Employment Costs & Benefits in the Benelux Countries Explained

Managing personnel abroad 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. Compliance costs, mandatory insurance, taxes, and hidden fees must all be accounted for to maintain accurate payroll management.

That's why calculating the employment cost can be complex, especially if you are unfamiliar with the social contributions and common benefits in a specific country.

In this blog, we will look closer at the actual cost of employment, impacting factors, employee perks, and minimum wages in the Netherlands, Belgium, and Luxembourg, also known as Benelux, using a reference salary of 100,000 euros as an example. What are the essential elements of total labor costs? Let's find out. 

The True Cost of Employment in the Netherlands

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 a significant transport role in Europe. Not to mention the port of Rotterdam, making the Netherlands a global trading center as one of its most important trading places. Many wealthy economies such as Germany, Belgium, Denmark, France, and Luxemburg also invest in the Netherlands because of the seaport.

The Netherlands had one of the lowest unemployment rates among European countries in 2023 at 3.5 percent.

Overview of employment costs in the Netherlands

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 in the Netherlands are around 27% of an employee's gross salary. This percentage does depend on the sector of the company. The social contributions of an employer in the Netherlands can be subdivided into:

•   Unemployment Insurance (0.34% to 5.34%),
• Invalidity Insurance Fund (5.49% to 7.05%),
•   Health Insurance (6.75%),
• Work Resumption Fund (0.21% to 3.36%),
• Sickness Benefits (0.17% to 2.72%) and 
•   Child Care Premium (0.50%).

The total amount of contributions to the social security system depends on gross income.

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 into Europe.

Factors influencing the cost of employment

In the Netherlands, 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.

Benefits in the Netherlands

One of the most costly mandatory benefits is the holiday allowance. In the Netherlands, employers are obligated to pay the employee a holiday allowance of at least 8% of the employee's gross wage of the previous year. 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, 8% is included in the €100.000 gross base salary.

The mileage reimbursement (€0.21 per kilometer) is another mandatory benefit. Common benefits include a laptop and 25 paid holidays. 

The Netherlands minimum wage

The Netherlands minimum wage ensures fair compensation, preventing exploitation and underpayment. It has to be proportional to an employee`s working hours, including primary wage and allowances such as performance and work-related payments.

In the Netherlands, the statutory minimum wage adjusts every six months to provide its relevance according to economic factors. As of July 1, 2023, the minimum wage for employees aged 21 and above is 1,995 euros/month.

Income tax in the Netherlands

In the Netherlands, there is a tax bracket system for income from work and home. If an employee earns up to €37.149 per year then the employee pays 19.03% tax on his annual income. For all annual income between €37.149 and €73.031, the employee pays 36.93% income tax plus the tax for the first bracket. If an employee earns more than €73.031 the employee pays 49.50% tax for every euro that exceeds €73.031 plus taxes for two previous brackets. This calculation also includes the 8% vacation allowance.

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.

Read about everything important related to PEO & EOR in the Netherlands.

What's the Cost of Employment in Belgium?

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

Overview of employment costs in Belgium

If you are considering employment in Belgium, know that 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.

Factors that shape the cost of employment in Belgium

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 minimum wage in Belgium

The national minimum wage in Belgium (Gewaarborgd gemiddeld minimummaandinkomen – GGMMI) guarantees that employees over 18 are compensated with an average minimum monthly income. Determined not by law but by collective labor agreements, the minimum wage in Belgium exists at national and sectoral levels.

National minimum wages are determined as the average of all labor income over the course of a year, while the basic monthly or hourly rates set sectoral minimum wages in Belgium. In the first quarter of 2023, minimum wages in Belgium stood at 1955 euros/month.

The employee share of social security and income tax in 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, the tax rate is 45% for the additional amount up to €41,360, and 50% for the amount above €41,360. 

Find out more about PEO & EOR in Belgium.

Cost and Benefits of Employment in 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, as of 2020, about 47 percent of the labor force in Luxembourg is made up of immigrants.

Overview of employment costs in Luxembourg

Determining the actual costs of employment in Luxembourg can be challenging 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% of the employee's gross income. The total contributions for an employer can be subdivided into:

• Pension (8%),
• Health Insurance (2.8% to 3.05%),
• Accident at Work (0.68% to 1.13%),
• Mutual Health benefits (0.60% to 2.98%), and
• Health at Work (0.14%).

These components are seen as direct employer costs.

Factors influencing the cost of employment in Luxembourg

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.

Luxembourg minimum wage

In Luxembourg, the minimum compensation an employer is obligated to provide is called minimum social wage (SSM). The SSM amount may differ depending on two determinants – qualification and age.

Regarding the first quarter of 2023, the minimum social wage for an employee aged 18 and above in Luxembourg increased to 2,387 euros, making it the highest minimum wage in Europe. Qualified employees are entitled to a minimum wage of 2,865 euros, and their qualification must be justified by the certification.

The employee share of social security and income tax in 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% to 3.05%), and contribution to family expenses (1.4%). The employee's net salary is determined by several factors such as marital status and tax bracket.

Learn more about PEO & EOR in Luxembourg.

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.

Furthermore, immediate needs like those we witnessed during the COVID pandemic may cause rapid changes with short or no notice. Failure to comply with these requirements can have huge financial and legal consequences. Hence, international companies need a reliable partner to assist them in successfully managing payroll and taxes.

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.

Optimize your operations with EuroDev HR Outsourcing services.