Explaining Salary Increases in the Netherlands

In many countries, it is common practice to easily incorporate a salary increase that should take effect in a given month into the subsequent month. Unfortunately, the same does not apply in the Netherlands. In the Netherlands, each payroll month is formally closed by accountants. But what does this closure entail?

Payroll month closure in the Netherlands

In the Netherlands, several insurances are arranged through the government, known as social insurance and employer insurance. The contributions for these insurances are calculated based on the salary, including vacation pay. They are calculated and remitted monthly for each employee to the Social Insurance Bank. These contributions are calculated and remitted up to two weeks after the month has ended.

This allows for the inclusion of any last-minute changes and gives companies the necessary time to accurately calculate the amounts, rather than rushing through the process.

Due to the monthly reporting and calculation of these contributions in the Netherlands, it is not possible to add a salary increase in the following month. Doing so would be seen as an attempt to evade social costs, with potential consequences.

The disadvantage of resolving with bonuses

Resolving a missed salary increase through a bonus has several disadvantages for the employee. Firstly, bonuses in the Netherlands are subject to higher taxation than regular salaries since they are considered additional income. As a result, the net difference that the employee should have received is not immediately compensated.

Additionally, as mentioned earlier, various contributions are calculated based on the base salary. For instance, vacation pay is calculated on the base salary, and pension contributions are also based on the base salary plus vacation pay. Another important consideration is the Unemployment Insurance Act (WW), which is calculated based on the last received base salary. If a salary increase is not taken into account, the employee may face disadvantages in terms of their unemployment benefits.

These are two key reasons why implementing a salary increase in the following month as a correction is not possible in the Netherlands. A salary increase must always be announced at least one month in advance, allowing sufficient time for the necessary documentation to be completed and accurate contributions to be calculated.

The Dutch system of formally closing payroll months and calculating and remitting social costs and insurance contributions on a monthly basis ensures careful and controlled processing of salaries.

Parakar – your local employment guide

In light of these considerations, it is important for both employers and employees to proactively communicate and plan salary adjustments in advance. By doing so, any potential issues or misunderstandings can be avoided, and both parties can work together to ensure fair and timely compensation.

Let us strive for transparent and open communication regarding salary increases, creating a harmonious work environment where employees feel valued and fairly compensated. Together, we can build a stronger and more prosperous future.

As an employer or employee, take the initiative to discuss and plan salary adjustments well in advance. By doing so, we can ensure a smooth and transparent process that benefits everyone involved.

At Parakar, we believe in the power of collaboration and providing exceptional HR support. Navigating the intricacies of salary adjustments and payroll processes in the Netherlands can sometimes be challenging. However, our team of Dutch HR consultants is always here to assist you and provide expert advice.