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Continued wages during sick leave & foreign employers in the Netherlands

Continued wages during sick leave & foreign employers in the Netherlands

One of the most striking differences between social security in the Netherlands and in other countries is related to continued payment of wages during sick leave of an employee. In most countries, the government is fairly quick to assume responsibility for the employee on sick leave, who then receives a benefit from that moment on. In the Netherlands, this is organised differently. During sick leave (sickness or accident) of the employee, the employer has the legal obligation to continue paying at least 70% of the wage (capped at a statutory maximum) for at least 104 weeks (click here for a list of the statutory premiums in the Netherlands). Furthermore, it is fairly customary for an employer to continue payment of wages at 100% of the employee’s salary in the first year of sick leave and 70% in the second year, which may also apply to your company. In contrast to many other countries, the social insurance system does not compensate the employer. Employers registered in the Netherlands are able to insure against this financial risk based on a sick leave or sickness benefits insurance. The full premium is charged to the employer. However, if the employer does not have a statutory seat in the Netherlands, it is virtually impossible to take out such an insurance policy.

As Interfisc also offers solutions for foreign employers, we have prepared a document with our solution at the request of the editors of the specialist journal “Grensoverschrijdend Werken” (Cross-border work). Please read the relevant article below.

PUBLICATIONS:

This article was written by Katja van Leeuwen, Marketing & Communication Manager at Interfisc Group, and it was published in the specialist journal ‘Grensoverschrijdend werken’, edition 24, March 2019

Cross-border work and continued payment of wages during sick leave, a grey area

The article “Continued payment of wages during sick leave from a cross-border perspective”, as published in edition 22 of this magazine, extensively sets out the more complex theory on this topic.

Long story short, this is a grey area because in cases of continued payment of wages during sick leave in combination with cross-border work, the rules relating to labour law and social security are often overlapping and even contradictory. In the unruly practice of consultancy and payrolling in cross-border work situations, this leads to interesting situations that legal specialists could spend hours discussing. However, for employers and employees this isn’t interesting but instead frustrating.. If you employ a person, you simply want to know the rules that apply and do what is necessary to comply with all requirements, ensuring that everything is fully organised for all parties. Sometimes employers and employees can sort things out together, though often irritation and a lack of understanding rear their heads, putting pressure on the cross-border collaboration.

A particular point of attention that is justly mentioned in the article “Continued payment of wages during sick leave from a cross-border perspective”, is the fact that things still go awry if a foreign employer wants an insurance policy to cover the Dutch obligation of continued payment of wages during sick leave, in spite of all ambiguity. Insurers have the freedom to define their own acceptance policy in this respect. As a result, this target group of foreign employers is generally excluded from the option of an insurance policy covering the risk of having to continue payment of wages during sick leave due to not being registered in the Dutch Trade Register. This is mainly based on the fact that according to European rules, the law of the policy holder’s country of registration (i.e. of the foreign employer) applies in a cross-border situation, and Dutch insurers are unwilling to be confronted with foreign law.

Practical situations

Without referring to the theory of continued payment of wages during sick leave from a cross-border perspective as set out in the previous edition of this journal, this article aims to outline some practical examples of cross-border situations we have been confronted with for our foreign clients in the past few years, where the complexity and ambiguity of the issues were very tangible to the parties involved. We also provide a solution for foreign employers willing to take out an insurance policy covering any obligation of continued payment of wages during sick leave if Dutch social insurance is applicable to their employees.

Foreign employer with an employee living and working in the Netherlands 100% of the time.

This is a situation that we frequently encounter in our practice that is actually very straight-forward. The employee lives and works in the Netherlands, has social insurance in the Netherlands and is taxed in the Netherlands. The employee is entitled to invoking the mandatory provisions of Dutch labour law, including continued payment of wages during sick leave. The employer concludes a Dutch employment contract with the employee based on a fully Dutch payroll, and chooses to cover the risk of continued payment of wages during sick leave by taking out a sick leave insurance policy. How? You can read about this further on in this article.

Belgian employer with an employee residing in Belgium, working in Belgium for 50%, and works for a Dutch university in the Netherlands as a civil servant.

This situation occurred a few years ago and was more challenging to resolve. A Belgian employer had employed someone who worked and resided in Belgium for many years, based on a Belgian employment contract. At some point, this employee decided to start working part-time (50%) and was employed by a Dutch university for the remaining 50% of his working hours to teach in the Netherlands. Normally, the employee would continue to have social insurance in Belgium as he would continue working there more than 25% of the time. However, as he became a Dutch civil servant for 50%, the Dutch social insurance was prioritised. This employee therefore was covered by Dutch social insurance from that date onwards. This also covered the employee for the employment contract in Belgium for the Belgian employer.

This Belgian employer was required to have a Dutch payroll for withholding and paying Dutch social insurance premiums and contributions. Even if, based on theory and jurisprudence, it was unsure whether the Dutch obligation of continued payment of wages during sick leave would apply, this employer pre-emptively chose to take out a Dutch sick leave insurance policy in order to cover the risk that a court would deem that the employer has an obligation of continued payment of wages during sick leave. And to ensure that the employee would continue to receive an income in the event of sick leave. Please note that this situation is set to change as per 1 January 2020 for certain Dutch civil servants due to the introduction of the Wet Normalisering Rechtspositie Ambtenaren (Wnra) (Harmonisation legal position civil servants Act), pursuant to which they are classed as an employee rather than a civil servant in the applicable social security system. In this example, the result would be that the Belgian social security system would apply for all of the work performance of this employee (he substantially works in Belgium). In this article, we do not go into further detail of the scope and application of this change.

