Changes to employment relationship enforcement in the Netherlands, Effective January 1, 2025.
Changes to employment relationship enforcement in the Netherlands, Effective January 1, 2025.
October 24, 2024
What are the implications?
A business in need of a work force could hire employees, but may also contract independent sole-proprietors. However, under certain conditions, these sole-proprietors can fiscally be reclassified as employees, meaning that wage tax must be withheld on their remunerations. The tax authorities can review these contracts and may impose assessments to correct omissions if the criteria for an employment relation are met. In short, these entail a level of authority over the worker, the obligation to pay the worker and the obligation for the worker to personally perform the work.
Currently in the Netherlands, an enforcement moratorium is applicable, which remains in place until the end of 2024. Businesses that misclassify individuals as independent contractors without evidence of malicious intent are given a grace period to correct any mistakes. However, starting January 1, 2025, this leniency will cease. The tax authorities will resume full enforcement measures, enabling them to issue tax assessments with penalties immediately, without offering prior warnings.
Key Changes to Note:
- No further warnings or guidance: As of January 2025, the instruction phase for non-malicious misclassification will end. Businesses found to have incorrectly classified employment relationships will face immediate enforcement action.
- Retroactive enforcement: The tax authorities will have the authority to impose retroactive tax assessments as of January 1, 2025. In cases of proven malicious intent—such as deliberate misclassification to avoid payroll taxes—tax assessments can be backdated up to five years.
Recommended Actions:
HBN Law & Tax recommends a thorough review of work relationships in the Netherlands with sole-proprietors, ahead of the 2025 enforcement shift. A proactive disposition can avoid fines in the future. For more information, contact Maarten Tervoort of our office in The Hague, Netherlands.
