Cost of Employment in the Netherlands, Belgium and Luxembourg

Calculating the actual employment cost can be complex, especially if you are not familiar with the social contributions and common benefits in a specific country. Furthermore, managing personnel in a foreign country always involves unexpected difficulties and costs. The true cost of employment is determined not only by the employee's salary but also by complicated calculations and hidden costs that are not evident on the payslip. In this blog, we will look at the actual costs of labor for an employer in Belgium, the Netherlands, and Luxembourg (the BeNeLux region). What are the essential elements of total labor costs? Let's find out. 

The cost of compliance, mandatory insurances, taxes, and hidden fees must all be accounted for in order to maintain accurate payroll management to be maintained. In this blog, we will take a closer look at the actual cost of employment in the Netherlands, Belgium, and Luxembourg, also known as the Benelux, using a reference salary of 100,000 euros as an example.

Cost of employment in the Netherlands 255px-Flag_of_the_Netherlands.svg

The Netherlands had the highest employment rate among European countries as of the first quarter of 2021, at 79.2 percent, followed by Germany as already mentioned in our previous blog. The Netherlands is a prosperous country with an open economy that relies heavily on foreign trade. The economy is characterized by stable ratios, relatively low inflation, sound financial policies, and an important role as a European transporter. Not to mention the port of Rotterdam which is one of the most important trading places in the Netherlands and makes the Netherlands an important trading center worldwide. Many wealthy economies such as Germany, Belgium, Denmark, France, and Luxembourg also invest in the Netherlands because of the seaport.

Above mentioned reasons, among others,  make the Netherlands an interesting country for foreign organizations. It is, however, important to be aware of the costs as an employer in the Netherlands. The average social contributions for the Netherlands are around 23.23 percent. This percentage does depend on the sector of the company. The social contributions for an employer in the Netherlands can be subdivided into unemployment insurance (2.7 % - 7.7 %), Health insurance (7.03%), Child care premium (0.50%), and Health Care Act (7.0%). The total amount of contributions to the social security system depends on the gross income. The above components are seen as direct employer costs. Costs can become higher for an employer when offering benefits which are also seen as indirect costs. These include pension costs, travel expenses, a thirteenth month, or a lease car.

In 2022, the cap on the mandatory employer payroll contributions is set at an annual salary of € 59.706. This means that an employer does not have to pay additional social contributions on salaries that are higher than € 59.706, which is a very interesting benefit for many organizations that are looking to expand in to Europe.

Description of Cost Component

Amount

Annual Gross Base Salary

€ 100,000

Total Mandatory Employer Payroll Contributions (22.23%) - Capped at € 59.706

€ 13,272

 - Unemployment Insurance (7.70%)

€ 4,597

 - Health Insurance (7.03%) 

€ 4,197

 - Child Premium (0.50%)

€ 298

- Health Care Act (7.00%)

€ 4,179

Total Employment Costs excluding additional benefits

€ 113,272

 

Benefits
One of the most costly mandatory benefits in the Netherlands is the holiday allowance. In the Netherlands, employers are obligated to pay the employee a holiday allowance of 8%. The employer can choose whether this 8% is part of the gross base salary or on top of the gross base salary. In both cases, it has to be clearly stated in the contract. In the calculation example, the 8% is included in the 100.000 gross base salary. The mileage reimbursement ( €0.19 per kilometer) is another mandatory benefit. Common benefits include a laptop and 25 paid holidays. 

Income tax the Netherlands
In the Netherlands, there is a tax bracket for income from work and home. If an employee earns up to 68.508 per year then the employee pays 37.10% tax on his annual income. If the employee earns more than 68.508 the employee pays 49.50% tax for every euro that exceeds the 68.508. This calculation also includes the 8% vacation allowance. The employer may decide whether the 8% is paid out every month or once a year in May or June. 

There may be further costs associated with works councils, health, and safety, private benefits, or CBA requirements, however, this is dependent on a case-to-case basis.

Cost of employment in Belgium belgium

With its 11.7 million inhabitants and borders with Germany, France, the Netherlands, and Luxembourg, Belgium is one of the most important countries for business in Europe. The country is divided between Flanders (Dutch-speaking) and Wallonia (French-speaking). Belgium is also interesting for the transport sector because of its three ports, Zeebrugge, Ghent, and Antwerp.

In Belgium, both the employer and the employee pay social security. Employers pay the equivalent of 25% of employees' remuneration to social security, based on total remuneration including salary, bonuses, and benefits in kind. The mandatory 25% employer contribution covers pensions and family allowances, sickness, work-related injury and occupational disease benefits, and unemployment benefits. 

