hours would be compensated by reducing working hours the following week).
Tracking working hours (time registration) is not mandatory; however the law states that an employer must have reliable administration to ensure that it complies with “Law Working Hours.” Therefore, the need to track hours reliably is not only limited to hourly employees (as is in the USA).
Time registration in the Netherlands does not affect the legal status or entitlements for either hourly or salaried employees. In practice, the administration of working hours often works out to consist of the registration of absence/leaves, comparable to practices in the USA for salaried employees.
Depending on the organizational culture, hours can be very regulated and tracked in detail or can be monitored on a more informal (trust) basis, where general guidelines are known but exceptions are handled between manager and employee. Even in the latter case, some level of documentation is recommended.
Taxes and Social Premiums
Both the employer and the employee pay taxes and social premiums over wages and other employment related income.
For employees, wage taxation is progressive, with the highest tax bracket being almost 50%.
Employers pay, on average, 20 to 30% of the employee's income on social premiums.
Almost all aspects of employer offerings to the employee (wages and benefits and any other payments in money or in kind), are considered taxable income. This would also include, for example, a team outing, birthday present, or reimbursement of education costs, to name a few. The Dutch Tax Office does make exceptions, and a large (and rather complicated) body of rules govern these exceptions. In order to ensure correct taxation, all payments should be processed through payroll.
Employees are very much protected by law and considered the “weaker” party in the employer-employee relationship.
It is possible to terminate an agreement; however, the employer:
- Must provide valid reason
- Must have (extensive) documentation supporting the reason
- Must be able to prove that acted in good faith and comported as a “good” employer should
- Must take into consideration the legal notice periods (dependent on tenure, age)
Employees terminated at the initiative of the employer are entitled to “transition compensation” payment (transitievergoeding) as of day 1 of service. This also applies to employees on a temporary agreement that is not extended at the initiative of the employer.
If employer and employee decide to terminate in mutual agreement (and if at the initiation of the employer), additional severance compensation may apply.
In the case of voluntary resignation initiated by the employee, there is no transition compensation or severance to be paid. The employee must take the notice period into consideration (the standard for this is 1 month, starting at the end of the month in which the resignation is given).
Termination during sick leave is not allowed. Termination of the labor agreement due to sick leave is only possible after a period of 2 consecutive years of illness (and with approval from the courts and/or Social Security UWV), AND after having made every effort to reintegrate the employee, so the employee does not become dependent on social security payments.
GDPR – EU Data Protection
The legal requirement to keep our employees’ personal data secure has an impact on how employment information can be transferred to and from the US.
Therefore, never transfer any personal or confidential employee data through email, but use up-and downloads from the protected G-Drive or other protected portals (e.g. third party service providers).
We welcome and value your feedback: your comments and questions help inform these articles and keep them up-to-date and relevant. If you feel we could improve this article in some way, please let us know by submitting a ticket or using the feedback form below.