Payroll in Netherlands: A 2025 Guide for Employers

The Netherlands is an attractive destination for organizations due to its strategic location in Europe, a highly skilled workforce, and a robust infrastructure supporting business growth. 

However, navigating the local payroll and tax legislation presents challenges, including complex tax rates and stringent compliance requirements that demand precise attention to detail.

Here’s a comprehensive guide on payroll in the Netherlands, tailored to cover the full scope from taxes to payroll setup and options for employers.

Payroll Taxes and Contributions in Netherlands

In the Netherlands, understanding payroll taxes and contributions is crucial for employers to ensure compliance with local regulations. 

This section provides a detailed breakdown of the taxes and contributions required in 2025, including employer and employee obligations.

Wage Tax Rates

Wage taxes in the Netherlands are progressive, meaning they increase with income. The 2025 rates are:

• Income up to €38,441: 35.82%
• Income from €38,441 to €76,817: 37.48%
• Income above €76,817: 49.50%

These rates apply to both residents and non-residents working in the Netherlands. More information can be found on the Dutch Tax and Customs Administration website.

Social Security Contributions

Social security contributions are mandatory for both employers and employees, covering various insurances such as unemployment, health care, and pensions.

• Employer Contributions: Typically include payments for unemployment insurance, health insurance, and disability insurance. The rates vary annually and can be found on the Social Security Administration website.
• Employee Contributions: Employees contribute to national insurance, which covers old age pensions (AOW), survivor benefits (ANW), and long-term care (WLZ). The rates are generally deducted from gross wages.

Healthcare Insurance Act Contributions

Under the Healthcare Insurance Act, employers contribute to the healthcare insurance fund at a rate of 6.52% in 2025. This contribution is capped annually, ensuring that excessive amounts are not deducted.

Exceptions and Special Cases

Certain workers, such as expatriates or those on temporary assignments, may qualify for special tax regimes like the 30% ruling, which provides tax relief to highly skilled migrants. 

Details on eligibility and application can be accessed through the Dutch Immigration and Naturalisation Service.

Table: Employer and Employee Contributions Summary

Contribution Type	Employer Rate (%)	Employee Rate (%)	Notes
Wage Tax	-	As per income bracket	Progressive rates based on income level
Social Security	Varies	Varies	Covers unemployment, health, and disability
Healthcare Insurance Act	6.52%	-	Capped annually
National Insurance	-	Varies	Includes AOW, ANW, and WLZ

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How Payroll Tax Is Calculated in Netherlands

Calculating payroll tax in the Netherlands involves a systematic approach that ensures all statutory contributions and taxes are accurately deducted from an employee's gross pay. Below are the steps that employers must follow to calculate payroll tax correctly:

Steps for Calculating Payroll Tax

1. Determine Gross Pay: Start by identifying the employee's total earnings, including salary, bonuses, and other taxable income.
2. Apply Wage Tax Rates: Based on the employee's income bracket, apply the appropriate wage tax rate. Refer to the progressive tax rates for accurate deductions.
3. Deduct Employee Social Security Contributions: Calculate the employee's share of social security contributions, which includes national insurance for pensions, survivor benefits, and long-term care.
4. Calculate Employer Contributions: While not deducted from the employee's pay, employers need to account for their contributions to social security and healthcare insurance.
5. Factor in Healthcare Insurance Act Contributions: Deduct the employer's healthcare insurance contribution, ensuring it does not exceed the annual cap.
6. Consider Special Tax Regimes: If applicable, apply any special tax rulings, such as the 30% ruling for expatriates.

Key Elements of Payroll in Netherlands

Understanding the key elements of payroll in the Netherlands is vital for employers to manage their workforce effectively and comply with Dutch labor laws. 

This section provides essential information on various payroll-related aspects in 2025.

Fiscal Year

The fiscal year in the Netherlands runs from January 1st to December 31st, aligning with the calendar year. Employers must adhere to this timeline for tax filings and financial reporting.

Payroll Cycle

Typically, payroll is processed on a monthly basis in the Netherlands. Employers may choose to pay salaries either at the end of the month or in the beginning of the following month.

Minimum Wage

As of 2025, the minimum wage for employees aged 21 and over is approximately €1,995 per month, with adjustments made biannually. The rates are prorated for younger workers.

Overtime

Overtime pay is not legally mandated, but it is commonly agreed upon in employment contracts or collective labor agreements. Employers should clearly define overtime policies and rates.

