Major changes to Dutch employment law in 2020 to carry huge financial impact

Netherlands

With all COVID-19 developments in the first half of this year, one could almost forget that on 1 January 2020 Dutch employment law has changed significantly. In this update we discuss the three most impactful changes your organisation should remember to take into account.

The most important changes brought on by the 2020 Dutch employment law concern transition payments, on-call workers and unemployment benefit premiums.

Transition payment as per day one

From 1 January 2020, employees are entitled to a statutory transition payment from day one of employment instead of after two years of service. This also applies to employees who have been hired prior to 1 January 2020. Even if an employer decides to end an employment agreement during the probationary period, a transition payment must in principle be paid to the employee. A claim to a transition payment expires three months after the employment agreement ends.

The transition payment equals one-third of the salary per month for each year that the employment agreement has lasted. For periods less than one year, the payments will be prorated to the day. Transition payments are currently capped at EUR 83,000 gross or the gross yearly salary if that is higher. Base salary, holiday pay and the average of fixed and variable wage components (e.g. bonus payments) must be taken into account. Pension and lease contributions are not included.

If an employee resigns or is terminated for serious culpable acts or omissions, no transition payment is due.

On-call workers are entitled to fixed number of working hours

Under the new legislation, after twelve months of service the employer must make a written offer to each on-call worker for a volume of work equal to the average number of hours worked in the previous 12 months. If the employer does not make an offer, the on-call worker can still claim wages for the average number of hours. An on-call worker does not have to accept the offer for the scope of work, as long as the employer did not influence the decision.

For employers who have on-call workers on the payroll for more than 12 months, action is required. An offer must be made to each on-call worker for a fixed number of working hours. If the worker refuses this offer, this response should be well documented to avoid future claims.

Unemployment benefits premiums change significantly

Prior to 1 January 2020, employers paid an unemployment insurance contribution (WW-premie), which varied from sector to sector. As of 1 January 2020, however, this system changed and contributions are now based on two fixed rates: 2.94% and 7.94%. Employers may apply the lower rate for indefinite-term employment agreements that include a fixed number of working hours. This lower rate also applies to employees under the age of 21 who on average work no more than 12 hours a week or for workers employed under a basic vocational learning pathway (BBL) agreement.

For all other types of employment agreements, the higher rate applies. 

In order to apply the lower rate, the employer must ensure that an indefinite-term employment agreement with a fixed number of working hours was drafted for the employees in question. If a definite-term employment agreement is renewed and updated into an indefinite-term employment agreement, make sure to confirm this change in writing with the employee. Furthermore, the type of employment agreement must be included on the salary slip of each employee. It is advisable to verify that this will happen with your salary administration or payroll provider.

It is clear that the new employment legislation in the Netherlands will have a major effect on employers. For more information on how these changes might affect your business, contact your regular CMS advisor or local CMS experts.