Compliantly Engage Contractors in the Netherlands

Businesses hiring in the Netherlands should understand the important legal distinction between independent contractors and employees. If an independent contractor is found to be an employee, the employee becomes protected by Dutch employment law. In turn, the employer then becomes responsible for withholding income tax and national insurance contributions. That’s why it’s critical to work with a partner like Worksuite to establish a compliant legal hiring framework. 

There are three distinct legal statuses that govern the relationship between a hiring organization and its employees or independent contractors. A standard employment agreement indicates the traditional relationship between an employer and an employee. A contract of work indicates a one-time freelance engagement whereby an independent party agrees to provide a defined piece of work for a set amount of money. A contract for services is the agreement under which independent contractors operate with a principal (the organization paying the contractor). A contract for services is used for long-term engagements with independent contractors.

New case law continues to emerge as the Netherlands attempts to define strict parameters for the definition of independent contractors. Dutch labor laws are also in a constant state of revision and policy changes, and Worksuite can help employers automatically navigate rapid changes in employment compliance.

In the Netherlands, it is important that both independent contractors and their principals work together to understand if their agreement constitutes that of an employee-employer relationship. If it does, but the worker is incorrectly classified as an independent contractor (commonly known as false self-employment), then the employer could become liable for payroll and social security deductions that would normally be taken from a standard employee’s payslip. 

Both the principal and the contractor share responsibility for correctly determining the nature of the relationship between the two parties. Classifying a worker as an independent contractor prevents them from claiming certain benefits that are available to employees as standard. 

In addition to the nine factors outlined previously, Dutch courts apply another test to determine whether a worker is an employee or a contractor. If, over a period of three months, the worker completes either 20 hours of work per month or completes work every week for the same business, they are likely to be deemed an employee. This situation can arise when no formal contract exists or when the actual workings of the relationship differ from the original contract’s parameters.

A contractor in the Netherlands is commonly known as a zzp’er (zelfstandige zonder personeel). They usually operate either as a sole trader or a company. Ensuring the classification of a worker is correct is even more important after the January 2021 introduction of the Balanced Employment Market Act (WAB). The Dutch government now provides an online tool (Webmodule Beoordeling Arbeidsrelatie) to help employers and principals classify workers correctly.

Businesses looking to work with independent contractors in the Netherlands should remember one simple rule that determines the classification of a worker as an employee or contractor: substance over form.

It is not enough, for example, to simply assume that your worker is correctly identified as an independent contractor because you have agreed and signed a contract for services. The relationship must also follow the guidelines set in Dutch law relating to the relationship between a principal and a contractor.

Any attempt by Dutch authorities to examine and potentially reclassify a contractor as an employee will be based on the following factors:

• Can the worker freely organize their own work?
• How is the worker paid?
• Does the worker receive payments from several clients?
• Does the worker use their own tools and materials?
• Is the worker exposed to any entrepreneurial/financial risk?
• Does the worker perform any other work other than that agreed in the contract for services?
• Does the worker continue to receive payment during holidays, illnesses, and other absences?
• Does the employer deduct social security contributions or income taxes from the worker’s pay?
• Does the worker pay VAT to the Dutch tax authorities?

Businesses engaging the services of independent contractors in the Netherlands must ensure they do not make any deductions from the contractor’s pay. Standard employee deductions, such as income tax, social security contributions, and healthcare deductions, do not apply when dealing with independent contractors.

Instead, independent contractors in the Netherlands are responsible for their own tax calculations and payments. Each year, they must file annual tax returns detailing their turnover, profits, and expenses. The tax return must be completed and filed with the Dutch Tax and Customs Administration before 1 May. Legitimate contractors will be expected to pay both VAT on their turnover and income tax, or inkomstenbelasting, on their profit.

An independent contractor in the Netherlands has many legitimate ways of reducing their profit and, therefore, their income tax bill. One such scheme is the entrepreneur allowance (ondernemersaftrek), which consists of six different tax reliefs and allowances. It is deducted from a contractor’s profit to minimize their tax liabilities.

Businesses working with independent contractors in the Netherlands should seek professional advice and guidance to ensure they are classifying the worker correctly and not exposing the business to punitive costs at a later date for creating a situation of false self-employment. Working with a partner like Worksuite is a major step towards ensuring ongoing compliance with all relevant Dutch legislation.

We can simplify hiring full-time workers in the Netherlands by acting as the Employer of Record (EOR) on your behalf, handling everything from contracts, onboarding, documentation, payroll, benefits, and workforce management. Reduce your time-to-hire by 90%, slash your overheads, and remain fully compliant.

• Quickly find, hire, and onboard talent in the Netherlands without setting up your entity
• Prevent expensive legal, contractual, or tax mistakes in the Netherlands
• Manage contracts, payroll, and global tax forms all in one Worksuite