Why do the tax people in the Netherlands get money out of my employment?
How is it possible that in case of sickness, unemployment, or pregnancy you still get income in the Netherlands? Does your employer pay it out of generosity? Why don’t you get this extra amount on top of your salary even in times when you are not sick or whatever? What is the employer doing with the social premiums?
The Netherlands—a welfare state or a so-called participation state
After World War II the Dutch government created an extended system of benefits, education support, and public health care that was funded by higher taxation. But in the 1970s the unemployment rate in the Netherlands began climbing bit by bit, and this resulted in a national budget deficit.
In response, the government decided to decrease these social premiums, so that employing someone became cheaper.
The biggest change though was in how the social premiums were based. In the twenty-first century, the whole system was changed to a system in which employees together bear the responsibility for the social security in the Netherlands.
This is how we in the Netherlands can provide a guaranteed income for those who are not able to work now or ever.
What does this mean for your employment?
Social security can be divided in two parts: Volksverzekeringen (National Social Security) and Werknemersverzekeringen (Employee Social Insurance schemes).
Every month your employer pays some amount based on your gross salary to the tax authority. The tax authority will inform everyone each year what the new percentages, thresholds, and maximum bases will be. Those figures will be implemented in the payroll systems that generate a correct payslip for you.
What kind of social premiums do we have in the Netherlands?
- General Old Age Pension (AOW): Basic old age pension for people over sixty-five. In 2018 this will be increased to sixty-six and to sixty-seven in 2021.
- Unemployment Insurance (WW): In case of involuntary unemployment, you can get a partial benefit from the UWV. How long you qualify for it depends on your employment history in the Netherlands.
- Work Capacity Act (WIA): You receive this benefit should you no longer be able to work after two years of sickness .
- Ziektewet, ZW (The Sickness Benefits Act): In case of sickness, in some cases, u receive a minimum of 70% of your salary over a period of two years. You can also receive a sickness benefit for pregnancy and childbirth. In most cases, your employer simply continues paying 70% of your wages (or more, depending on your (collective) labor agreement). This all depends on the duration of the employment contract between the employer and the employee.
- ZVW (Health insurance Act): This act obliges everyone working in the Netherlands to have a health insurance policy. This is made up of a nominal part and an income-dependent part. With this insurance you are insured for standard medical costs like going to the doctor and many prescription medicines.
- WHK (return to work fund): This premium is paid by the employer to cover the costs of enabling the government to secure income for employees who are sick or incapacitated.
- ANW (National Survivor Benefits Act): This premium will be used to make life secure for people whose partner has passed away and they have the responsibility for a child under eighteen or who have at least a forty-five percent incapacity to work.
Wow. This is all better arranged than where I come from, but how does this effect my salary?
Except for the WHK premium, all premiums are withheld by your employer, out of your gross salary. The total (your net salary + the premiums) is the total employer cost. If you have agreed on a net salary, the premiums mentioned above will have no effect on what you take home every month.
Up to 50% of the WHK premium can be deducted from the employee’s salary, but most of the time it’s only € 20 per month or so.
Do I have to calculate and check all these figures?
Do not worry at all. The tax authority checks our system to see whether we are calculating the amounts correctly. We are on top of this stuff ourselves, too, but maybe you would like to see an indication of the costs?
Check the handy dandy calculator on our website to visualize the calculation from your gross to net.