Independent Contractors & Employment Guidelines in The Netherlands
Contract length allowance
No time limit. However, the agreement has to state the expected deliverable, and the worker cannot have more than 70% of their income coming from the same client.
Fixed-term contract limitation
A maximum of 3 employment agreements for a fixed term within three years. At the beginning of the 4th agreement or when the 3-year term is exceeded (and the employee continues working), the employee automatically has an employment agreement for an indefinite period.
What makes someone an employee
The Dutch Civil Code lays down three forms of contracts relating to the performance of work:
Contract for services
Defined as when activities are conducted that consist of anything other than the creation of a work of material nature, the retention of property, publishing works or the carriage or transportation of persons or property.
The independent contractor is contracted based on a contract for services or a management agreement, which is a specific form of a contract for services. These contracts can be entered into with a natural person or the individual person’s management company (Service Company).
Contract of work
Defined as an agreement whereby one party as an independent contractor agrees to produce particular work of a tangible nature for a sum of money to be paid by the other party. There is no master and servant relationship between the contractor and the other party, and there is no obligation for the contractor to perform his duties personally.
Employment agreement
Defined as when one party, an employee, commits himself to perform labour in the service of the other party, the employer, against remuneration during a certain period of time. Three core elements must be present for an employment agreement to exist:
- The employer gives (or is able to give) orders as to how the work is to be carried out (relationship of authority).
- The work is to be carried out personally (exclusively) by the worker.
- The worker receives remuneration for the work from the employer.
The parties’ intentions and the way they have given actual effect to the agreement are relevant elements in deciding whether or not there is an employment agreement. If the situation meets the three core criteria, the contract may be classified as an employment contract (substance over form).
If parties have not agreed on the nature and execution of their cooperation and if, for at least three consecutive months, work is performed for remuneration either for at least 20 hours per month or weekly, it is presumed that this work is performed under an employment agreement.
Fixed-term employment agreement/employment agreement for an indefinite period
A fixed-term employment agreement terminates by operation of law on the set end date. Observing the applicable rules, the fixed-term employment agreement may be terminated prematurely if this is included in the employment agreement. Pursuant to the Balanced Labour Market act that went into effect as of 1 January 2020, differentiation for the unemployment benefits premiums the employer pays is implemented, which causes the fixed-term employment agreement to be more expensive than an employment agreement for an indefinite period of time. The employment agreement for an indefinite period of time needs to be validly terminated with observance of the applicable rules.
Employee vs contractor
There is a vast difference in regard to benefit entitlement, rights and obligations when it comes to worker classification in the Netherlands.
Employees are entitled to the following:
- Unemployment benefits.
- 70% of salary during the first two years of illness.
- Holiday and holiday pay.
- Leave entitlement.
- Minimum wage.
- Pension scheme.
- Non-competition and confidentiality clause.
- Unfair dismissal protection.
- Health & safety conditions.
- Working hours.
- Equal treatment.
Whereas contractors are only entitled to the following:
- Minimum wage.
- Non-competition and confidentiality clause.
- Health & safety conditions.
- Working hours.
- Equal treatment rights.
Moreover, employees and contractors are also treated differently regarding termination. Employees have extensive job security, in most cases, a preventative test of the dismissal has to take place, and a statutory severance payment is due, while contractors do not benefit from the same protection.
Penalties for Employee Misclassification in The Netherlands
The employer may be confronted with employee benefits in arrears, such as outstanding holiday payments, salary entitlements during sickness and pension entitlements. The employer could also be imposed fines by the Tax Authorities for not complying with the obligation to withhold income tax and national insurance contributions. The Dutch government is currently considering new legislation to (i) clarify the difference between an employee and an independent contract and (ii) to protect the contractor\'s position more extensively.
