The obligation to offer payroll employees an adequate pension scheme became effective on January 1, 2021. Until January 1, 2020 there was no legal difference between agency workers and payroll employees. Before then, payrolling came under the legal definition of a temporary employment agency contract, meaning that payrolling was governed by the more flexible temporary agency work regime too.

The Balanced Labour Market Act (Wet arbeidsmarkt in balans) introduced separate rules for payrolling. Since January 1, 2020, Article 7:692 of the Dutch Civil Code defines a payroll contract as a temporary employment agency contract, where the contract for services between the employer and the hirer was not created for the purposes of bringing together supply and demand on the job market (the allocation function), and the employer may only make the employee available to a third party if the hirer approves of this. Payroll employees are not on the hirer’s payroll. Pursuant to Section 8a of the Placement of Personnel by Intermediaries Act (Wet allocatie arbeidskrachten door intermediairs, as of January 1, 2020 payroll employees must however be offered the same employment terms as the hirer’s employees. The obligation to offer an adequate pension was added to this on January 1, 2021.

What does this pension obligation entail and how does this change affect payrolling? We have answered these questions in an article published in the Dutch employment law magazine ‘ArbeidsRecht’ (2021/9).

Please find below a translation of the article in English. Feel free to reach out to Johanne Boelhouwer if you have any questions or would like a copy of the article in Dutch.

1. Situation up to January 1, 2021

In principle, the extent to which an employer provides a pension scheme is dealt with when the employment terms are discussed. The Pension Act (Pensioenwet) does not require employers to offer their employees a pension scheme, save a few exceptions.¹ The substance of a pension scheme only needs to satisfy a number of preconditions. Under the Industry-Wide Pension Fund (Obligatory Membership) Act 2000 (Wet verplichte deelneming in een bedrijfstakpensioenfonds 2000) and the decisions for obligatory affiliation arising from them, membership of industry-wide pension funds is mandatory in some industries. The Pension Fund for Personnel Services (StiPP) was active in the payroll industry. The decision for obligatory affiliation to StiPP, which was effective until January 1, 2021, provided that the scope of application of this pension fund extended to employers who made agency workers available to clients representing at least 50% of the aggregate annual salary subject to social insurance contributions.² Payroll employers could therefore be obliged to register their employees with the industry-wide pension fund StiPP, but this did not apply to the entire payroll industry.

2. Situation from January 1, 2021 onwards

With effect from January 1, 2021, the starting point for contractual freedom regarding employment terms on pension was further restricted for payroll employees. The fact is that, since that date, payroll employees are entitled to an adequate pension. The nature of the undertaking that employs the payroll employee is not important, so long as the work is carried out on the basis of a payroll contract within the meaning of Article 7:692 DCC. Since January 1, 2020, Section 8a WAADI provides that payroll employees are entitled to at least the same employment terms as employees with identical or similar duties at the undertaking that hires the relevant payroll employee. These include, for instance: salary, working hours, overtime, rest periods, night shifts, breaks, number of holidays, working on public holidays, continued payment of salary in the event of illness, leave arrangements, childcare facilities and training.³ There is an exception for the employment terms on pension, however.