Description of Cost Component

Amount

Gross Annual Salary 

€ 100,000

Total Mandatory Employer Payroll Contributions (25%)

€ 25,000

Total Employment Costs

€ 125,000

 

Benefits
Aside from those included in the direct cost, office employees are entitled to a vacation bonus of 1/12 of 92% of the gross salary for the month in which the leave begins, multiplied by the number of work months in the previous calendar year. Manual workers are entitled to 8% of 108% of their previous year's gross salary. Other benefits often granted to Belgian employees include a company car, company bike, computer, tablet, smartphone, internet connection, travel and accommodation expenses, family allowances, and meal vouchers.

The employee share of social security and Income tax Belgium 
Like the employer, employees in Belgium are required to pay mandatory social security contributions. Employees contribute 13.07% of their gross salary to social security. Income tax in Belgium is based on a progressive income tax system. This means that employees pay income tax according to their tax bracket. If an employee earns up to €13,250 per year, they pay 25% tax on their annual income. If the employee earns more than €13,250, the tax rate is 40% for the additional amount up to €23,900 and 50% for the amount above €41,361. 

Cost of employment in Luxembourg 2560px-Flag_of_Luxembourg

With a population of approximately 626,000, Luxembourg is one of the smallest countries in the world. Despite its size, this small country attracts global companies looking to expand and has consistently topped the list of the Open for Business in the world's most market-oriented countries. Luxembourg's reasonable bureaucracy, taxes, and manufacturing costs, as well as its transparent and honest government practices, contribute to this distinction. 
Luxembourg is a diverse country in terms of its labor force. About 45 percent of the country's domestic workforce commutes from the neighboring countries of France, Belgium, and Germany to work there. Also, about 25 percent of the labor force in Luxembourg is made up of immigrants.
Determining the actual costs of employment in Luxembourg is not always easy due to the diversity of the country's labor force. The high percentage of cross-border workers and employees with the nationality of another country and other factors such as marital status make it especially difficult for employers to determine the actual labor costs in Luxembourg.                                                                      The employer's share of social contributions in Luxembourg is around 12.22 percent on the employee's gross income. The total contributions for an employer can be subdivided into a pension (8%), Health insurance (2.8%), Accident at Work (0.75%), Mutual Health benefits (0.53%), and Health at Work (0.14%). These components are seen as direct employer costs.  

Description of Cost Component

Amount

Gross Annual Base Salary

€ 100,000

Total Mandatory Employer Payroll Contributions (12.22%)  € 12,220
 - Pension (8.00%) € 8,000

 - Health Insurance (2.80%)

€ 2,800

 - Accident at Work (0.75%)

€ 750

 - Mutual Health Benefit (0.53%)

€ 530

 - Health at Work (0.14%)

€ 140

Total minimum Employer costs excluding benefits

 €122,220

 

Benefits
In addition to the direct cost of employment, other indirect costs may arise in the form of employee benefits such as meal vouchers and expenses such as parking, travel, heating, electricity, and housing in the case of foreign employees. Remuneration may be supplemented by incentives, bonuses, and a 13th-month salary. Although common practice in Luxembourg, these gratuities are not mandatory and are considered a favor employers can grant to staff as they see fit.

The employee share of social security and Income tax Luxembourg
Luxembourg employees are required to pay a mandatory social security contribution of a minimum of 12.20% of their gross salary. The 12.20% includes pension (8%), health insurance (2.8%), and contribution to family expenses (1.4%).  The employee's net salary is determined by a number of factors such as marital status and tax bracket. 

Conclusion

As explained in this blog,  the basic cost of employment and expenses can become very complex, especially for foreign employers who have no experience in managing payroll in different countries. While this blog assumed the same salary across the Benelux, it does not adjust for aspects such as the cost-of-living or industry and country norms.

Frequent changes based on the needs of the moment, such as during the covid pandemic also means that all of the information provided above can change with short to no notice. International companies need a reliable partner who can assist them in successfully managing payroll and taxes, as failure to comply with these requirements can have huge financial and legal consequences.

Professional Employer Organizations (PEOs) such as EuroDev European Business Development Group can provide invaluable assistance in navigating these complex requirements in a fully compliant manner which allows companies to focus their attention, time, and resources on the core of their business operations.

Explore your chances in Europe

More information

Cost of Employment in Spain, Portugal, and France
Cost of Employment in Germany, Switzerland, and Austria (DACH)
Costs of Hiring Employees in Finland

About EuroDev

EuroDev, established in 1996 with offices in The Netherlands, has a single, defined purpose to help mid-sized North American companies expand their business in Europe. We have created a proven, successful business development model and since our founding, have partnered with over 300 companies to help them define and meet their European business goals. Services provided include Sales Outsourcing, HR Outsourcing, and Digital Marketing.

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