Guide to getting started with payroll

If you hire an employee, you need to keep payroll records. What is covered by a payroll? What data should you keep? And how do you make sure you comply with all tax rules? This article will help you build your own payroll system. You will also read about the advantages and disadvantages of outsourcing.

In your payroll administration, you keep a record of your employee's personal details and all wage data. You need this information to submit your payroll tax return to the Netherlands Tax Administration.

Step 1. Register as an employer with the Tax Administration

If you employ someone and there is an employment contract, you have to deduct payroll taxes from the salary. Payroll taxes are:

• wage tax/national insurance contributions
• social security contributions
• an income-dependent employer’s health care insurance contribution (Inkomensafhankelijke bijdrage, Zvw)

You pay the payroll taxes to the Tax Administration with the payroll tax return. Are you hiring staff for the first time? Then first register as an employer with the Tax Administration (in Dutch). You will then receive a payroll tax number and a payroll tax return letter stating when you have to file a wage tax return. Then also report to the Netherlands Chamber of Commerce KVK that you are hiring an employee.

Step 2. Create a personnel file for your new employee

In a personnel file, you save your employee's employment contract and personal details in a secure folder or environment. Think of address details, contact details, and their Citizen Service Number (BSN). Your employee can submit the personal details using the statement data model for payroll taxes (in Dutch). Record all data in the file and check the identity of your employee before they start working for you.

In the personnel file, also record things such as reports from performance interviews, agreements on development opportunities, and leave and sick days of your employee.

Step 3. Build up your payroll administration

Create a folder in the personnel file for the payroll administration. You are obliged to create a payroll for each employee (in Dutch). This is where you keep all your employee's details and wages. Think of gross wages and holiday pay, but also, for example, a company car, travel allowances or tips. Fill in the income relationship number (inkomstenverhouding, IKV, in Dutch) and state whether you apply a wage tax credit (loonheffingskorting). Are you giving an income relationship number to an employee for the first time? Then start at 0001.

Keep track of bonuses or benefits

Are you active in a particular sector? And have you made agreements on additional terms of employment or do you work according to a collective labour agreement? Then you may have to deal with extra payments. Think of bonuses, pensions, but also year-end bonuses or profit-sharing. Even if there has been a change in the collective labour agreement and you have to make payments retroactively, you need to keep track of this.

Step 4. Pay the salary and provide a payslip

Has your employee worked for you for a certain period of time? Then you pay the wages or salary afterwards. Usually this is a period of 1 month, but it can also be weekly or fortnightly. In the employment contract, you record when you pay.

Payslip

At the first salary payment and whenever there is a change in the salary, you give your employee a payslip. Most employers give a payslip every month, but they do not have to. Some items on the payslip are compulsory, such as gross, net, and the deductions from or offsets against the pay. Save the payslips in your payroll records.

Step 5. File a wage tax return with the Tax Administration

You file your wage declaration with the Tax Administration every month or every 4 weeks. The declaration letter you receive from the Tax Administration tells you for which periods you must file a declaration. If you have 10 or fewer employees, you can use the tax return software of Mijn Belastingdienst Zakelijk. If you have more than 10 employees, you must file a tax return using commercial software.

You are responsible for ensuring that the payments for wage tax and national insurance contributions are correct. If you forget this, or make mistakes, you may be fined.

Step 6: Make your annual statements

After the end of each year, you must give each employee an annual statement. Do this in January or February. Does someone leave employment before that? Then you may send the annual statement earlier. Use the Tax Administration’s model annual statement (in Dutch) to make sure you include all the details required by law.

Step 7. Process personnel costs in your accounts as well

Put the salaries and wage costs in your accounts. This gives you more overview and insight into the costs. It is also required by the Tax Administration.

Do it yourself or outsource payroll?

There are advantages and disadvantages to doing your personnel and payroll administration yourself or having it outsourced. If you keep your payroll records yourself, you save costs and you always have access to the personnel and payroll data. It does cost you a lot of time because you must update the file regularly. And laws and regulations change frequently. You are also more likely to make mistakes.

You can also outsource your payroll, for example to a payroll company. It is an investment, but it saves you a lot of time. And you are more assured of error-free administration.

You can also start with a combination where you do part of the administration yourself, such as keeping track of hours. And you hire a company that prepares and sends the correct payslips and annual statements for you.