Are you liable for the unpaid payroll taxes or VAT of contract workers?
Dutch companies are increasingly turning to freelancers or contract workers to fill shortages of specific skilled labor. Many of them also choose to call on the services of payroll companies. This makes sense; it brings many benefits such as convenience and cost savings.
However, even with a payroll company, hiring companies and recruitment and selection agencies may be responsible for the payroll taxes and VAT of their contractors. According to the Dutch Wet Ketenaansprakelijkheid (WKA), other parties in the labor chain can be held liable if the payroll company fails to pay the payroll taxes, VAT or social insurance premiums.
Here are the three protective measures you can take to reduce these risks:
1. Keep complete and accurate records
Make sure you keep thorough identification and records of all your freelancers and contract workers. This includes copies of passports or EU identity cards, address cards and dates of birth, as well as Dutch tax registration numbers and timesheets showing the number of hours or days worked. Everyone in the chain - end client, recruitment and selection agency and payroll company - should keep these records, but we are happy to assist you in meeting these requirements.
2. Screen your payroll provider
Payroll providers receive a quarterly statement from the Dutch tax authorities confirming that they have paid all payroll taxes. Blue Clue is always happy to share this information with its clients. In fact, we would encourage all hiring companies and recruitment agencies to request this information from their payroll provider at the outset, as part of their screening process.
3. Use a G-account (blocked bank account)
One of the most effective ways to protect yourself from the liability risk is to transfer the amount of payroll taxes and VAT to your payroll provider's escrow account (also called a G-Account). A payroll provider can only use this account for paying the payroll taxes and VAT, or for transferring to another G-account. In this situation, the end customer is normally not responsible for defaulted payments to the Tax Office.
Another option is to engage a payroll provider that is NEN 4400 certified and audited every three to six months by the Dutch authorities. This assures hiring clients or hiring companies that they cannot be held liable. However, it is often very undesirable for freelancers because their payroll company is forced to withhold part of their monthly income in order to pay out their vacation allowance. For this reason Blue Clue has decided to offer a G-bank account service to limit the liability risk of its clients as much as possible. We are also happy to provide proof from the Dutch Tax Authorities that we are in full compliance with the law and are up to date with paying all payroll taxes and VAT every quarter. To keep our service to hirers and recruitment and selection agencies in balance with the high demand for our highly skilled and much sought after freelancers and contract workers, we have decided not to become NEN 4400 certified.
If you have any questions about the Dutch Chain Liability Act, or about keeping your chain risks under control, please contact us. We will be happy to advise you on the best options for Dutch employment contracts.