In the Netherlands, we can expect some changes in the labour law landscape. Recently, five important political parties reached an agreement, the so-called Spring Agreement (in Dutch: "Lente Akkoord"), on possible future changes with respect to, amongst others, employment termination law, the pension age and travel costs. These proposals could bring about that many companies could be confronted with wage costs increases in 2013 and beyond. It is uncertain if these changes will eventually be implemented. The Dutch government fell and new elections took place on 12 September 2012. Nevertheless, the Spring Agreement could be an indication of the changes we can expect in the near future. In this article, we will discuss possible future changes.
Redundancy
Whereas currently, there were several routes an employer in the Netherlands can choose to dismiss an employee, these routes will be replaced by a single method, outlined below. In addition, the severance payment will be lower than it is currently on the basis of the Formula. These changes in the employment dismissal law mainly aim to make it easier for employers to dismiss employees. Furthermore, the proposal that instead of the government, the employer will pay the social security for the first six months of unemployment is a budgetary measure.
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Current Situation |
Proposal in the Spring Agreement |
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Three main dismissal routes: 1) By giving notice after having obtained prior consent (dismissal permit) from a governmental body, the Employee Insurance Agency (in Dutch: "UWV WERKbedrijf); 2) Dissolution of the employment agreement by the (sub-)District Court; and 3) Instant dismissal, in certain circumstances. |
One dismissal route: The dismissal route will consist of a hearing procedure within the company whereby the employee will have the right to hear and be heard. After this hearing procedure, the employee can still initiate unfair dismissal proceedings. |
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Termination compensation: The severance compensation is calculated on the basis of the so-called cantonal court formula (hereinafter: "the Formula"). The Formula (A x B x C) is based upon different factors: age and the period of employment (A), salary and other remunerations (B). The result of these factors is then multiplied by a correction factor (C). |
Termination compensation: > The severance will consist of ¼ of the gross monthly salary per year of service with a maximum of 6 months. The severance payment can only be used for training, retraining and for 'work-to-work' initiatives. > In addition, the employer's levy for excessive severance payment will be increased from 30% to 75%. If an employee receives a payment totaling more than one year's annual salary and he/she earned more than € 531,000 (figures: 2012) for two years preceding dismissal, this is deemed an excessive severance payment. In such case, the employer must pay an extra final levy on the severance payment on top of the usual withholding taxes, i.e. double taxation. |
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Unemployment benefits: These unemployment benefits are paid by a governmental body called the Employee Insurance Agency (in Dutch: "UWV WERKbedrijf"). Depending on their employment history, the employees are entitled to unemployment benefits during a certain period. |
Unemployment benefits: Employers will pay for the first six months of unemployment. |
Pension
The current pension age under Dutch law is 65. However, life expectancy in the Netherlands has been continually increasing since the 1950s. As a consequence, pensions will need to be paid out to people over a longer period of time. To support the funding of pensions, the increase in life expectancy will be matched with increase in retirement age. The Spring Agreement proposes to increase the retirement age in the Netherlands gradually.
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Current situation |
Proposals in the Spring Agreement |
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Retirement age: 65 years |
Retirement age: >This will take place in stages and the first step will be taken in 2013 by raising the state pension age by one month in that year. In subsequent years the state pension age will be increased by two or three months each year up to a retirement age of 67 in 2024 after which it will be linked to life expectancy. The retirement age for additional pension will rise to 67 in 2014, and the maximum accrual rates will be lowered at the same time. > This means that employers will have to contribute to their employees' pension scheme for a longer period of time but that with effect from 2014 their contribution payment will be lower. > There will also be an advancement facility, by which one can get an advance on one's pension at the 65th birthday, which will bridge the income divide. > In situations of insufficient resources, one can appeal for special assistance, regulated by the pension fund, and one can then receive extra support to meet the gap in resource funding. |
Travel costs
The Spring Agreement proposes to change the current regulations with respect to travel costs and the use company cars.
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Current situation |
Proposals in the Spring Agreement |
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Tax-free allowance for commuter traffic of a maximum of € 0,19 per kilometre. |
> Tax-free allowance will be abolished as of 1 January 2013. > Employers who wish, or must, continue to reimburse their employees for travel costs incurred subject to contractual or collective bargaining (CAO) agreements, may opt to continue paying their employees a net travel allowance and bear the tax burden themselves. > Employers who have the contractual room to implement amendments may also choose to reimburse the gross sum of € 0,19. > For employers who apply the work-related expenses scheme, the allowance for commuting kilometres will no longer rank as a specific exemption with effect from 2013. Employers who have the contractual room to implement amendments may opt to continue paying the gross commuting allowance. Allowances by the employer for business travel will in such case be payable out of the budget (or be grossed up). |
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Tax-free reimbursement of the actual travel costs. |
Tax-free reimbursement will be abolished as of 1 January 2013. |
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Tax-free reimbursement for business travel. |
> Remains unchanged in 2013, but will be taxed with effect from 2014. > The business travel allowance will also no longer rank as a specific exemption with effect from 1 January 2014. Allowances by the employer for business travel will in such case be payable out of the budget (or be grossed up). |
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> Private use of lease cars is not taxed if this use is less than 500 kilometres per year > At present employees in possession of a statement 'no private use of company car', do not need to include the private use of a company car in their taxable income |
> Private use of lease cars will be taxed, also if this use is less than 500 kilometres per year > With effect from 1 January 2013, all commuting kilometres travelled with a company car are also deemed to be 'private kilometres' and this means that the 500-kilometre limit will be quickly reached. A complication is that these employees are contractually bound by lease contracts whilst they chose to drive a lease car for which no addition (or very little) to their taxable income was necessary. Therefore, the governement has proposed a detailed transitional arrangement, which we will not further discuss in this contribution. |
Conclusion
We can conclude the changes that were proposed in the Spring Agreement will definitely leave their mark in the Dutch labour law landscape. However, only time will tell whether the Spring Agreement will actually be implemented, because this will strongly depend on the plans of the government coalition to be formed after the recent elections. In the next edition(s) of the newsletter, we will keep you updated of any further developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
