Hiring Your First Employee in the Netherlands: Costs and Contracts

What an employee costs

You start from the gross salary. On top of it, you pay employer contributions and mandatory extras. Together, these usually add 25% to 35%.

The largest item is employer social security contributions, for unemployment, disability and health insurance. You also pay holiday allowance of 8% of the annual gross salary. Employers traditionally pay it in May, and in practice it is obligatory. If a sector-wide pension scheme applies to your industry, you also pay a pension contribution.

Example: a gross salary of €50,000 typically results in a total employer cost between €62,500 and €67,500, holiday allowance included. Budget on the higher figure until your payroll provider gives you the exact rates for your sector.

Ready for your first employee? See what Dutch payroll includes for your company.

Which contract to offer

There are two types of contract. Your choice has long-term consequences.

A fixed-term contract is for an agreed period and ends automatically on the agreed date. You may offer up to three fixed-term contracts in a row within three years. The fourth contract, or a contract that takes the chain past three years, becomes permanent by law. After a break of more than six months between contracts, the count starts again.

A permanent contract continues until one of the two sides ends it. To end it as the employer, you need the employee's agreement, or permission from the labour authority or a court.

Most Dutch employers start with a fixed-term contract of six or twelve months. After that, they decide on the next contract.

Probation, notice and severance

Probation. A trial period is only allowed in contracts longer than six months. For a contract shorter than two years, the trial period is at most one month. For a contract of two years or longer, or a permanent contract, it is at most two months. The trial period must be in writing and the same for both sides.

Notice. The employee gives one month of notice. The employer gives one month if the employee has worked there for less than five years. For every further five years, the employer's notice period is one month longer, up to four months.

Severance. An employee whose contract ends at the employer's initiative is generally entitled to a statutory transition payment. It is one third of a month's salary for each year of service. It is calculated pro rata from the first day.

Sick pay for up to two years

When an employee falls ill, you continue to pay at least 70% of salary for up to two years. In the first year, you usually pay at least the minimum wage. You also have an active duty to help the employee return to work. This means a plan of action, regular reviews and adjusted duties where these help.

If you fail in that duty, you may have to pay for a third year. Most employers insure this risk. For a small company, it is worth arranging that insurance before the first hire.

What to arrange before the first working day

Register as an employer with the Dutch tax authority and obtain a payroll tax number.

Arrange payroll. A payroll provider handles the monthly returns, the payslips and the contributions. For a first hire, you pay a modest amount per employee per month, and you avoid many risks.

Check the sector agreement. Many industries have a collective agreement with rules on minimum pay, working hours and pension. If one applies, you must follow it, even if you agreed something else in the contract.

Verify the right to work. Citizens of the European Union, the European Economic Area and Switzerland may work here freely. Others need a permit. For skilled roles, the highly skilled migrant scheme is the common option. For this scheme, your company must be recognised as a sponsor.

Check identity on the first day and keep a copy of the identity document in your records.

Working with a self-employed contractor

If you engage a self-employed contractor, you avoid payroll obligations. This is only possible if the relationship is independent in practice. In that case, the contractor works for several clients and decides how the work is done. The contractor also bears their own risk and invoices for results.

If the relationship looks like employment in practice, the Dutch tax authority can treat it as employment. It can then claim the contributions from you afterwards. The tax authority now checks this much more strictly. For a role that is clearly part of your organisation, it is better to employ the person from the start.

The main points

Budget 25% to 35% on top of the gross salary, including the 8% holiday allowance. Start with a fixed-term contract and keep to the limit of three contracts in three years. The length of the trial period depends on the length of the contract. Sick pay continues for up to two years, so insure this risk. Register as an employer, arrange payroll and check whether a sector agreement applies to your industry.

Obligations outside the employment contract

Three Dutch rules apply to you, whatever you agree in the employment contract. The minister can declare a collective labour agreement binding for your whole sector. Membership of an industry-wide pension fund can become compulsory in the same way. The sick pay obligation lasts for up to two years from the first day of illness. If you check all three before the first hire, you can include them in your budget.

How a Dutch employment contract ends

Include Dutch dismissal law in your hiring plan from the start. To end a permanent contract, you need permission from the employee insurance agency (UWV) or the court. In practice, most employers and employees agree on the end in a settlement agreement. The employee builds up a right to a transition payment from the first working day. Under the chain rule, you can use fixed-term contracts for a limited period only.

A Dutch BV with staff or a director on the payroll has to file every month. We do the payslips, the payroll tax return and the yearly forms. See payroll and administration for a Dutch BV.

Every quarter and every year, a Dutch company keeps records and files returns. What does it cost to hand this work over? See bookkeeping in the Netherlands for owners abroad.

Two thresholds to know in advance

Some obligations depend on the number of employees. With fifty employees, you must set up a works council. The works council has a right to give advice on major decisions. You also need its consent for personnel schemes. From the first employee, the hourly minimum wage and working time rules apply. You must also keep records of the hours worked.