The pros and cons of payrolling

With payrolling, as an entrepreneur you choose who will work for you. The payroll company takes on the employer's contribution and the employer's risk. What exactly are the employer's contribution? Think of drawing up a contract, paying salaries, and paying payroll taxes. The employer's risk includes the risk of dismissal or illness of the employee.

Difference between payroll company and temp agency

A temp agency and a payroll company are not the same thing. A temp agency recruits and selects employees and is the official employer of the temp worker, both legally and in the workplace. A payroll company only does the personnel administration; in the workplace, you as the ‘hirer’ are the employer.

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%. 

Payrolling rules

If a payroll company takes care of your personnel matters, you as an employer must take the following laws into account:

• The Balanced Labour Market Act (Wet Arbeidsmarkt in Balans): since 1 January 2020, payroll employees have been entitled to the same terms of employment and legal status as regular employees.
• Employees that you hire through a payroll company are covered by your own company's collective labour agreement (CAO).
• The Work and Security Act: payroll employees have the same protection against dismissal as regular employees.

Read more about the rules for payrolling.

Hiring a freelancer via a payroll company

A freelancer, zzp’er,  can also work via a payroll company. The payroll company then takes care of the invoices, remuneration, salary administration, and insurance for illness, incapacity for work, and unemployment via a payroll construction. The zzp’er does arrange the assignments themselves.

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 is that you recruit payroll employees yourself. So, you choose who works for your business. This is not always the case when you recruit through a temporary employment agency.

Cheaper than a temporary worker  

Payroll employees are usually cheaper than temporary employees. Because you recruit the personnel yourself, you do not pay any recruitment costs as you would with an employment agency. In addition, as an employer you determine the employee's salary, not the payroll company. You must offer payroll employees the same terms of employment as your own employees. This includes holiday days and a possible thirteenth month.

Flexible workers  

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 contribution   

Having a payroll company assume all employer contributions 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 Netherlands Tax Administration 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 disadvantages. 

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.  

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 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 Tax Administration. 

No government assistance for your company  

If you hire staff through a payroll company, you will not be eligible for government assistance. For example, subsidies or schemes for training or in the event of a crisis. After all, the payroll company is the employer and is therefore entitled to this support.