Netherlands: The Budget Memorandum (in Dutch: Miljoenennota) and a Motion to Reduce the Obligation to Continue Paying Wages in the Event of Sick Leave for Small Employers

Every year on the third Tuesday of September, the Budget Memorandum is presented by the Minister of Finance on behalf of the government to the House of Representatives. In the employment law field, the most important choices are the limitation of the transitional allowance compensation, the postponement of the reduction in the duration of unemployment benefits, the measures affecting the expatriate scheme and a measure concerning company cars. During the general debate following the presentation of the Budget Memorandum, a motion was also tabled concerning the reduction of the obligation to continue paying wages due to sick leave for small employers.

The Budget Memorandum provides an overview of the financial and economic situation in the Netherlands including key policy choices and expected developments. The memorandum explains the national budget, which contains the expected income an expenditure of the national government for the coming year. The following plans are important for the employment law practice.

Limitation of transitional allowance compensation

First, the government intends to limit the transitional allowance compensation scheme to small employers (fewer than 25 employees) from 1 July 2026. Larger employers will no longer be able to reclaim the allowance paid via the Labour Bureau (in Dutch: UWV). This measure is currently laid down in the bill to limit the compensation scheme for transition payment (in Dutch: wetsvoorstel beperken compensatieregeling transitievergoeding). According to the Budget Memorandum, this measure will save the government approximately EUR 380 million annually.

Earlier this year, a bill was introduced regarding this measure. Following an online consultation, the Council of State (in Dutch: Raad van State) has now issued its advice on this matter. The Council warns that this measure could lead to a return to the practice of “dormant employment contracts” (in Dutch: ‘slapende dienstverbanden’), which the current scheme was designed to prevent. The restriction also makes the scheme more prone to conflict, as the classification as a small or medium-sized employer has major financial consequences and could lead to more appeal procedures. As an alternative, the Council recommends considering abolishing the transition allowance for long-term incapacity for work altogether so that the underlying employer costs for long-term illness are addressed directly.

The Advice of the Council of State is therefore at odds with the current budget in the Budget Memorandum. The upcoming elections will ultimately determine whether the bill to limit the compensation scheme for transition payment will be implemented.

Postponement of shorter unemployment benefit duration

Second, the planned reduction in the maximum duration of unemployment benefits (in Dutch: WW) from 24 to 18 months has been postponed from 1 January 2027 to 1 January 2028. This means that employees will retain their entitlement to unemployed for a longer period for the time being.

Measures affecting international employees

In addition, several proposed changes have been announced that will affect the position of international employees and their employers. In 2026, the government intends to restrict the extraterritorial costs scheme. Certain allowances, such as for living expenses and travel to the home country, will no longer be covered. In 2027, the intention is to reduce the 30% scheme to a 27% scheme, with higher salary standards. These adjustments may make the Netherlands less attractive for highly skilled migrants and increase costs for employers seeking international talent. Employers should review and adjust employment conditions and remuneration structures in advance to remain competitive in the global labour market.

Tax measure on company cars

A notable fiscal measure concerns employer-provided cars. In 2027, the government plans to introduce a pseudo-final tax in income tax for employers who provide fossil fuel company cars. The government’s aim is to encourage greener practices. This affects employment relationships in which a lease car is fixed part of the remuneration package.

Motion on continued wage payment during illness for small employers

Lastly, during the general debate following the publication of the Budget memorandum, two parties (SP and VVD) submitted a joint motion calling for a reduction in the continued wage payment obligation during employee illness for small employers. The motion argues that the two-year wage payment requirement places a major financial burden on small businesses and discourages job creation. It calls on the government to develop a plan to replace the second year of continued wage payment with a collective scheme.

As the Cabinet fell on 3 June 2025 and demissionary cabinet is currently in power, the final direction of these labour law measures will only become clear after the national elections on 29 October 2025.

Key Points for HR

The political uncertainty following the fall of the Cabinet earlier this year means that final decisions on the labour measures following the Budget Memorandum will depend on the elections of 29 October 2025.