The Balanced Labour Market Act (Wet Arbeidsmarkt in Balans, “WAB”) will enter into force on 1 January 2020. This new Act provides a package of measures in the fields of flexible labour, dismissal law and the Unemployment Insurance Act (Werkloosheidswet, “WW”), with the goal of improving the balance between flexible and permanent employment agreements. In the coming period, we will be discussing the main changes in several news reports. This week: Unemployment Insurance Contribution Differentiation according to nature of the contract.
The new contribution differentiation is a problem for many employers. In the case of an employment agreement for an indefinite period of time, the employer pays a low unemployment insurance contribution (“WW contribution”). However, in order to be eligible for this low contribution, it is necessary that the written employment agreement for an indefinite period of time has been signed by the employer and the employee. A written addendum signed by both parties suffices too.
The current system
At present, the first six months of WW benefits are financed out of 67 different sector contributions. Employers are divided into sectors by the tax authorities. After the first six months, WW benefits are financed via the General Unemployment Fund (Algemeen werkloosheidsfonds). With the entry into force of the WAB, this system will be changed.
Contribution differentation according to nature of the contract
In order to make it more attractive for the employer to offer the employee a permanent contract, the amount of the WW contribution will be differentiated according to the nature of the contract. The starting point is that a low WW contribution is due in the case of an employment agreement for an indefinite period of time. In addition, this low contribution applies in some of exceptional situations, such as young people with a job on the side.
In the case of a temporary or flexible employment agreement, the employer must pay a high WW contribution. The high contribution is therefore also due in the case of an on-call contract.
In certain situations, the low contribution may be revised. This happens if the employment agreement ends during the probationary period, or if the paid hours exceed the contract hours by more than 30% (unless there is a fixed scope of work of at least 35 hours).
There is a considerable difference between the high and the low contribution. The high contribution is five percentage points higher than the low contribution.
Conditions in order to be eligible for the low contribution
The employer will be obliged to mention the nature of the employment agreement on the employee's salary specification. When the employment agreement is for an indefinite period of time, the employer must – in order to be eligible for the low contribution – also include the written employment agreement in the payroll records.
This last requirement is a problem for many employers. A first fixed-term employment agreement is often drawn up in writing and signed by both parties, but when it is converted into an employment agreement for an indefinite period of time, the employer only uses an ‘extension letter’ or ‘conversion letter’. However, this is not enough to be eligible for the low contribution, since such a letter is not a ‘written employment agreement for an indefinite period of time’. In that case, the employer must pay the high WW contribution.
Written addendum
In this case, in order to be eligible after all for the low WW contribution, the employer can use an addendum that is signed by both parties. According to the Dutch Tax Administration, the following conditions must be met:
o The employee and the employer have signed a written addendum.
o The addendum shows that there is an employment agreement for an indefinite period of time which is not an on-call contract.
o The employer keeps the addendum in the payroll records.
Conclusion
The new regime will enter into effect on 1 January 2020. Minister Koolmees announced on 9 December that employers will still have time until 1 April 2020 to include a written employment agreement signed by both parties or an addendum signed by both parties in the payroll records. In the meantime, employers will be allowed to pay the low contribution. This leniency only applies to employment agreements of employees who joined the company before 1 January 2020.
