EMPLOMENT/LABOUR LAWS NETHERLANDS
The Rome Convention on the Law Applicable to Contractual Obligations 1980 (the Rome Convention) has been ratified by The Netherlands. It states that the parties to a contract may choose the law that will govern the relationship between them (the subjectively applicable law). The parties can make an implicit or explicit choice of law. In the absence of such a choice of law, the employment agreement is governed by the laws of:
- The country in which the employee habitually performs his work; or if this cannot be established
The country in which the employer that hired the employee is located.
An exception to the above applies if, from the specific facts and circumstances of the case, it follows that the employment agreement is more closely connected to another country. Relevant facts and circumstances include the:
- Nationality of the parties.
- Place where the contract was signed.
- Language of the contract.
- Applicable social security system and/or pension arrangement.
- Temporary residence of the employee and his family.
Currency of payments.
A choice of law in an employment agreement cannot deprive an employee from the protection given by the mandatory provisions of Dutch legislation. Mandatory provisions include:
- The Working Conditions Act, which contains rules regarding the health and safety of employees in the workplace.
- The Working Hours Act, which restricts working hours
The Minimum Wage and Minimum Holiday Allowance Act, which determines that an employer must pay a minimum gross salary per month (based on full-time employment) and that the employee has a statutory right to a holiday allowance, amounting to at least 8% of the gross salary.
Other provisions of employment law with mandatory force include:
- The prohibition on giving notice of termination to a sick employee for the first two years of his incapacity to work due to his sickness.
- The continuation of payment of salary during the first 104 weeks of an employee's sickness.
The requirement to obtain governmental consent before an employer can give notice of termination.
EU citizens do not require a residence permit or a work permit to stay in The Netherlands for an extended period of time and the only requirement to enable them to work is a valid passport.
All other foreign employees require both a work permit and a residence permit (Foreign Nationals Employment Act (WAV)). The employer must obtain the work permit for the employee and the employee must obtain his own residence permit. The conditions for granting these permits are often linked. The nationality of the employee is often an important factor in determining whether or not the employee is to be granted a residence permit or a work permit.
All foreign nationals who want to stay in The Netherlands for a period exceeding three months need a residence permit.
A request for a work permit should be filed with the Centre for Work and Income (CWI).
A resident permit must be requested from the Aliens Police or the Immigration Office (IND). Work permits are not required for those persons who have obtained a residence permit (nor for self-employed persons or certain groups with a special residence status). The time scale for issuing a work permit is five weeks. In practice, it often takes longer, especially since the employer must actively try to recruit an employee within The Netherlands, the EU and the European Economic Area. Among other things, the employer must report the job vacancy to the CWI at least six weeks before commencement of the work. In addition, the CWI can ask specific questions which will prolong the process.
WRITTEN EMPLOYMENT CONTRACT
All employees must be given a written employment contract or a statement of employment terms within one month of commencing employment. As a minimum, this should include:
- the employee's position;
- commencement date;
- duration of the contract;
- holiday entitlement;
- notice period;
- working hours;
- pension scheme (if any);
- conditions of temporary assignment abroad (if any); and
applicable collective bargaining agreement.
There are many terms implied by law into an employment agreement. An important example is the duty of diligence, which applies to the employment relationship. This imposes implied duties on both employers and employees, including:
- fair and equal treatment;
- maintaining confidentiality; and
not competing during the period of employment.
Collective bargaining agreements (between unions and employers' organisations or individual employers) are common in many industries (for example metal working, textile and construction). Collective bargaining agreements can cover many different primary and secondary employment conditions, including:
- fixed salary increases;
- holiday allowance;
- overtime allowance;
- working time reduction days;
- specific termination provisions;
In addition, collective bargaining agreements can include obligations between trade unions and contracting employers' organisations or employers (for example consultation and notification obligations, social rights during reorganisations and non-strike obligations). The individual employer and employee must not usually depart from the provisions of the collective bargaining agreement, especially if the departure is detrimental to the employee.
The Ministry of Social Affairs can declare certain provisions of a collective bargaining agreement generally binding on all employees or employment agreements in a sector of industry. This means that all employers within the scope of the collective bargaining agreement must observe and apply the generally binding provisions, whether or not they are a member of an organisation which is a party to the collective bargaining agreement.
For employees over 23 years old, there is a minimum wage of EUR1,264.80 (about US$1,522) gross per month or EUR291.90 (about US$351) gross per week or EUR58.38 (about US$70) gross per day, excluding holiday allowance (as from 1 April 2004). Employees under the age of 23 years receive a pro rata wage. The minimum wage regularly increases.
A working day may not last longer than nine hours and a working week no longer than 45 hours (with an average of 40 hours per week over a period of 13 weeks) (Working Hours Act). It is possible to depart from this by means of a collective bargaining agreement. In that case, the maximum daily work time may not exceed ten hours per day and 50 hours per week (with an average of 40 hours per week over a period of 13 weeks).
