15-08-2011
Cost-cutting possibilities on wages

If you provide us with the decision "differentiated Return to Work Partially Disabled Regulations contribution" (in Dutch: Beschikking gedifferentieerde premie WGA) we can assess very quickly if there are possibilities for wage costs reductions. This decision from the Dutch tax authorities is issued around November each year.

How?

1.            Sector registration

Registered in the wrong sector

•             Many employers are registered in the wrong sector (contribution for the Unemployment Insurance Act). Since the amount of the contribution per sector differs (between 0.34% and 11.48% of the income assessable for social insurance), the financial impact of a wrong classification can be enormous. Therefore, a change of sector registration can be beneficial, especially when the business activities changed during the past years. Note that the sector classification does not only have impact on the  contribution, but also on applicable collective labor agreements and/or pension funds.

Split or joint affiliation

•             A company with more business activities may request a split affiliation. This may result in a lower contribution for a group of specific employees.
•             Under certain conditions a joint affiliation of employers within one concern is possible. This may lead to an advantage rate if the lowest percentage can be applied on the whole group.

Example: The company is registered in a sector with a contribution of 5,91%. The income assessable for social insurance amounts to € 1 million.

However, based on the actual activities the company should be registered in another sector, with a percentage of 3. This results in an annual saving of € 29,000.

Or, the company files a request for a split affiliation (i.e. for administrative personnel, with wages assessable for social insurance of € 250,000). The sector in which the administrative personnel is registered, has a contribution of 2,7%, while all other personnel (with wages assessable for social insurance of € 750,000) is registered in the old sector. This means an annual saving of € 8,000.

Or, three entities within one concern are registered in three sectors with different percentages, i.e. 5,91 (wages assessable for social insurance of € 750,000), 7 (wages assessable for social insurance of € 250,000) and 2,70 (wages assessable for social insurance of € 1 million). The three entities can all be registered in the sector with a contribution of 2,70%. This means an annual saving of € 35,000.

2.            Via WGA contribution (Resumption of Work (Partially Disabled Persons) Regulations)

The differentiated WGA contribution has increased substantially over the recent years. We expect that this trend continues the next years. However, employers can become self-insurer for the WGA contribution.  Why become self-insurer?

•             It may be financial beneficial.

Self-insurers do not pay the differentiated contribution to the Employee Insurance Agency (UWV) (which changes each year) but they conclude a private insurance (for a minimum of 3 years) for the risk of the partial disability of their employees or bear the risk themselves.

Example: the contribution charged by the UWV is 1,12% of the wage bill of € 1 million. A private insurer charges 0,3%, but only over the wage bill for permanent staff  (€ 750,000). This means an annual saving of € 9,000.

Return to UWV
If the company is self-insurer, it may also be beneficial to return for insurance to UWV again. 

Subsidy on wages (tax credits)
The fiscal facilities of the Research & Development tax credit and the tax credit for Education may save on your wage costs. The tax benefit consists of a reduction in wage tax and social security contributions.

1.            Research & Development tax credit (and innovation box)

In 2011 this so-called R&D deduction amounts to 50% of the first € 220,000 of R&D wage costs and 18% for the remaining R&D wage costs. If the R&D project is profitable, the company can make use of the innovation box. In that case, these profits are taxed against a 5% tax rate instead of 20% or 25%.

Research and development means:

•             the development of technically new physical products, physical production processes, software or components thereof;
•             technical-scientific research seeking to explain phenomena in fields such as physics, chemistry, biotechnology, production technology and information and communication technology;
•             analysis of the technical feasibility of an R&D project you are thinking of launching;
•             technical research aimed at enhancing your physical production process or software.

Example: For a development project of new software the company is eligible for an R&D deduction. The R&D wages are € 300,000. This means a saving on wage costs of € 124,000.

2.            Tax credit for Education

Employers can claim a tax credit for Education (in 2011 a maximum of € 2,738 per employee per year) for certain education for employees. Another advantage is a higher educational level of the employee(s).

Example: 10 employees follow a course that qualifies for the tax credit for Education. This means a deduction on the payment of payroll taxes of € 27,380.

If you have queries or need more information, please do not hesitate to contact:

Maarten Krikke
maarten.krikke@vmwtaxand.nl
T: +31 (0)20 301 66 33

Chris van Wijngaarden
chris.vanwijngaarden@vmwtaxand
T: +31 (0)20 301 66 33