Changes in employment law with effect from 1 January 2020: unemployment insurance contribution differentiation
07 October 2019
The government envisages with the Balanced Labour Market Act to encourage the entering into of permanent employment contracts. By means of levying a lower unemployment insurance contribution for permanent contracts and a higher unemployment insurance contribution for all other employment contracts, the legislature expects that it will become more attractive for employers to offer permanent contracts.
The current system
The financing of unemployment insurance presently takes place as follows:
- The first six months of unemployment benefit is presently financed through 67 different sectoral contributions. The Tax and Customs Administration classifies each employer in one of these sectors, which have their own sectoral fund and the sectoral contribution forming part thereof. The sectoral contribution depends on the risk of unemployment in that sector and is in addition significantly sensitive to cyclical movements.
- After the first six months the unemployment benefit is financed through the General Unemployment Fund. The contribution for this is annually recorded by the Minister for Social Affairs and Employment.
According to the legislature this system is outdated. It must be considered that many companies operate cross-sector. Furthermore, employees are less attached to one sector than in the past. The government also deems the incentive effect of the current system limited, because one sector collectively bears the unemployment insurance costs instead of the employer and due to this an employer has no direct financial loss when a former employee starts to receive unemployment benefit.
The system with effect from 1 January 2020: unemployment insurance contribution differentiation in accordance with the nature of the contract.
In the new system all benefit costs and all contribution income will take place through the General Unemployment Fund. The sectoral contributions and sectoral funds will be abolished for unemployment insurance.
For which contracts is the low contribution paid?
The general rule is that the low contribution will be paid for employees with a permanent employment contract in writing, provided that there is an on-call contract (therefore: when employees have certainty regarding the hours to be worked and therefore the income to be earned). In a letter dated 9 December 2019, the Minister of Social Affairs and Employment announced that the high contribution has to be paid for those employees who have a permanent employment agreement that was tacitly renewed. In that case, an addendum to the original employment agreement has to be agreed upon. The addendum has to be signed by both parties and must include that the employment agreement is for an indefinite period of time and that the employee does not work on the basis of an on-call contract. The Minister (oddly) writes that the high contribution also applies in a situation where the employer - at the time that the employment agreement became one for an indefinite period of time - confirmed to the employee in writing that the employee is working on the basis of a permanent employment agreement. In that situation, the employer must also conclude an addendum with the employee in order for the low contribution to apply. You can find the letter from the Minister here (in Dutch).
There are a number of exceptions to the general rule, such as:
- For contracts with pupils on block or day release;
- For flexible contracts with young people under the age of 21 years, who work a maximum of 12 hours per week per tax period.
The legislature deems it necessary that a low contribution that has already been paid can be reviewed for the prevention of the salary circumventing the high contribution. In that case the high contribution must be paid with retroactive effect. The low contribution will be reviewed in the following situations:
- The employment relationship is terminated within two months (probationary period) after commencement;
- The employee gets 30% or more hours paid within one calendar year than has been contractually agreed for that year;
- The employee receives unemployment benefit due to loss of working hours, or loss of income at the employer within one year after the commencement of the employment relationship;
- The employee gets unemployment benefit, while within a maximum of one year earlier the low contribution has been reviewed for the same employer, because the same employee received unemployment benefit on the basis of the same employment relationship within one year after the commencement of this employment relationship.
The review situations 1 and 2 will come into effect on 1 January 2020. The review situations 3 and 4 will follow later, at a time that is still unknown.
The difference between the high and the low contribution
The difference between the high and the low contribution is recorded at five percentage points. Therefore: if the low contribution is 3%, the high contribution will be 8%. The government deems a fixed difference stable and predictable, simple to communicate and not dependent on economic trends. The amount of the contributions will be determined each year.
Statement on the payslip
The government will also create the obligation to state on the payslip whether the employment relationship is entered into for an indefinite period of time, or whether there is an on-call contract (inter alia zero hours contracts and 'min-max' contracts). This proposal has two objectives: to make the nature of the employment contract transparent for the employee and to encourage the enforceability of the new contribution system.
Enforcement and sanctions
The Employment Insurance Agency and the Tax and Customs Administration will supervise fraud in the case of a payment of social insurance contributions that is too low. The payslip in particular plays an important role in this. The Employment Insurance Agency and the Tax and Customs Administration will also exchange more data with each other. If the Tax and Customs Administration can demonstrate that there is gross negligence or intent, a negligence penalty can be imposed on the employer. In the event of gross negligence a financial penalty of 25% can be imposed. In the event of intent a financial penalty of 50% of the contribution not paid, or paid late, can be imposed. In the event of breaches with aggravating circumstances such as more severe penalties in the event of intent, the financial penalty can be doubled to a maximum of 100%. In coordination with the Public Prosecutor, criminal prosecution can also be proceeded with.
In addition to the sectoral contribution for unemployment insurance, the contributions under the Sickness Benefits Act and the Return to Work (Partially Disabled) Regulations for publicly insured small and medium-sized employers are also (partially) differentiated by sector. A new system of premium differentiation for the Sickness Benefits Act and Return to Work (Partially Disabled) Regulations will follow. Having regard to the fact this means a significant adjustment of the Employment Insurance Agency systems, this cannot be achieved before 2020.