Changes in Dutch labour law as of 1 January 2020
The Balanced labour market Act that entered into force on January 1, 2020 was designed to encourage employers to hire employees on a permanent contract basis. This includes amendments to legislation relating to termination of employment, the chain regulation relating to temporary contracts, and the unemployment premium (WW premium).
Less than three years after the previous major amendments of 2015 (WWZ Act (Work and Security Act), the government issued plans for another new Act. The Work and Security Act was designed to reduce the gap between ‘fixed’ and ‘flex’ work, but it appeared to have increased instead. For this reason, the Balanced labour market Act has been introduced on 1 January 2020.
The core of this Act is that fixed labour (work based on a permanent employment contract) becomes less fixed, and flex work becomes less flexible and therefore less appealing to employers.
What's the impact for you?
- Lower unemployment premium (WW) for permanent contracts
There are now two different WW premiums: low and high. Only under strict circumstances (a.o. if there is a permanent employment contract in writing, other than a stand-by contract), can the lower rate be applied. In all other cases the higher rate applies. To give you an idea of the difference: for a gross wage of € 4,000 per month, this runs up to € 200 per month!
- Termination of employment
– The transition allowance is calculated in a different way, and is applicable from day 1.
– Termination of employment is less challenging due to the introduction of a new termination reason for the employer: the cumulative grounds.
– Upon termination of the employment contract, the reason of termination should be filed in the payroll administration.
- Type of employment contract
– You may offer 3 temporary employment contracts in every 3-year period.
– The rights of stand-by employees and ‘payroll employees’ have changed.
Lower employer costs (WW / unemployment premium) for permanent contracts
Since 2020, the Unemployment Act premium is no longer dependent on the sector of a company’s operations; instead, it depends on the type of employment contract concluded with the employee. The sector premiums and the general Awf (General Unemployment Fund) premium will be abolished.
For each employee that an employer offers a permanent contract, a lower premium applies. A higher premium applies for temporary and flex contracts. The difference between the low and high premium amounts to 5%. To give you an idea: for a gross wage of € 4,000 per month, this amounts to as much as € 200 per month!
The low premium applies if an employer fulfils 3 conditions:
- this concerns a permanent employment contract that clearly sets out the scope of the work to be performed, and
- the employment contract is set out in writing; and
- it does not concern a stand-by contract.
PLEASE NOTE: for employees who have been employed for a considerable period and whose temporary contract has become a permanent employment contract by operation of law, you will have to prove that there is a permanent employment contract. You will find more information on this obligation later in this notice.
Some situations give rise to the obligation to switch from the low premium to the high premium with retro-active effect. Among others, this concerns the following situations:
- The employment contract is terminated within 2 months of the start date.
- The employer payrolls over 30% extra hours worked on top of the contractual working hours for the relevant calendar year. This provision does not apply if the employee agreed to at least 35 contractual working hours per week.
In other words, the payrolling period that was closed must be re-opened and the premium must be changed from low to high. Also, the payrolling process needs to be re-run and a corrected payroll tax return must be submitted.
- Employee dies within the trial period and had a permanent employment contract. The high premium must be applied with retro-active effect, in spite of the fact that an unemployment benefit application can never be submitted for this employee!
- The employee has a permanent employment contract for 12 hours per week. If this contract was signed in writing, the low premium applies. However, if the employee works an average of 17 hours per week rather than 12 during one year, 30% extra hours worked were payrolled. As a consequence, at year-end, the full year must be adjusted applying the high premium. If a company decides against adjustment, the Tax and Customs Administration impose a mandatory correction.
– Please note* If the part-time percentage is adjusted intermediately and you have the employee work more on that basis, nothing needs to change;
– Please note* If the employee receives time in lieu compensation for the extra hours worked, nothing needs to change.
– Please note* If the employee receives compensation for the extra hours worked in the form of a bonus, it seems nothing needs to change.
Such situations can result in ‘creative solutions’ considered by employers. However, it is as yet unclear how the Tax and Customs Administration will respond.
3 new mandatory fields on the pay slip
In connection with the burden of proof relating to the presence or absence of an employment contract in writing or the contract type, 3 new mandatory fields are added to the pay slip as from the year 2020, i.e.:
- Employment agreement in writing: Yes/No
- Permanent employment contract : Yes/No
- Stand-by contract: Yes/No
PLEASE NOTE: If no written contract is available at the payroll administration for a permanent employment contract, the high unemployment premium should be applied as per 1 January 2020.
Do you have any employees that are actually permanent employees and you do not have a copy of a permanent employment contract in writing in the payroll administration?
In that case you will have to prove that the relevant employees have a permanent employment contract. You were initially required to enter into a written employment contract or addendum with them before 1 January 2020 in order to be permitted to apply the lower WW premium. Fortunately, the government has extended the deadline for this specific situation: first until 1 April 2020, and later, due to the Corona crisis, with another 3 months until 1 July 2020. Moreover, an addendum or a contract is no longer necessary; sending an email to your employees in which you state that they have a permanent employment contract and that this is not a stand-by contract suffices. In that case, your employees will have to send you an email in which they confirm this.
