Here is the newest edition of our monthly Localization update. Today we will talk about some upcoming changes for the Netherlands.
Posts Tagged ‘The Netherlands’
In my previous blog I gave a short introduction on the simplicity of the payroll process. I also looked at the simplicities themselves – the processes that are involved in completing a payroll calculation. I also pointed out that most people do not read their payroll specification and only check their bank statement. As an employee, you just want your money. That’s a pity because the document is the key to checking you were paid the right amount – to seeing that no mistakes were made with your expenses or travel allowance.
To try and give you a bit more insight into exactly what you can learn from the specification, let’s zoom into it and see what we find there.
The piece of paper the employee receives from their employer supplies information on your salary, contributions and taxes that are withheld and, finally, what should be paid into your bank account. As the document carries an official status in The Netherlands, it can also be used to apply for a loan or for a governmental allowance.
The payroll specification is divided up into several areas. Please refer to the example payroll specification attached.
- Personal information
You’ll first notice some personal information at the top of your document – your name, social security number, date of birth and your address. This is also related to some tax related data.
- Contract information
You’ll also notice some information regarding the employment contract you have with your employer. This includes start date and end date of the employment, how many hours you work in a week and the base salary. The employer is also obligated to print the minimum wage that applies, enabling you to check that your employer pays you the correct amount.
- Period information
This section shows all information related to the period and the wage that is paid for that period.
- The involved period
- This information reveals how the gross wage is composed – your base salary including allowance for overtime, personal target
- The amounts that are withheld on your salary like contributions for health care, pension and, of course, payroll tax.
- The net amount that is paid to the nominated bank account – for most people the most important bit!
This section displays all totals up to the current period. Besides base values for contributions and payroll tax you’ll also find information of your holiday allowance balance. Sometimes the balance for vacation days is also shown here.
The example we see here shows the layout that we use in Exact Online Payroll. We are always curious to hear what you think about it – especially if you’re an employee who receives it. If you have any thoughts, please do share them with us. It could become part of an important improvement and help more people gain important insight from their payroll specifications.
Now that you know what Localizations are all about, and you’ve read the first updates in this series, it is time for the next Localizations news update.
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!