As an expat working for a Dutch employer, you will probably receive a payslip each month. A payslip provides an overview that shows the breakdown of the gross to net wages. Although payslips in the Netherlands may differ in structure, they basically always contain the same elements. In this article, BDO hopes to give you a better insight into how your gross wages are calculated to a net amount and what information is included in your Dutch payslip.
Dutch payroll levies
The Dutch payroll levies consist of:
- Wage tax
- National insurance contributions
- Employee insurance contributions
- The income-dependent contribution pursuant to the Healthcare Insurance Act
Wage tax is withheld from an employee’s gross salary by the employer and then remitted to the Dutch Tax Authorities. The same goes for the national insurance contributions. The national insurance contributions consist of the General Old Age Pensions Act (AOW), the National Survivor Benefits Act (Anw), the General Child Benefit Act (AKW) and the Long-term Care Act (Wlz). The wage tax and national insurance contributions are usually levied and shown on your payslip as one all-inclusive amount.
The employee insurance contributions are owed by the employer and cannot be recovered from the employee or, in other words, withheld from your salary. The employee insurance contributions consist of the Unemployment Insurance Act (WW), the Work and Income (Capacity of Work) Act (WIA), the Sickness Benefits Act (ZW) and the Invalidity Insurance Act (WAO). Your payslip usually shows whether or not employee insurance contributions are owed by your employer, for example, see the red arrow in the picture below.
Lastly, the income-dependent contribution pursuant to the Health Care Insurance Act (Zvw). Usually, this is owed by the employer, the same as the employee insurances. However, in some cases, the income-dependent contribution Zvw is owed by the employee and withheld from the gross salary by the employer. For example, this applies to director-shareholders who are not covered by the employee insurances and non-employees who opt to be treated as employees for wage tax purposes such as members of the supervisory board (in Dutch: commissaris).
“Loonheffingskorting”
The payroll tax reduction (loonheffingskorting) is a reduction of the wage tax and / or national insurance contributions. The reduction is taken into account in the wage tax / national insurances rate, so whether or not this is applied is not visible at a glance, but this information is included on your payslip. In the above picture, next to the purple arrow, you can see that the box "rebate" has a J in it, which stands for "ja", which is yes in Dutch, meaning the rebate is applied. There might be a few situations in which the payroll tax reduction is not (fully) applied, for instance when you have multiple employers or when you are not living and / or covered by social security in the Netherlands.
Calculation including 30%-allowance
As an expat, you are probably in the privileged position of enjoying the 30%-ruling, meaning (a maximum of) 30% of your gross wages can be paid as a net amount. This can be calculated in two ways.
Example 1
You agreed upon a gross salary including the 30%-reimbursement of 8.500 euros per month. In addition, you agreed upon a monthly gross housing allowance of 1.200 euros, leading to a total gross salary of 9.700 euros per month. From this amount, 30%, being 2.910 euros can be paid out as a net amount, leaving 70% of the gross salary, 6.790 euros, to be subject to payroll levies. After the deduction of payroll levies (2.529,42 euros) a net salary remains to which the net 30%-allowance is then added.
Example 2
You agreed upon a gross salary excluding the 30%-reimbursement of 2.268,52 euros per month. In addition, a gross holiday allowance is paid out to you, leading to a total gross salary of 2.450 euros. Payroll levies are calculated over this amount. As the agreed-upon gross salary excludes the 30%-allowance, the 30% allowance is calculated by taking 30/70 from 2.450 euros, leading to a net 30%-allowance of 1.050 euros, which is added to the net salary.
*The example above regards the 2020 numbers and an employee under 30 in possession of a Dutch master degree or a similar foreign degree.
Company car
If your employer provides you with a company car, a notional amount is added to your taxable wage. The notional amount is calculated by multiplying the catalogue value of the car with an emission-dependent percentage. An example: if the catalogue value is 15.588 euros and the emission-dependent percentage 22%, the yearly notional add would be 22% * 15.588 euros, leading to a yearly notional add of 3.429,36 euros and a monthly add of 285,78 euros as included in the payslip below. Taxes are calculated based on the gross salary and the notional add, leading to a total taxable wage of 6.285,78 instead of 6.000 euros. As taxes are higher, obviously less net salary remains.
Holiday allowance
In the Netherlands, the mandatory holiday allowance consists of 8% of the gross yearly wages. Only if an employee earns over three times the legal minimum wage, a holiday allowance must not be paid by the employer. What the legal minimum wage is in your particular situation, is mentioned on your payslip, as this is a mandatory element that must be included.
The holiday allowance is usually paid out as a lump sum alongside your May salary. The holiday allowance is accrued throughout the year, meaning in each month you worked for your employer, a reservation was made of which the amount can be found on your payslip. Employers can also choose, with written consent from the employee, to pay out the holiday allowance in a different manner, for instance, 1/12 each month (usually the case in combination with a 30%-ruling).
The holiday allowance must be distinguished from holiday pay. Holiday pay is the regular salary you receive when you enjoy a vacation day.
Regular rate vs. special rate
Payroll taxes are levied as a pre-levy to the income tax an individual is due following from their personal income tax return. The payroll tax rate is based on the progressive bracket system that is used for income taxes. In order to make sure there are no major differences between the income tax and already paid payroll taxes, a special rate applies to wage elements that can be considered one-time payments.
The special rate is usually higher than the regular rate to prevent that employees have to pay income tax when they file their income tax return. Wage elements to which the special rate applies are, amongst others, bonuses, holiday allowance, payment for non-used holiday entitlements and overtime. Whether or not the special rate was applied is shown on your payslip.
Pension contributions
In addition to the state pension, which is part of the national insurances, the employer can take part in different compulsory and voluntary pension schemes. When the pension arrangement meets the statutory requirements, the employer contribution to the pension fund will be regarded as a non-taxable wage benefit.
Employee contributions are viewed as deductible and will be shown on your payslip as a deduction from your gross taxable wages. The same applies for contributions into a foreign pension scheme, provided that the scheme has been designated as a qualifying pension scheme via the so-called corresponding approval procedure.
It is important that as an employee you are able to check whether your employer has processed your wages correctly. BDO hopes that the above has enabled you and has given you a better insight into your Dutch payslip! If you have any more questions about your Dutch payslip, and the information it contains, do not hesitate to get in touch with BDO. They are happy to assist!