The main difference between payroll and payrolling is whether the Dutch employee is formally employed by yourself, on your own Dutch payroll (to be set up) or by another company with its own legal entities around the world. In case you decide to work with another company, they will be acting as the formal employer of your employees, deciding about all employer/employee matters.

If your company decides to use a payrolling construction, the person working for you in the Netherlands does not become an employee of your company. Instead, the employee is formally employed by the payrolling company. Companies offering payrolling services use different names to describe these services, as remote working abroad has boomed: ‘employer of record’, ‘global or international payroll services’, ‘umbrella service’, and so on. When someone uses the word ‘payroll’, combined with global or international, they often have a payrolling situation in mind.

A company in need of employees finds suitable candidates and registers them with a payrolling company. This means that the payrolling company formally hires the employee and thus takes care of the administrative work involved in this employment, including any insurance required and employee benefits, if any.

The employee signs an employment contract with the payrolling company – which becomes the formal employer – rather than signing an employment contract with the organisation that the employee will actually be working for.

The payrolling company invoices the full cost plus a mark-up to the organisation, also covering the risks they run as an employer.

Because the fee charged by payrolling companies also covers their own risks, these payrolling services are relatively expensive. They are not without any risks for you as an organisation working with a payrolling company: you risk losing your most important asset: your employees. This will happen if they are not happy with the situation of not being employed by your own organisation.

Dutch employees generally know very well that a payrolling construction is supposed to offer more flexibility than a regular employment contract in the Netherlands. However the Balanced Labour Market Act has reduced this flexibility. Yes, payrolling services make it easier for both parties to terminate the employment contract. This may be either an advantage or a disadvantage.

Employees often perceive the decision of employers to hire them via a payrolling company as a sign of distrust. Please bear in mind that in this current labour market (war on talent), it is crucial to build a bond with your employees based on trust and appreciation.

Moreover, when hiring employees through a payrolling company, you can be held partly liable if the payrolling company fails to pay your employee or to pay wage tax and/or social security contributions.

Conclusion: Working with employees via a payrolling company is mainly useful for a company that needs to recruit staff in a flexible way. For example, if there is a temporary peak in the workload. When the workload decreases again, you can generally part with the staff relatively easily. However, if you are looking to build a long-term relationship with your employees based on trust, using the services of a payrolling company may not be ideal.

Payroll administration refers to salary administration for the employees you have hired yourself, as their formal employer. In this scenario, you are in the driver’s seat and you can independently determine which primary and secondary employee benefits to offer to them.

This refers to regular employment contracts between an employer and its employees, including the calculation and declaration of wage tax and national insurance contributions (comparable to PAYE in the UK) and payment of net salary. Employers may decide to outsource the salary and personnel administration resulting from these employment contracts to an accounting firm such as Interfisc, or they may decide to do all the relevant accounting and administrative work themselves. The same applies to the administration for insurance and employee benefits.

Yes, they can. Foreign companies with Dutch employees can set up their own Dutch payroll.

In practice, most service providers or authorities will advise foreign companies working with local employees to explore the Dutch market, to work with a payrolling company, as described above. They presume that a company not established in the Netherlands is unable to take out insurance for key employer risks such as accidents and sick leave.

This is based on a misunderstanding.

Interfisc offers foreign companies the option to enter into an employment contract with their Dutch employees themselves, whether or not their organization is officially established in the Netherlands.

In many cases, depending on their country of residence, foreign companies can also take out insurance against the abovementioned risks and perform the full employer role, while Interfisc performs all the administrative work. For our US readers: this means that we will register you as a ‘wage tax withholding agent’ in the Netherlands.

In addition to the regular payroll administration and insurances, Interfisc offers a solution for the legally required sick leave management role. Foreign companies must also perform this role for their employees in the Netherlands, but they can work with Interfisc to perform this role on their behalf.

Many accounting firms offer a solution for payroll administration, but most of them do not include absence management. Nor do they include insurances, as most insurance companies do not accept foreign companies as their client. However, these key elements are required to offer you the certainty of full compliance with Dutch legislation and regulations, while limiting your financial risks at the same time.

Financial risks during work mainly concern sick leave and accidents. Every employer with employees in the Netherlands must be a ‘dutiful employer’ even if these organisations are not located in the Netherlands themselves. The definition of ‘dutiful employer’ refers to good employment practices and is set out in Dutch law. This includes the fact that the employer must make a maximum effort to prevent and limit any financial loss, other losses, injuries or damages for its employees. This Dutch legislation also sets out the employer’s obligation to provide suitable insurance policies covering any such losses, injuries or damages for its employees after an accident occurs.

These are the risks for which Interfisc offers solutions:

• Sick Pay: no state reimbursement in case of illness < 104 weeks
• Costs due to accidents:

Employers have to cover the cost of accidents & long term disability involving employees in the context of ‘good employment practices’ to an increasing extent. Even if such accidents or illnesses initially do not seem to be directly work-related. This can even happen if the employer did not have any option to take measures to prevent it. This is one of the risks that most Dutch employers cover by taking out an accident insurance (reimbursement of costs) and a disability insurance (covering loss of income, which can amount to 20% or 30% of the last earned wage).

When it comes to accidents three situations can occur:

1. 1. 1. an unexpected death
      2. permanent loss of function (invalidity) or
      3. long-term disability

A few examples and calculations:

• • Reimbursement of costs
    Due to a labour-related accident, your employee loses a leg. As a result, the employee is faced with adjustments to the home situation and higher medical expenses. For example, a stair lift at home, adjusting the car and a prosthetic leg. The employee claims his damages to you as a responsible employer.
  • Loss of income
    • A 40-year-old employee with an annual wage of €80,000.00 is declared fully disabled for work and receives a benefit with a maximum of €50,217.50, being 75% of the maximum wage for social benefits (decrease in income of almost €30,000).
    • The employee is declared disabled for 50%. The employee is obliged to use his remaining earnings capacity. If he uses less than 50% of his remaining earning capacity, he will be cut on his social benefit. Suppose that the employee does not fully use his remaining earning capacity (< 50%). The previous wage amounted to € 80,000.00. His remaining earning capacity now becomes € 40,000.00. He uses 20% of this, meaning that € 8,000.00 is earned by working. The employee is cut on his social benefit, as a result of which the total income decreases to € 16,744.60. The fall in income amounts to € 63,226.00.

• Retirement pension, a must-have employee benefit for Dutch employees