The minimum statutory holiday entitlement is four times the agreed weekly working hours. For full-time employees, this amounts to 20 paid vacation days in addition to public holidays (about ten). In practice, holiday entitlements are usually higher (about 25 days is common), either based on a collective bargaining agreement or an individual employment agreement.
Employees must use up their vacation days and cannot take pay in lieu of the statutory minimum vacation days during the existence of the employment agreement. However, employees can take pay in lieu of holiday entitlements that exceed the statutory minimum. On termination of the employment agreement, the employee is entitled to compensation for all outstanding holiday entitlements.
MATERNITY AND PARENTING RIGHTS
Under the Employment and Care Act (Wet Arbeid en Zorg), female employees are entitled to maternity leave under the following conditions:
- A pregnant employee is entitled to leave, starting six weeks before the estimated date of delivery. The employee must take her pregnancy leave at least four weeks before the estimated date of delivery. After delivery, the employee is entitled to ten (or 12 as the case may be) continuous weeks of leave, starting the first day after delivery. The days the employee does not stay away from work before the delivery are added to the ten weeks she is entitled to after the delivery.
- The employee is entitled to an allowance from the General Unemployment Fund (Algemeen Werkloosheidsfonds). In practice, however, the employee receives her salary from the employer and the employer applies for an allowance to the Employees' Insurances Institute (UWV), which she receives after submitting the employee's statement that she is pregnant.
The employee must inform the employer about the date she wants her maternity leave to take effect. She must also report the delivery by the second day following the delivery.
An employee with a least one year of service is entitled to parental leave, once for each child under eight. Under the assumption that full-time employment equals 40 hours per week, the employee is entitled to 520 hours of parental leave. All parental leave hours must be taken within a period of six consecutive months and in such a way that the employee will continue to work during at least 50% of the weekly working hours (20 hours if full-time employment amounts to 40 hours per week).
An employee may request that an employer alters the method of taking parental leave, for example, spreading it over a period of more than six consecutive months. The employer can reject the request if there is an overriding business reason for doing so.
The employer is not obliged to continue payment of salary during parental leave.
DISMISSALS AND REDUNDANCIES
Termination of an employment agreement
Most provisions in the Dutch Civil Code (DCC) regarding the termination of employment agreements are mandatory and may not be set aside. The DCC awards an employee extensive protection against unilateral termination of the employment agreement by the employer.
Government consent/mutual consent
An employment agreement may be unilaterally terminated by the employer by giving notice of termination, provided that the employer has obtained previous governmental consent from the CWI. This consent is not required when an employee gives notice of termination or when dismissing a managing director of a company appointed by its shareholders. Alternatively, an employment agreement may, at any time, be terminated with mutual consent.
If no provision with respect to the notice period is included in the employment agreement, the statutory notice period for the employee is one month. The statutory notice period for the employer depends on the employee's length of service, as follows:
- Less than five years: one month.
- Five years or more, but less than ten years: two months.
- Ten years or more, but less than 15 years: three months.
15 years or more: four months.
TAXATION OF EMPLOYMENT
The basis of taxation of employment income is the wage the employee receives. The term wage is very widely interpreted and includes:
- Cash benefits (including salary, bonuses and commissions).
- Benefits in kind (including housing, meals, child care and stock option rights).
Entitlements (including pension rights).
Foreign nationals. A non-resident individual will only be subject to tax on employment income that relates to employment activities actually carried out in The Netherlands and fees received as a director of a Dutch company.
Nationals working abroad. Any individual who resides in The Netherlands will be liable to Dutch tax on his worldwide income. Whether an individual is resident in The Netherlands is determined on
facts and circumstances, including:
- the place of the individual's home;
- the place where his family resides;
- the place where he works;
other personal ties (for example memberships or bank accounts).
Relevant case law demonstrates that the existence of a long-term relationship of a personal nature with The Netherlands is regarded as a very important factor in deciding whether a person is resident.
RATE OF TAX ON EMPLOYMENT INCOME
The personal income tax year runs from 1 January to 31 December. For income tax rates for 2004, see table below.
Taxable income over But not exceeding Tax rate General social security rate Total 0 EUR16,265 (about US$19,570) 1% 32.55% 33.55%
EUR16,266 (about US$19,571) EUR29,543 (about US$35,546) 7.95% 32.55% 40.50%
EUR29,544 (about US$35,547) EUR50,652 (about US$60,944) 42% - 42%
EUR50,653 (about US$60,945) - 52% - 52%
The Dutch social security system distinguishes between the following two types of social security:
- General social security. Contributions are levied on all taxpayers (regardless of whether they are employed or not) together with income tax on the first and second tax bracket at a rate of 32.4%.
- Employee social security. Contributions are levied where an employee has a salary exceeding EUR43,754 (about US$53,248) (in 2004). The employer's contribution for 2004 is about 10.75% of the employee's salary to a maximum of about EUR4,500 (about US$5,476). The employee contribution for 2004 is about 3.45% to a maximum of about EUR1,270 (about US$1,546).