3. Adequate pension scheme

Given the administrative burden, it has been decided that payroll employers that are unable or unwilling to register with the client’s pension scheme will not be required to arrange for a similar pension scheme, but rather to offer payroll employees an adequate pension. Besides, according to the legislature, a mandatory adequate pension scheme creates an unambiguous arrangement that is easy to implement and clear to everyone.⁴ The adequate pension scheme is laid down in Section 8a(4), (5) and (6) WAADI. Subsection 4 provides that a payroll employee is entitled to an adequate pension scheme if (a) employees with identical or similar duties at the undertaking that has hired the relevant payroll employee, are entitled to a pension scheme or (b) employees with identical or similar duties in the professional or corporate industry in which the undertaking that has hired the relevant payroll employee is active, are entitled to a pension scheme. To illustrate the situation outlined at (a), the legislature provides the example of an IT company that does not come under a compulsory industry-wide pension fund and does not offer its own staff a pension scheme.⁵ The company hires a payroll employee to work in a position equal to the positions of employees who are directly employed by the company. In this case, the payroll employer is not obliged to set up a pension scheme, given that the IT company’s employees do not have a pension scheme either. As an example for the situation at (b), the legislature refers to a construction company that only uses payroll employees but is active in the construction sector, which is covered by the Collective Pension Fund for the Construction Industry (Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid). Although this means that the company does not directly employ anyone with identical or similar duties who is entitled to a pension, pension schemes are still mandatory in the sector where the relevant payroll employee has been hired. This situation is not always as simple as in the legislature’s example. The question is, of course: when is a pension scheme mandatory in a sector or industry? Many insurers apply the industry-wide collective bargaining agreement for insurers, for example, which includes a pension clause. Although this collective bargaining agreement has admittedly been declared generally binding, that does not include the pension clause. Besides, this pension obligation can be outsourced to a range of pension providers, such as an industry-wide pension fund (SBZ Pensioen, for example), a company pension fund (such as Stichting Pensioenfonds ING), an insurer or a premium pension institution, and those pension schemes are not identical. So do employees in this industry have a right to a pension scheme within the meaning of Section 8a(4)(b) WAADI, and what does such a scheme entail? What we do know is that this is not as clear-cut and unambiguous as the legislature intended it to be. And when is an employer part of a specific industry or sector? Let us take the example of an employer who directly employs a number of employees who carry out IT work and who also hires a number of payroll employees who work in the engineering, mechanical and electric contracting sector. Looking at the employer’s own staff, there is no pension obligation, but if we were to take the entire work force as a starting point, the employer might be considered part of the engineering, mechanical and electric contracting sector, where the Pension Fund for the Engineering, Mechanical and Electric Contracting Sector (Pensioenfonds Metaal en Techniek, “PMT”) applies. And to what extent can we conclude that there are employees with identical or similar positions in the sector? In a nutshell: the situation at (b) is not always as clear-cut as the legislature intended it to be. It goes without saying that if a situation does not come under the categories defined in (a) or (b), the relevant employer will not be obliged to set up an adequate pension scheme. Another possible situation, which is not described in (a) or (b), is the one where, on the basis of the decision for obligatory affiliation, a payroll employee comes directly under the scope of a compulsory industry-wide pension fund. This was already the case, for instance, for payroll employees working in construction, who used to be classified as agency workers and were therefore obliged to participate in the Collective Pension Fund for the Construction Industry (Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid)⁶, and in transportation, to which the Pension Fund for Road Haulage (Stichting Pensioenfonds voor het Beroepsvervoer over de Weg) applies.⁷ It cannot be ruled out that pension funds will change the scope of application and extend it to include payroll employees, meaning that payroll employers then have no freedom to make their own choice. If they do have this freedom, subsections 5 and 6 set out the requirements of an adequate pension scheme. According to subsection 5, there is in any case an adequate pension scheme if payroll employees have the same basic pension scheme as the one that applies to the hirer’s own employees, or again, to employees working in the professional or corporate industry in which the undertaking that has hired the relevant payroll employee operates. Subsection 6 provides an alternative. The fact is that a pension scheme is also considered adequate if a payroll employee has a basic pension scheme that meets the requirements set by or pursuant to an order in council. These requirements are laid down in the Placement of Personnel by Intermediaries Decree (Besluit allocatie arbeidskrachten door intermediairs, “BAADI”).

4. Requirements for an adequate pension scheme under Section 8a(6) WAADI

Article 1a:1 BAADI sets out the requirements for an adequate pension scheme, as referred to in Section 8a(6) WAADI, which align with the structure of the average basic pension scheme in the Netherlands.⁸ The basic pension scheme in any event provides for an old-age pension and a surviving dependant's pension (subparagraph (a)) and there is no waiting or vesting period (paragraph (b)). It is possible (but not required) to insure additional risks such as the disability risk. The basic pension scheme also sets a requirement for the amount of the employer’s contribution towards it (paragraph (c)). This contribution benchmark is based on the average employer’s contribution under all Dutch basic pension schemes administered by a pension fund, and a calculation by Statistics Netherlands (Centraal Bureau voor de Statistiek) based on the pensionable earnings. Every year, the contribution percentage is adjusted pursuant to a ministerial regulation and published before November 1 (paragraph 4). The contribution percentage for 2021 was recently set at 14.5%.⁹ The pensionable earnings (the amount on which the employer’s contribution is calculated) are determined on the basis of the payroll employee’s salary minus the deductible (paragraph 2). The employer’s contribution must at least equal the established contribution benchmark. Employers and employees are free to allow greater pension accrual, however, provided that they do so within the tax law limits. They may also agree on an employee’s contribution in addition to the employer’s contribution. Paragraph 5 sets out rules for a situation where payment of the prescribed employer’s contribution results in the basic pension scheme being classified as ‘in excess of the tax threshold’. In concrete terms, this paragraph provides that it is sufficient if a payroll employer pays a contribution that stays within the tax law limits. The explanatory notes to the WAADI provide that if the statutory pension contribution results in a pension in excess of the tax threshold, the amount in excess must be paid out as salary.¹⁰ A collective bargaining agreement can provide that this will not be paid out as salary but will be replaced by another term of employment. These two options discussed in the legislative history do not follow from the text of Article 1a:1 BAADI itself, however. Paragraph 6 provides that the payroll employer and the pension provider jointly determine whether paragraph 1(c) (the employer’s contribution) is complied with, in conjunction with paragraph 5 (tax restrictions) or not, and for what period.

