EXPLAINED: Employment contracts in the Netherlands

If you are preparing to employ staff in the Netherlands, you know you will need to develop employment contracts. Employment contracts are vital legal documents whereby details of the employment relationship between employee, and your company are portrayed. In addition, employment contracts help ensure that both parties clearly understand the rights and expectations of both the employee and employer. This article is created to help navigate key terms that need to be included and some factors that are common in the Netherlands.

Employment contracts in the Netherlands (and in some parts of Europe) do not necessarily need to be officially documented to be considered legal. However, just because you do not have a written contract does not mean there is no legal employment agreement in place. At Octagon, we are very much “pro” documentation in general – because having a written contract can only help protect your company from legal risk. In this article, we are going to take a closer look at employment contracts in the Netherlands, including a list of items you should consider addressing.

Do I have to provide a written employment contract?

The simple answer? No, you are not required by law to provide a written employment contract to every person you employ. Is it a good idea? Will your employees expect to receive one? In our experience, the answer to both questions is a resounding, Yes!

Written employment contracts are a great source for both the employer and employee to refer to agreed upon responsibilities. It also gives the employee a feeling of professionalism from the employer. Not to mention, plenty of clauses and requirements from employers (such as non-competes and non-disclosures) are only valid when written.

Employment contracts as a legal reference in the Netherlands

Employment contracts can only benefit your business. For example, employment contract cannot be broken by either party for any reason – which benefits the employer who wants control over their employees’ ability to leave the business. Dismissal procedures in the Netherlands are very specific, but employment contracts give you the opportunity to define expectations for employees in areas such as performance and working behaviour. By defining these expectations and procedures in which your employee agrees, dismissing your employee on reasonable grounds becomes much more straightforward.

Topics to include in an employment contract

Regardless of how you develop your employment contract, there are a few topics you should consider including in your agreements with employees. The official website for businesses in the Netherlands gives a suggested list of topics to cover in a written contract. Some are required by law (required) and other items are just good practice –

• Name and place of residence of the employer and employee (Required)
• The location(s) in which the work is carried out
• Employee’s job or nature of work (Required)
• The usual working hours
• Amount of salary and the payment periods (Required)
• Date when the employee joined the company
• Term of contract (Required)
• Length of trial period (if applicable)
• Holiday entitlement
• Notice period
• Pension (if applicable)
• Non-compete (if applicable)
• Whether a collective labour agreement (CAO) applies (Required, if one applies)

Employee’s job or nature of work

A brief description of the employee’s responsibilities and type of work helps define the working relationship between employer and employee. This topic is important to cover, at least briefly, in order to establish that such a relationship is in place. There are minimal requirements necessary in order for an employment contract to become legally valid – including (1) it is established the employer is meant to give instructions to the employee and (2) the employee is personally obliged to carry out their responsibilities. If this topic is described well, you will have achieved both of these requirements with the contract.

Amount of salary and payment period

For an employment contract to be considered legal, it is absolutely critical that the employee’s compensation and frequency of payment is specifically mentioned. It must be established that the employee is receiving a payment for their work with you.

Whatever compensation was negotiated and agreed upon with your employee, it’s important to include the details and make-up of that compensation in your employment contract. When it comes to compensation, you have an obligation as an employer to be transparent about the make-up of their earnings. An employment contract is an effective and expected method of providing that transparency.

Be specific about the contents of their compensation package. A few items you should consider:

Equity, stock options or profit-sharing

Especially popular in the thriving tech scene of the Netherlands – offering equity in your business is a valid and legal way to compensate an employee for their work. This form of compensation may be interesting to offer employees who are responsible for the growth of the company. However, it’s important to keep in mind that if you employ expats with the 30% ruling, this form of income may not apply to this ruling.  

Pension

Pension plans are another valid and legal form of income to offer employees. Depending on the sector in which your business operates, you may be required to provide some form of pension to your employees. In businesses where offering pension is not required, you can stand out from other employers in your sector by doing so.

Budget for travel or commuting

If your employees are expected to do any form of traveling – whether that be commuting to an office, or traveling to clients – it is generally expected that they will receive some form of budget or reimbursement. It is also not uncommon to provide a lease car that can also be used for private use. If the employee decides to use the lease car privately, there is a tax premium that needs to be paid by the employee based on the value of the car.

Other benefits

Consider any other benefits that were negotiated between you and your employee. For examples, is there any budget for professional development? Is relocation necessary? Do you offer a budget for any other life costs such as sport or gym membership? Especially for expats, there are different options that could be included in their overall compensation. In addition to relocation costs, you could negotiate to pay the expat’s children’s schools tuition fees, Dutch language training, occasional travel back to their home country, etc.

Term of contract

How long is this employment contract valid? If there’s a fixed end date or, the contract has no definite end date, it is absolutely critical to mention this detail somewhere in the contract. This is because the length of the contract has greater implications for the employee’s rights at your company – including their probation and notice period.

Length of trial period

In the Netherlands, it’s not uncommon for a “probation period” (proeftijd) to be mentioned in the contract. Throughout this period, either the employer or employee can decide to terminate the employment contract without needing to establish legal grounds for breaking the contract. Generally, the longer the employment contract is valid, the longer the probation period is allowed to be. Two months is generally the longest probation period legally allowed.

Notice period

On the other hand, the “Notice period” is the amount of time before breaking the employment contract either party is required to inform the other. Employees are generally allowed to break an employment contract for any reason as long as they observe the notice period – which is determined by your company. Similarly to the “probation period,” there is a legal maximum of how much this notice period should be (and it’s determined by the length of the employment contract). Keep in mind that the “notice period” will differ between employer and employee – as a rule of thumb, the notice period for employers is twice as long as the employee’s notice period.

Holiday entitlement

As part of any employee’s salary who lives and works in the Netherlands, you are required to reserve 8% gross of the yearly salary as a vacation allowance. This is normally paid to the employee in May or June as ‘vacation money’ to cover the costs the employee might accrue during a vacation. From a payroll perspective, this amount is usually withheld from the employee’s monthly salary so it can be paid out during the year – this fact (or whichever procedure you choose to employ) should be mentioned in the contract. Because the holiday allowance is legally required, it’s good practice to discuss it in the contract so you have proof of your compliance.

Another ‘good practice’ item to mention is the actual number of paid days off your employee is entitled to. Legally, employees are entitled to at least 20 days of paid leave throughout the year. Explicitly stating the amount of paid days off your employees have with your company will help prove your compliance.

Non-compete or non-disclosures

Non-competition and non-disclosure clauses are inherently valuable to include in an employment contract with people in sensitives roles. These clauses are a great way to protect your business from information leaks from current and previous employees. Evaluate the risks and level of information your employee will need to access for their role – and consider putting a procedure in place. There are legal minimums and maximums to observe for these types of clauses, and they are usually based on the length of the contract’s term.

Start hiring the talent your business needs to succeed

We have prepared advice for job-seekers and employees on the Dutch market about what to look for in an employment contract. You can read what your employees are looking for in an employment contract on our blog here.

If you need support developing a procedure for employment contracts that are compliant, effective, and time-saving tailored to your workforce and business, do not hesitate to get in touch with us. You may be able to benefit from our HR team who can advise you to how to set-up an attractive employment contract for your business to succeed in the Netherlands. Schedule a call with one of our experts to learn more.