Wet arbeidsmarkt in balans (WAB): payroll pension

This year, Dutch labour law got a significant overhaul in terms of new rules on probation, termination, severance and other typical aspects of employments. This was all determined in the Balanced Labour Market Act (hereafter called WAB, Wet Arbeidsmarkt in Balans) that became effective per the 1st of January 2020.

The WAB has to make sure that temporary workers and employees on a payroll contract (= the somewhat confusing Dutch name for an outsourced employment setup) have equal rights and working conditions as employees have that work in similar positions on direct contracts with a company. As per the 1st of January 2021, phase 2 of this law will come in effect. This part will be mainly about the pension for payroll employees. Let us explain you the context of this second phase!

What is the current situation?

Till date, payroll employees are statutorily connected to the StiPP pension plan (Stichting Pensioenfonds voor Personeelsdiensten), which was designed to support the requirements of temporary or contingent work agencies and -workers. However, for the payroll employees, this pension plan is far from adequate. For starters, it has a premium-model based on a capped salary, which could be far below the average salary of the employee. This means that by definition, the majority of the payroll employees is building a significant pension gap, without even having the option to repair that by making additional contributions.

StiPPs nature as a collective fund also contradicts with the often individualistic nature of the typical population in international outsourced employment, leaving them little or no choices or flexibility. Furthermore, it lacked decent support for various pension features such as coverage in case of long-term sickness, freedom to decide on when and how to retire, surviving relatives pension, options to make additional contributions by employer or employee and, support for expats to take their pension forward when leaving the country.

Payroll pension & WAB

One specific aspect of the WAB is the introduction of a pension solution for employees under outsourced employment. Due to its complexity, this plan required more time from the government to be designed and decided on. Its implementation start date was therefore separate from other parts within this new law.

As per the 1st of January of 2021, all payroll employees (existing and new onboarders), will mandatorily be joining the adequate pension plan. This basically means that Employer of Record or payrolling companies have to offer the employees on its payroll:

1. The same pension as the client offers its own staff in the Netherlands (only if the client has a Netherlands’ setup), or;
2. The same pension as is common in the labour market segment of the client’s business (if the client is not present in the Netherlands), or;
3. At least an ‘Adequate Pension’. An adequate pension is defined as the ‘average’ of all pension solutions available in the Dutch market.

Consequences for Employers of Record

The main consequences for payroll businesses are that in some circumstances, as per 2021, the payroller itself has to provide this adequate pension plan. The WAB has drafted some minimum requirements:

1. There should be no waiting time or threshold before the accrual of the pension starts;
2. There must be a provision for both an old-age pension as well as a surviving relatives pension;
3. The collective employer’s contribution amounts to at least 14.6% of the pension base amount of the payroll employees who are entitled to a pension scheme.

The costs for the pension will be paid by the payroll agency but can, therefore, drive up the price for the client.

Why an adequate pension for payroll employees?

The reason for this change in pension is to avoid that payrolled employees will compete with employees with a fixed contract, based on working conditions. If payroll employees accept a cheaper (and for them qualitative lower) pension scheme, they can offer their services for a lower price. That’s not what payrolling is for, it exists to unburden, not to promote a risk-avoidance or cost-saving on labour.

Need help or information?

Can we help you out when you have questions about the new pension scheme for payroll employees? Or are you looking for a payroll solution or Employer of Record services? Please don’t hesitate to contact us.