5. Effect on payrolling

In practice, the main consequence of the obligation to offer payroll employees an adequate pension scheme is that payroll employees become more expensive. Many payroll employees used to come under the same StiPP scheme as agency workers did for their pension. This agency workers’ pension is subject to a six-month waiting period, which means that the employer is not required to pay pension contributions during the first six months of the employment contract. During the first 26 weeks after this waiting period, the agency worker accrues pension in StiPP’s basic scheme based on a contribution of 2.6% of their gross salary. Once the agency worker has been participating in the basic scheme for 52 weeks, they will automatically become a member of the plus scheme (plusregeling) and, from then on, the employer pays a contribution of 12% of the pensionable earnings. We have already discussed the fact that this waiting period will not apply to payroll employees and that the pension contribution is 14.5% of their pensionable earnings. In comparison: the waiting period usually does not apply to salaried employees either, and the contribution for them is similar or higher. The Council of State (Raad van State) fears that the WAB will have a waterbed effect, i.e. that payroll employees become agency workers or independent contractors.¹¹ Senators of the First Chamber likewise warned of a flight to agency contracts or independent contractorship, for which there is as yet no pension obligation.¹² Although Minister Koolmees acknowledged this risk during the plenary session on the WAB, he did not see that as a looming problem.¹³ He expects, at the very least, that there will be a transition phase, given that current payroll contracts will not be immediately converted into agency contracts. Having regard to the Dutch Supreme Court’s recent judgment on the role of the parties’ intentions when classifying an employment contract, we should also ask ourselves whether independent contractorship is still an attractive option, given that the Supreme Court no longer considers the parties’ intentions relevant when making such an assessment, which may help detect false independent contractorship and classify independent contractors as employees.¹⁴ What is also relevant is Minister Koolmees's statement, made on November 16, 2020, that the rules on false independent contractorship will not be enforced until October 2021.¹⁵ In other words: this playing field has yet to level out.

6. Implementation issues

The actual implementation will be no mean feat either. The legislature's intention was to align the pension for payroll employees with the pension of a client´s direct employees. One possibility, however, is that the payroll employer is unable to join the client´s pension provider (or compulsory pension provider), for instance because the client has a company pension fund and the payroll organisation is not part of the same group/undertaking as the hirer.¹⁶ Or because an industry-wide pension fund does not apply to the payroll employer and voluntary affiliation is not possible either. The fact is that industry-wide pension funds can only agree to voluntary affiliation in specific cases, which are set out in Section 121 of the Pension Act. For instance, when the pay rises at the payroll employer at least equal those at the hirer and the payroll employer participates in the social funds of the same industry, which the payroll employer may not consider desirable from a cost perspective. If the payroll employer already has a pension scheme but it does not meet the requirements of an adequate pension, its existing pension scheme will have to be amended. Another option is for the payroll employer to discuss a voluntary increase with its pension provider or - if this is not possible or preferable - arrange for additional pension provisions with another pension provider, which is sometimes done in the context of supplementary provisions (exedentregelingen). The explanatory notes to the legislative proposal seem to provide that payroll employees are in any event entitled to the StiPP pension scheme.¹⁷ But in that case, too, not all payroll employers come under its scope of application, for instance because their deployment of agency workers represents less than 50% of the aggregate annual salary subject to social insurance contributions. StiPP has therefore announced, in light of the internet consultation on the WAB legislative proposal, that it cannot implement this option. With effect from January 1, 2021, payroll employees are no longer subject to compulsory affiliation to StiPP.¹⁸ Payroll employers will still be able to set up their own pension schemes, unless they are subject to compulsory membership of an industry-wide pension fund. There are now several insurers and premium pension institutions that are responding to the need for pension schemes that meet the adequate pension requirements, such as Nationale Nederlanden, ABN AMRO Pensioenen and Brand New Day. It is important for payroll employers to keep a close eye on their pension obligation and, where applicable, implement a pension scheme, because payroll employees might not only claim an adequate pension scheme but even file claims for damages or payment of pension contributions due to having been unlawfully denied pension accrual (or sufficient pension accrual).¹⁹ This could cost substantial amounts of money, especially where larger groups of payroll employees are involved. In my opinion, the well-known starting point ‘pension despite no contributions' - meaning that employees are still entitled to a pension from the compulsory industry-wide pension fund even if the employer made no contributions to it - does not apply if the compulsory membership of that pension fund only applies to the hirer. I do not expect that a payroll employee would then have any success invoking Section 8a WAADI against the industry-wide pension fund. Firstly, the hirer has no obligation at all to pay contribution for the payroll employee it has hired. Secondly, the legislative history of the Pension Act provides that the principle of ‘pension despite no contributions' became a starting point because the opposite (no contribution, no pension) would be diametrically opposed to the system of the Industry-Wide Pension Fund (Obligatory Membership) Act 2000 (“WBPF 2000”).²⁰ There must therefore be a link with the WBPF 2000, through a decision for obligatory affiliation, before a person is entitled to a pension from a pension fund. Thirdly, a pension scheme may also be considered ‘adequate’ if the payroll employer rather than the hirer has offered a pension scheme that meets the BAADI requirements. Why then would a pension fund have to pick up the bill? The payroll employer might also be faced with an inspection. The Inspectorate SZW (Inspectie SZW) is the body that supervises compliance with WAADI and, in that context, it also monitors whether a pension scheme is adequate. Payroll employers must provide the Inspectorate with the requisite documents. The Central Information Point for Pension-Related Matters (Centraal Aanspreekpunt Pensioenen) may make assessments based on these documents (Clause 14a WAADI).

