Running payroll in the Netherlands

With its competitive corporate tax rates, highly skilled workforce, and strong government support for research and development, the Netherlands is an attractive destination for businesses. Additionally, with nearly 90% of the population fluent in English, communication within global teams is seamless.

However, hiring in the Netherlands comes with certain challenges, particularly when it comes to payroll management. The country's intricate social security system—designed to provide residents with support in cases of illness, unemployment, disability, retirement, and more—is just one of the key factors employers must navigate when setting up payroll.

Before processing payroll in the Netherlands, employers must complete several registrations:​

• Dutch Tax and Customs Administration (Belastingdienst): Employers must register to obtain a tax identification number, enabling the withholding of taxes from employee wages.

• Social Security Agency (Sociale Verzekeringsbank): Registration is necessary to obtain a social security number.

• Netherlands Chamber of Commerce (Kamer van Koophandel, KVK): Companies establishing a subsidiary in the Netherlands are required to register with the KVK.

It is standard practice to conduct identity checks for new employees. Employers must ensure that employees possess a valid Citizen Service Number (Burgerservicenummer, BSN).

Setting up a local bank account is optional, as payments to employees and authorities can also be made from a foreign bank account.

The Netherlands boasts a comprehensive social security system comprising various institutions. Social security contributions are shared between employees and employers. Personal tax from employment income is calculated based on a three-tier system.

Tax Considerations

The Dutch tax system distinguishes between resident and non-resident taxpayers. Residents are taxed on their worldwide income, while non-residents are taxed only on Dutch-source income.​

Employment income is subject to a progressive tax rate structure. As of 2025, the first income tax bracket applies a rate of 35.82% on income up to €38,441. A second bracket imposes a rate of 37.48% on income between €38,441 and €76,817. Additional brackets apply to higher income levels, with rates reaching up to 49.5%.

The Netherlands offers a 30% ruling for highly skilled migrants, allowing employers to grant a tax-free reimbursement of up to 30% of the employee's gross salary. This benefit is available for qualifying individuals recruited from abroad with specific expertise scarce in the Dutch labor market. As of 2025, the maximum salary eligible for this tax-free allowance is €246,000. This arrangement is set to reduce to 27% starting January 1, 2027.

* Please note: For earnings of up to EUR 38,441, tax is divided into 8.17% personal income tax and 27.65% national insurance contribution.

Tax Withholding and Reporting

The Netherlands operates a Pay-As-You-Earn (PAYE) system, wherein employers are responsible for deducting wage tax and national insurance contributions from their employees' wages. The withheld amounts must be remitted to the Dutch Tax and Customs Administration (Belastingdienst). Payments are typically due by the end of the month following the pay period.

Employers are also required to report the withheld amounts via an electronic filing system. Late submissions can result in penalties. Notably, it is not mandatory to issue payments from an in-country bank account. When making payments to the Dutch Tax and Customs Administration from a foreign bank account, it's essential to use the correct IBAN and BIC codes, and include the specified payment reference.

Under the Work-Related Costs Scheme (Werkkostenregeling, WKR), employers can provide certain reimbursements and benefits to employees tax-free, up to a specified limit. If the value of these benefits exceeds the free space (vrije ruimte), the employer is subject to an 80% tax on the excess amount. Employers must account for this in their payroll administration and report it accordingly.

Employees are generally required to file their annual personal tax returns by May 1 of the following year. To facilitate this, employers must issue an annual income statement to each employee after the end of the calendar year, regardless of whether the employee requests it. The Dutch tax year runs from January 1 to December 31.

Social Security Contributions

The Netherlands maintains a comprehensive social security system, with contributions shared between employees and employers. The system encompasses various schemes categorized into two main groups:​

• National Insurance Schemes: These provide basic coverage for all residents and include National Old Age Pension Act (AOW)​, Chronic Care Act (WLZ)​, National Survivor Benefits Act (ANW)​, and General Child Benefit Act (AKW).

• Employee Insurance Schemes: These are designed for employees and include Unemployment Insurance Act (WW), Work and Income Insurance Act (WIA), Sickness Benefit Act (ZW) and Invalidity Insurance Act (WAO).

Contributions to the Employee Insurance Schemes are borne solely by the employer, while contributions to the National Insurance Schemes are borne by the employee. As of 2025, contribution rates and thresholds are set as follow:

• National Insurance Contributions: Employees contribute 27.65% on income up to EUR 38,441 annually. These contributions are integrated into the income tax system.