Belgian employer with employee residing in the Netherlands and working in Belgium, but at some point it becomes clear that he has a secondary job in the Netherlands.

In this situation, nothing was the matter initially. This employee resided in the Netherlands but was fully employed in Belgium (at least, that is what the employer assumed). He was therefore fully payrolled in Belgium and a Belgian employment contract was closed. After some years, it became clear that the employee had had a weekend job in the Netherlands for many years. As this weekend job proved to represent over 25% of his total working hours, he was retro-actively classed as falling in the scope of Dutch social security. This also included his work in Belgium for the Belgian employer. This involved extensive corrections.

In theory, the Belgian labour law remained applicable to the employment contract between the employee and his Belgian employer. However, as a result of this situation, the employee would not be eligible for a Belgian sickness benefit during sick leave. Therefore, the Belgian employer chose to take out a Dutch sick leave insurance policy. Not because Dutch labour law was applicable, but because Dutch social insurance law applied, and the employee would risk not receiving a sickness benefit during sick leave, and falling between the cracks. The Paletta ruling of the European court implies that in the event of sick leave, both labour law and social insurance law can play a key role. This risk plays a role because, in the Netherlands, if an employee has long-term sick leave, the employer is liable for continued payment of wages for two years. Also, the employee remains employed for those two years, and the employee cannot be eligible for the sickness benefits scheme until after these two years. Additionally, there is a significant risk for the employer that a court could rule that the employer, in spite of applicability of Belgian labour law, has an obligation of continued payment of wages during sick leave for two years, pursuant to applicability of Dutch social security law. This risk can be covered by having a Dutch sick leave insurance policy. To Interfisc’s knowledge, there is no jurisprudence that clarifies this complicated issue. In Interfisc’s opinion, if Belgian labour law and Dutch social security law both apply simultaneously, in objective terms the termination of employment should be based on Belgian labour law, and the Netherlands should not be allowed to let the employee fall between the cracks by refusing to pay out sickness benefits. For such situations, the employees should be covered by a safety net. This already exists for employees with a temporary employment contract that leave the company during sick leave.

As set out above, insurers have the freedom to define their own acceptance policy in this respect. As foreign legislation would apply to insurance taken out by foreign employers from Dutch insurers, such employers are in practice unable to take out supplementary insurance unless they have a Dutch subsidiary. Among others, this applies to sick leave insurance policies, even when it is clear that both Dutch social security and Dutch labour law, and therefore the Dutch obligation of continued payment of wages during sick leave in the Netherlands apply.

The solution?

In our network, our insurance broker has negotiated with some insurers to make an exception for our clients. This means we can enable foreign employers to provide full cover for their employees in respect of Dutch requirements.

Please find below some regular policy conditions that apply to closing a Dutch sick leave insurance policy in such cases:

  • The employees to be insured must have social insurance in the Netherlands. If the employees are also liable to tax (income tax) in other countries, then the worldwide income is covered by the sick leave insurance policy.
  • The maximum annual wage to be covered amounts to €125,000.00.
  • The employer contributions can also be included in the policy cover.
  • During sick leave, full administrative processing of insurance claims is also covered. This means that after reporting the relevant sick leave to both the Arbodienst (Occupational Health Service) and the insurer, our insurance broker requests the required sick leave reports and payroll slips from the Arbodienst respectively the payroll department. This allows both the insurer and the insurance broker to calculate and check the amounts that can be claimed by the employer. In summary: the employer needs only to send notice of the sick leave. Subsequently, the insurance broker will ensure that the wages paid during sick leave are refunded to the employer.
  • The sick leave insurance policy can be concluded in combination with occupational health services. As an option, the employer can consider the services of Interfisc-Arbo B.V., a certified Arbodienst (Occupational Health Service), specialised in sick leave management of employees of foreign employers working in the Netherlands

Please note: registration in the Dutch Trade Register is not required; applicability of Dutch social security in itself suffices.

Conclusion

In spite of all efforts by various institutions in the border area to connect employers and employees, in practice this is not always a smooth and clear process. In many situations, solutions can be found, certainly if the employer and employee are prepared to look into the issue and have a budget available. However, in some cases, the ambiguity of the issue in combination with uncertainty relating to rights and the relatively high consultancy fees, the employer and/or the employee may decide on backing out.

Are you interested in the solution we can offer to foreign employers? Please do not hesitate to contact us at +31 (0)70 313 3060, or by email via intersurance@interfisc.nl).

PUBLICATIONS:

This article was written by Katja van Leeuwen, Marketing & Communication Manager at Interfisc Group, and it was published in the specialist journal ‘Grensoverschrijdend werken’, edition 24, March 2019

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Since 1972, Interfisc has offered international HR & Payroll solutions in the Netherlands, Belgium, Germany, France, the United Kingdom, and Italy. We do this from our offices in the Netherlands and Belgium, and with an international team of around 45 committed and caring employees. 

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