7. Other issues

We can also expect classification issues, given that it can be very difficult to distinguish payroll employees from agency workers. This seems quite simple at first, because payrolling has two important features: 1) there is no allocation function, and 2) payroll employees are made available on an exclusive basis. This might have been put down on paper as such, but as time goes by the actual situation could change or turn out to be unclear after all. This is a risk for the payroll employer. After all, identical work by payroll employees must be rewarded with identical benefits. Discussion may also arise on whether a payroll employee fulfils a similar role as a client’s direct employee. This is not always clearly predictable in practice.

^{1. Sections 7(4) (sanction for breach of information obligation), 8 (equal treatment) and 9 (transfer of an undertaking) of the Pension Act.↩}

^{2. Decision of 7 March 2016, Government Gazette 2014, no. 37623-n1. ↩}

^{3. Parliamentary Papers II 2018/19, 35074, no. 3, p. 145↩}

^{4. Parliamentary Papers II 2018/19, 35074, no. 3, p. 47. ↩}

^{5. Decree of 11 December 2019 amending BAADI, Bulletin of Acts and Decrees 2019, 487, p. 5 et seq. ↩}

^{6. Government Gazette 2020, no. 11708. ↩}

^{7. Government Gazette 2018, no. 2368. ↩}

^{8. Decree of 11 December 2019 amending BAADI, Bulletin of Acts and Decrees 2019, 487, p. 5.↩}

^{9. Regeling actualisering percentage pensioengrondslag payroll 2021 [in Dutch], Government Gazette 2020, no. 56509.↩}

^{10. Decree of 11 December 2019 amending BAADI, Bulletin of Acts and Decrees 2019, 487, p. 2. ↩}

^{11. Advice from the Council of State No. W12.18.0178/III, 11 October 2018, pp. 1 and 5. ↩}

^{12. Proceedings I, 2018/19, 29-3, p. 1. ↩}

^{13. Proceedings I, 2018/19, 29-5, pp. 2 and 11. ↩}

^{14. Dutch Supreme Court 6 November 2020, ECLI:NL:HR:2020:1746 ↩}

^{15. Parliamentary Papers II 2019/20, 31 311, no. 236. ↩}

^{16. Section 1 of the Pension Act, definition of “company pension fund”. ↩}

^{17. Parliamentary Papers II 2018/19, 35074, no. 3, paragraph 2.4.3.4, p. 48. ↩}

^{18. Decision of 10 November 2020, Government Gazette 2020, 48700. ↩}

^{19. See, for example, District Court of the Central Netherlands, 28 February 2018, ECLI:NL:RBMNE:2018:747. ↩}

^{20. Parliamentary Papers II 2005/06, 30413, no. 3, p. 63. ↩}