Netherlands: Reduction of employer’s costs from August 2021
Employer costs in the Netherlands will be reduced as of 1 August 2021, as a result of an announced reduction in the AWf (Algemeen Werkloosheidsfonds = General Unemployment Fund) premium. This premium applies two different rates, depending on the nature of the employment contract:
- a low rate of 2.70%, that will be reduced to 0.34% (e.g. in case of a written employment contract for an indefinite period, which is not an on-call contract)
- a high rate of 7.70% that will be reduced to 5.34% (e.g. for a fixed term employment contract)
What percentage do the employer’s costs in the Netherlands amount to?
Currently, the employer’s statutory social security contributions amount to approximately 18%, a percentage that is calculated over a maximum premium wage of € 58,311 per year (2021, click here for an Overview of Rates of Social Insurance & Taxation in the Netherlands as of 1 January 2021). If the employee’ salary exceeds this ceiling, the percentage of statutory social security contributions is lower.
Incidentally, the statutory social security contributions in the Netherlands are already very low compared to neighbouring countries. In Italy and France, for example, they are as high as 39%. In the Netherlands, there is usually a substantial additional amount that needs to be taken into account for (often non-compulsory) matters, such as pension and sick leave.
If you would like to know more about this, please download our Factsheet Personnel in the Netherlands.
Why a reduction in employer costs?
In September 2020, the so-called BIK (Baangerelateerde Investeringskorting = Job-related investment reduction) was introduced on Prinsjesdag (cf. the British Budget Day). The BIK was a temporary scheme, intended to promote investments during the current economic crisis, and allowed companies to deduct part (max. 3%) of the investment from the payroll tax payable.
However, the European Commission may consider the BIK to be unlawful state aid. Therefore, it has been decided to withdraw this scheme. The budget that becomes available as a result will now presumably be used to reduce social security contributions for all employers.
What shoud you keep in mind?
Naturally, we will keep you informed via our website if the premium reduction passes and, if so, when it will take effect. We will also make sure that the correct premiums are processed in the wage tax return, that is, if you have outsourced the payroll administration to us.
A point of attention is that in some cases it can be wise to defer paying out an extra compensation or bonus until after the premium has been reduced. This is because of the ceiling applicable in the Netherlands for social security (€ 58,311 per year in 2021). If an employee has not reached this ceiling yet in July, it may be more interesting to pay an additional payment or bonus in August or afterwards.
Want to read more?
View the news overview of the government:
- www.rijksoverheid.nl/actueel/nieuws/2021/05/28/kabinet-vervangt-bik-regeling-door-verlaging-werkgeverspremie (no English translation available).
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