• Employee Insurance Contributions: Employers are responsible for these contributions, calculated on income up to EUR 75,864. The specific rates depend on the employer’s industry.

Employers must withhold the employee's share of social security contributions from wages and remit both employee and employer contributions to the relevant authorities, typically by the last day of the following month. Contribution rates are reviewed periodically, with national insurance rates assessed annually and employee insurance rates evaluated semi-annually by the Ministry of Social Affairs and Employment.​

Resident employees are required to obtain Dutch healthcare insurance, a compliance aspect that employers must verify. Additionally, employers are obligated to pay an income-related contribution under the Dutch Health Insurance Act (Zorgverzekeringswet). For employees, this contribution is 6.51% on income up to a maximum of EUR 75,864, amounting to a maximum of EUR 4,938, and is paid by the employer to the Dutch tax authorities.

The Dutch pension system consists of three pillars: the state pension (AOW), mandatory occupational pensions, and private pensions. This system ensures that employees receive a basic state pension (AOW) from the government, supplemented by mandatory employer pension contributions, and can also choose to make additional private savings for retirement.

Employer pension contributions are generally mandatory, especially when specified by a Collective Labour Agreement (CBA) or sector regulations. In these cases, employers are required to register with a designated pension institution to fulfill their obligations. Contributions often go to sector-specific pension funds, and payment schedules (monthly, quarterly, or annually) depend on the regulations set by the pension scheme.

Below is an overview of the various social security contributions applicable to both employees and employers in the Netherlands. The rates provided are current as of April 2025.

Employees in the Netherlands are entitled to various benefits. These include:

• Annual leave: Minimum of 20 days (4 weeks) plus 11 public holidays (not mandatory days off).

• Maternity leave: 16 weeks (6 weeks before and 10 weeks after birth), with 100% salary paid by the employer (later reimbursed .

• Paternity leave: 1 week fully paid, plus 5 weeks unpaid partner leave with a government benefit covering 70% of salary.

• Parental leave: 26 times the weekly working hours per child, with the first 9 weeks paid at 70% of salary (up to a maximum daily wage) within the child's first year; remaining leave is unpaid.

• Sick leave: At least 70% of wages (no less than the minimum wage) for up to 2 years, with employers required to continue salary payments during illness.

For more information on employee benefits and other employment requirements in the Netherlands (including severance pay and termination procedures), check out our Global Hiring Guide.

As of April 2025, the minimum wage for full-time employees in the Netherlands is set at a gross monthly salary of approximately €2,446.44 for employees aged 21 and older, which corresponds to a minimum hourly wage of €14.06. These rates are applicable to employees working full-time.

For younger employees, the minimum wage rates vary based on age. For instance, employees aged 20 earn a minimum of €11.25 per hour, while those aged 19 receive €8.44 per hour, and employees aged 18 get €7.03 per hour. The rates for employees younger than 18 are progressively lower.

There is no statutory requirement for overtime compensation under the Dutch Labor Code, and any such compensation should be clearly outlined in the individual employment contract or a collective labor agreement (CBA), if applicable.

Additionally, there is no legal obligation for employers to provide a 13th-month salary, although this may be a practice in some sectors or companies. In such instances, the annual bonus is paid out either all at once in May or spread over 12 months.

It is important to note that Dutch law requires employers to provide their employees with a holiday bonus of at least 8% of their annual salary. This holiday allowance is typically paid out in May, providing employees with extra compensation to cover vacation expenses.

Payroll in the Netherlands is typically processed on a monthly basis, though weekly, bi-weekly, or every four weeks is also possible. Payments must be made in euros (EUR), the official currency of the Netherlands. Payments in-kind or cash are not allowed. Bank transfers can be made from either local or foreign bank accounts.

Both paper and digital payslips are legally valid, and employers are required to provide employees with a payslip the first time they receive wages, as well as for each subsequent pay period if any information changes (e.g., earnings, deductions).

The payslip must include the following information:

• Gross salary,

• Salary components (e.g., base pay, bonuses, etc.),

• Holiday allowance,

• Allowances,

• Deductions,

• Identification details of both the employer and the employee,

• Pay period,

• Number of working hours, and

• Type of contract.

Employers must maintain payroll records for at least seven years, in compliance with Dutch law.