Many people in the Netherlands experience payroll as difficult to understand. Most only check their salary via their bank statement, paying little attention to their payroll specification explaining the calculations. It’s certainly a complicated document, any problems with it usually referred to the company ‘wizard’ – an expert payroll administrator or professional accountant.
Within Exact, the payroll development team is also seen as a distinct group with specialist knowledge. They seem to speak a secret language of payroll taxes, contributions and life course savings schemes, carefully guarding the secret formula of gross to net salary.
Of course I’m kidding, but perhaps it is time we cast off the mystical aura surrounding all things round ‘Payroll’…
Is doing the payroll administration easy then?
The answer is yes and no. The process itself is quite simple if compared, for example, to logistics. You need a record for each employee with master data like a social security number and, of course, salary amount. Together with variables like overtime or travel allowances, you calculate the payroll tax, insurance contributions, and most importantly, the net wage which then has to be paid. Calculated taxes and contributions must also be declared and paid to the tax department. Finance also like to know the payroll costs, reported via a journal entry with the balance and costs.
That’s about it. No magic and no secret formulas. The payroll specification is also not impossible to understand, but we’ll save that for my next blog.
So, what’s all the fuss about?
If you use up-to-date payroll software to support you, learning this relatively simple payroll process is certainly not impossible. However, the legislation surrounding payroll is complicated and dynamic. In the Netherlands, every payroll component needs to be examined – is it a base amount for a calculation and if so, for what contribution? Does it apply to payroll tax? With the rules changing regularly, the administrator needs expert knowledge beside robust software.
Collective labor agreements are also important – documents describing employee earnings and allowances that often run to over 100 pages. The huge amount of information makes life difficult for a payroll administrator, particularly if they work for an accountancy firm that do the payroll for several different companies.
Can it be made simpler?
The Dutch government has been trying to make payroll simpler without much success for many years; the political process is slow and extensive. Collective labor agreements and pension contribution calculations also remain difficult to understand and execute. The result of long negations between employers and employees, they are unlikely to be simplified any time soon.
What Exact can do is make the payroll administration easier by supporting relevant Dutch laws and regulations through smart implementation in our software. We can then go even further. At Exact Online Payroll we have the ambition to support and maintain more than 150 of the most commonly used collective labor agreements in the Netherlands. We already support around 50, more being added on daily basis. These inclusions mean that a payroll administrator no longer needs to study, for example, how a particular clothing allowance needs to be included. The correct payroll component is there ready to be selected.
With so much time saved, the payroll administrator has more time for giving advice and service to his customers and their employees. Like explaining the payroll specification to employees for example…but let’s do that next time!