The pros and cons of payrolling

You are growing and you need staff. But hiring staff is a big step. Payroll administration is a lot of work: from drawing up employment contracts to covering risks. The goods news is: you can choose to outsource it all to a payroll company. Scroll down to find out more about the pros and cons. 

What is payrolling? 

Payroll companies take on employer costs and risks, saving you time. What are employer costs? Consider things like drawing up contracts, paying salaries, and paying tax on payroll. Employer risks include the risk of employee termination or illness.  

How much does payrolling cost? 

When you hire an employee via a payroll company, you pay the gross wage plus a percentage for the payroll company. On average, payroll companies charge between 6 and 10%. 

Please note: a payroll company is not the same as a temping agency. A temping agency recruits and selects employees and remains the official employer of the employee, both legally and in the workplace. A payroll company only takes care of the administrative tasks. In the workplace, you (the hirer) are the employer.

Benefits of payrolling

A payroll company employs payroll workers. You can hire these workers for your company. Here are the benefits:  

Control over recruitment  

One advantage of working with a payroll company instead of an employment agency is that you stay in control of recruiting employees. Employees who work for your company through an employment agency are recruited by the agency and fall under the CLA for temporary employment. Employees you hire through a payroll company fall under your company's own CLA.  

Cheaper than a temporary worker  

Payroll employees are usually cheaper than temporary employees. After all, you get to determine their salary, not the payroll company. You are required to offer payroll employees the same employment conditions as your regular employees. This includes leave and a year-end bonus, for instance. Because you recruit the staff yourself, you do not have to pay recruitment fees, as you would with an employment agency.  

Flexible workers  

Employers are not stuck with payroll employees when they no longer need them. You hire a payroll employee for a fixed term. This can be useful during peak season, if one of your employees is chronically ill, or for a temporary project.  

No employer costs   

Having a payroll company assume all employer costs and employer risks saves a lot of time. The payroll company will take care of payroll, wage payments, employment contracts, and pension accrual, among other things. The payroll company is the employer from a legal point of view, which means they bear all employer risks and associated liabilities. The payroll company pays payroll taxes and social insurance contributions. Make sure to check that they actually pay what they owe, because the Dutch tax authorities will hold you liable. You can find the payroll tax number and breakdown on the employee’s pay slip.  

No employer risks 

The payrolling company is responsible for dealing with sick leave, disability to work, or a transition payment after dismissal. The legal liability for these risks also rests with the payrolling company. 

Disadvantages of payrolling

Hiring payroll staff also has drawbacks.  

Potentially higher costs than for permanent employees  

Payroll employees can be more expensive than permanent employees. This is because the payroll company will usually charge a percentage on top of the employee’s salary. To compare both situations, calculate how much it would cost you to hire your first permanent employee.  

No government assistance for your company  

If you hire staff through a payroll company, you will not be eligible for government assistance. During the COVID-19 pandemic, hospitality business owners with payroll staff experienced one of the main drawbacks of the payroll approach. They lost a lot of income, but were not eligible for NOW. Seeing as their workers were legally employed by the payroll company, the latter received government assistance.  

Liability for taxes owed  

If a payroll company fails to pay your staff, you remain liable. You can, however, invoke the so-called ‘disculpatie regeling’ (exculpation scheme, in Dutch) for hirer liability’ of the Dutch Tax Administration. This partially excludes the risk that you will be held liable for payroll taxes and VAT that the payroll company failed to pay to the Dutch tax authorities.  

Legal frameworks  

Employers who choose to outsource payroll administration to a payroll company have to take the following laws into account:  

• As of 1 January 2020, payroll employees are entitled to the same employment conditions and legal status as regular employees.  

• Employment and Security Act: payroll employees are entitled to the same protections against dismissal as regular employees.   

Read more about the rules for payrolling on Business.gov.nl. 

Working via a payroll company as a zzp'er

A zzp’er (freelancer, independent contractor) can also work for a payroll company. In that case, the payroll company takes care of invoicing, payment, payroll administration, and insurance for illness, disability, and unemployment under the payroll system. The independent contractor is still responsible for arranging their own work.  

Different ways of hiring personnel

Under what conditions do you want to hire personnel? Find out which option suits you best: 

• Via a temping agency (in Dutch)

• With an on-call contract 

• With a temporary contract 

• With a permanent contract