Termination

Termination of employment requires adherence to strict procedures, including notice periods and valid reasons for dismissal. Legal consultation is often recommended to ensure compliance.

Severance

Severance pay, known as "transition compensation," is mandatory for employees who are dismissed after two years of service. The amount is calculated based on tenure and salary.

Annual Leave

Employees are entitled to a minimum of four times their weekly working hours as paid annual leave. For a full-time employee, this typically equates to about 20 days per year.

Maternity Leave

Maternity leave in the Netherlands consists of 16 weeks, with 4-6 weeks taken before the due date and the remainder after childbirth. This leave is fully paid.

Paternity Leave

Fathers are entitled to 5 days of paid paternity leave following the birth of their child, with an additional 5 weeks available at 70% of their salary.

Adoption Leave

Adoptive parents are entitled to 6 weeks of adoption leave, which is compensated at a rate equivalent to maternity leave.

Sick Leave

Employees are entitled to up to 104 weeks of sick leave, with the employer required to pay at least 70% of the salary during this period.

Holidays

The Netherlands observes several public holidays, including New Year's Day, King's Day, and Christmas. Employers are not legally required to provide paid leave on these days, but it is common practice.

Author's Tip

As any employer, you may have to work with a collective labour agreement (Collectieve Arbeidsovereenkomst, CAO) that impact element such as wages, working hours, and notice periods. Find out if a CAO applies to your business, and when your employment offering and conditions can differ from a CAO.

How to Set Up Payroll in Netherlands

Setting up payroll in the Netherlands involves a series of steps to ensure compliance with local laws and regulations. 

This step-by-step guide outlines the necessary actions for employers to establish a payroll system effectively.

1. Register with the Dutch Chamber of Commerce (KvK): Begin by registering your business with the KvK to receive a unique identification number, essential for all legal and administrative processes.
2. Register with the Dutch Tax and Customs Administration (Belastingdienst): Obtain a tax identification number by registering with the Belastingdienst, enabling you to manage payroll taxes and social security contributions.
3. Obtain Employee Information: Collect necessary details from your employees, including their Citizen Service Number (BSN), tax identification number, and bank account information for salary payments.
4. Set Up Employment Contracts: Draft employment contracts that comply with Dutch labor laws, clearly outlining salary, working hours, and other employment terms.
5. Choose a Payroll System: Select a reliable payroll software or service provider that aligns with your business needs, ensuring it complies with Dutch regulations and can handle tax calculations, deductions, and filings.
6. Calculate Deductions and Contributions: Set up systems to accurately calculate wage taxes, social security contributions, and other statutory deductions from employee salaries.
7. Issue Payslips: Ensure that employees receive detailed payslips each pay period, clearly showing gross pay, deductions, and net pay.
8. File Monthly Payroll Taxes: Submit monthly payroll tax returns to the Belastingdienst, ensuring all tax obligations are met in a timely manner.
9. Maintain Accurate Records: Keep comprehensive records of all payroll transactions and employee details, as required by Dutch law, for at least seven years.
   

Payroll Options for Employers in Netherlands

Employers in the Netherlands have several options to manage payroll, each with its own set of advantages and disadvantages. Understanding these options helps businesses choose the most suitable method for their needs.

Internal Payroll Management

Managing payroll internally involves using in-house resources and software to handle payroll processes.

• Pros: Direct control over payroll operations; tailored to specific business needs; immediate access to payroll data.
• Cons: Requires dedicated staff and expertise; higher risk of compliance errors; potentially costly software and maintenance.

Outsourcing to a Local Partner

Outsourcing payroll to a local partner involves hiring a Dutch company to manage payroll functions.

• Pros: Access to local expertise and understanding of Dutch regulations; reduces administrative burden; potentially cost-effective.
• Cons: Less control over payroll processes; dependent on the reliability of the service provider; possible communication challenges.

Global Payroll Provider

Using a global payroll provider integrates payroll across multiple countries through a single platform.

• Pros: Streamlined payroll operations for multinational companies; consistent reporting and compliance; scalable and efficient.
• Cons: May lack local expertise; higher costs for smaller businesses; potential integration issues with existing systems.

Employer of Record (EOR)

An EOR takes on the responsibility of employing staff on behalf of a company, managing all payroll and HR functions.

• Pros: Simplifies international hiring; ensures compliance with local laws; reduces administrative responsibilities.
• Cons: Less control over employee management; potential dependency on EOR's services; cost considerations.
• Note: See our pick of the best EOR in the Netherlands.

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