If you are new to the Netherlands you might have had more than a little trouble deciphering your pay slip at the end of the month. Even if your pay slip is written in Dutch it takes can be difficult to understand the Dutch payroll and tax system if you are not familiar with it.
So we have compiled a brief explanation of some of the terms and deductions to lessen the shock at the end of the month when your wallet is a bit lighter than you expected it to be.
Gross salary (Bruto loon)
The gross salary amount shown your pay slip is the salary before any deductions. Note this is not necessarily the salary from which the tax is calculated as there are some tax-free deductions from income. Sometimes your gross hourly wage is shown, along with the hours per week. This can often confuse people if they do not understand how it is calculated. The hours worked per week are adjusted to hours per year, and then divided by twelve for hours per month.
Example: Monthly salary of € 3.422, 38 hours per week, and gross hourly wage is € 20.74
38 hours per week = 38 x 52 = 1976 hours per year = 1976/12 = 165 hours per month.
Then € 3422 / 165 = € 20.74 per hour
Wage tax/national insurance contributions (Ingehouden loonbelasting / premie volksverzekeringen)
Wage tax and national insurance contributions are withheld from the wages paid out and constitute one figure on your pay slip. The percentage of your wages which is taxed depends on your level of income, and ranges from 33% to 52%. Don’t let the euphemistic term national insurance fool you into thinking this is optional , it is compulsory and should be thought of as what it is. More tax.
Payroll tax credit (Loonheffingskorting)
If you are entitled to a payroll tax credit, the payroll tax/national insurance contributions are reduced. There are four credits which the employer can apply when withholding tax and insurance contributions: the general tax credit, the (increased) employment credit, the elderly discount and the disabled young person’s discount.
Offset employment discount (Verrekende arbeidskorting)
Employment discount is a part of the payroll tax credit which everybody is entitled to and is dependent on your age and your income.
Holiday pay (Vakantie-uitkering)
Your employer is legally required to subsidize at least 8% of your monthly pay to be paid as holiday pay in a one-off payment, usually in May or June. In some companies this percentage is more depending on their own policy or whether they fall under a collective employment agreement. If this is new to you, sorry for ruining your June surprise.
End of year bonus (Einde-jaarsuitkering)
This is also a bonus addition to your monthly pay and is commonly paid out in December, a point of difference with the holiday pay being that it is not compulsory. If your employment ends for whatever reason then the balance is paid out with your final salary. This also applies for holiday pay.
Travel costs (Reiskosten)
Again, all workplaces and employers are different but sometimes your travel costs are reimbursed tax free. Some employers wish to reimburse the exact travel costs after they are incurred on a declaration basis. Others opt to disburse with the salary every month at a rate of € 0.19/km for the distance from the employee’s residence to the workplace. The wiley employer will pick the cheapest option.
Pension (Pensioenpremie)
When you signed your employment contract you might have also signed up for the company pension plan, along with the government plan. Ask yourself whether you see yourself remaining in the Netherlands for your golden years, or whether you would like to enjoy the fruits of your labour right now! There is also the possibility of getting your pension paid out early whenever your leave the Netherlands but it is important to remember that will be considered part of your aggregate income, and might push you into a higher tax bracket for the year. For further advice consult our office.