Employers in the Netherlands Can Save on their UI Premiums by Changing Contract Types

Starting January 1, 2020, the new Dutch Balanced Labor Market Act (Wet arbeidsmarkt in balansWAB) will enter into force.  This new law seeks to encourage employers to offer their employees indefinite-term contracts—which provide more protection/certainty than fixed-term contracts—by allowing employers to pay a lower unemployment insurance (UI) contribution (WW-premie) rate (2.94%) for employees on indefinite-term contracts (versus 7.94% for fixed-term contracts).  In order to receive this substantial 5% discount, employers must meet certain administrative conditions.  

When will the lower UI contribution rate apply?

The employer can use the lower unemployment insurance contribution:

  • for written, open-ended employment contracts that specify fixed working hours;
  • for employees up to age of 21 who work no more than 12 hours a week on average;
  • in practical training contracts with students on block or day release (beroepsbegeleidende leerwegBBL);
  • if the employer pays the employer or self-insured premiums under employee insurance schemes—e.g., those established under the Unemployment Insurance Act (Werkloosheidswet, WW), Sickness Benefits Act (Ziektewet, ZW), Work and Income (Capacity for Work) Act (Wet werk en inkomen naar arbeidsvermogen, WIA), Invalidity Insurance Act (Wet op de arbeidsongeschiktheidsverzekering, WAO), and the Work and Care Act (Wet Arbeid en Zorg, WAZO).

When will the higher UI contribution rate apply?

The employer must pay the higher unemployment insurance contribution rate for all flexible employment relationships. This applies where:

  • there is a fixed-term employment contract;
  • the employer does not hold a copy of the open-ended employment contract that both parties signed;
  • the pay slip does not state whether it is an open-ended employment contract or an on-call contract, or whether this has been agreed upon in writing;
  • there is a temporary employment contract;
  • there is notional employment;
  • there is an on-call contract.

What is considered an on-call contract?

The parties are bound by an on-call contract if the amount of the work is not set out as a number of hours per unit of time (either less than a month or up to a year where the salary is spread equally across the year). An on-call contract is also formed if employees are not entitled to their salary, established in terms of hours, if they do not perform the agreed-upon work.

Review of lower UI contribution

The employer must evaluate whether paying the lower UI contribution was appropriate in a number of cases. This means that the employer might have to pay the higher UI contribution retroactively. When does this happen?

  • When a written, open-ended employment contract comes to an end less than two months after it starts.
  • If the salaried hours exceed the contractual hours by more than 30% in the payroll tax form for the calendar year in question.


The following examples clarify the potential savings for the employer:

  • The employee earns EUR 2,500 gross per month, based on a written, open-ended employment contract that is not an on-call contract. The employer may use the lower UI contribution and pay EUR 73.50 per month instead of EUR 198.50.
  • The employee has been employed since November 1, 2019 under a written, open-ended employment contract that is not an on-call contract, earning EUR 1,850 gross per month. The employer pays the lower UI contribution of EUR 54.39 per month. The employer dismisses the employee during the probationary period on November 30, 2019. The employer must now pay the higher UI contribution of EUR 146.89, with retroactive effect, from November 1, 2019.
  • The employee starts work for a fixed term on January 1, 2020 and earns EUR 3,250 per month. The contract is converted to an open-ended one on July 1, 2020. The higher UI contribution of EUR 258.05 applies up to July 1, 2020. After this time, the lower UI contribution of EUR 95.55 applies, which represents a savings for the employer of EUR 162.50 per month.

Increasing the administrative burden

Employers will therefore be able to take advantage of considerable savings starting January 1, 2020, by opting for open-ended employment contracts with employees. First, however, they must take certain steps. Not only will employers need to adjust employee pay slips, but also must maintain copies of their open-ended employment contracts. If necessary, employers may have to end new employment contracts with their employees who are already employed under open-ended contracts and reissue new ones.

Written employment contract

In many instances, employers will not be able to meet this particular requirement. This will be the case, for example, if the employer’s policy is to unilaterally confirm in writing that it is going to extend the employment contract indefinitely or tacitly.

Preparing a new employment contract takes time. Employees may also be wary of signing a new employment contract, which makes it difficult for the employer—particularly if it is a large company—to get back a signed copy. Employers should consider preparing a document for the employee’s signature that confirms the existence of an open-ended employment contract. This document can be presented to employees during their next employee evaluation.

Restrictive clauses

If the employee has signed an agreement containing a non-compete clause or a non-solicitation clause and/or a non-recruitment clause, employers should consider reconfirming these agreements at this time.

Readers can contact the authors of this article for more information on how to take advantage of this lower UI contribution rate.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.