You are therefore permitted to apply the lower WW premium for your current employees with a permanent position, on the condition that you ensure that one of the following four written documents is available at the payroll department by 1 July 2020:
- A confirmation from your employee by email, as decribed above.
- A written employment contract or addendum signed by both the employee and the employer, proving that there is a contract for an indefinite period with a fixed number of working hours.
If you do not meet this condition by 1 July 2020, you must apply the higher WW premium retroactively from 1 January 2020.
Termination of employment
If an employer dismissed an employee befóre 2020, the employer did not need to pay out a transition allowance to this employee if the employee had been employed shorter than 2 years. However, under the WAB Act, from the first working day onwards, an employee is entitled to a transition allowance upon dismissal, even during the trial period! The period prior to the transition allowance is no longer rounded to half years; instead, it is calculated on the actual contract term.
On the other hand, the employer will pay a lower transition allowance. For each employment year, a 1/3 gross monthly salary is applied, also for the years after 10 years of employment. Before 2020, employers paid 1/2 gross monthly salary after 10 years of employment; for employees above age 50, this could even run up to 1 monthly salary per year of employment.
The conditions for termination of employment of permanent employees have become less strict. If an employer wanted to dismiss an employee before 2020, the employer had to fully fulfil one of the eight grounds for termination of employment. Under the new rules, dismissal is also possible based on the sum of certain circumstances, the so-called cumulative ground.
For example, think of a situation where you want to dismiss a dysfunctional employee, but you are unable to adequately prove this because you have not compiled a full dismissal file. Additionally, the relation between the employer and employee has significantly deteriorated. Both circumstances separately may not be a full ground for termination of employment, but the combination is sufficient.
If the employment contract is terminated based on the cumulative ground, the employee may claim an additional allowance. This is added to the transition allowance, but may not amount to more than half of the transition allowance. The allowance amounts to a maximum of 150% of the transition allowance.
Type of employment contract
The regulations for consecutive temporary contracts (the chain regulation) has been expanded. Before 2020 you could offer an employee a maximum of 3 contracts over a maximum period of 2 years. This has been extended to 3 contracts in 3 years.
This means the chain regulation is virtually the same as in the period prior to the introduction of the Work and Security Act. The mandatory break between 2 consecutive contracts will in principle remain 6 months. Only after 6 months of not working in the company, the chain is broken and the employee is cleared for a new chain of 3 temporary contracts. However, this period may be shorter to a minimum of 3 months if negotiated in a CLA. This is permitted only if it concerns seasonal work that can be performed for a maximum of 9 months per year.
The WAB Act (Balanced labour market Act) sets out that a stand-by employee with a zero-hour contract or a min/max contract is required to come to work only if called at least 4 days in advance.
If you fail to do so, the employee is entitled to refuse the work. And if the call to work to the employee is cancelled less than 4 days in advance, you still need to pay the stand-by employee for the hours called.
After each 12-month contract period, the employer must also offer the stand-by employee a contract for the average number of hours worked during this 12-month term.
For example, if a stand-by employee was hired for 20 hours per week, but worked an average of 28 hours per week, the employer must offer the employee a contract for 28 hours after that year. If this is not offered, the stand-by employee is entitled to claim salary on the higher number of hours. However, it is not mandatory for the employee to accept this offer.
This obligation to offer a contract does not seem to apply if the zero-hour contract or min/max contract is of a temporary nature and ends on the agreed end date.
Payrolling is a popular contract type for employers to avoid permanent employment contracts, but this construction has been under discussion for many years. In practice, misunderstandings abound. Click here for more information about the difference between payroll and payrolling.
Payrolling in this sense (as opposed to the situation as performed by Interfisc, where Interfisc is not the employer, but the payroll administration provider for employees with an employment contract with the employer outsourcing its payrolling process to Interfisc) relates to employees on the payroll of an employer aiming to have the employees work in another organisation. Another company is involved (a payrolling company) that formally employs the employees, whereas in practice, they are working in the operations of the employer’s company. Such employees are referred to as payrollers.
Before 2020, the payrolling company was subject to the same, less strict labour law rules that applied to temporary agency workers. This has changed. Payrolling companies are not permitted to apply an agency clause and the different chain provision for temporary agency workers is not applicable to payrollers.
In brief, under the WAB Act, payrollers have virtually the same rights as the permanent employees. This implies that the employer now has to pay more for payroller labour. This may make this contract type less appealing.
The equality between payrollers and permanent employees concerns both the primary and secondary employment conditions. This includes salary and holiday allowance, and also the performance bonus, year-end bonus and number of days off, etc.
A different scheme may apply concerning pensions. Payrolling companies will not be subject to mandatory ‘adequate pension provisions’ until 1 January 2021. The pension benefits of the payrolling company must be in line with the employer’s permanent employees or with employees in the same sector from this date onwards.
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