1. Legal Framework Differentiating Employees from Independent Contractors

a. Factors that Determine Who is an Employee and Who is an Independent Contractor

The Dutch Civil Code lays down three forms of contracts relating to the performance of work. Where work is performed for valuable consideration the legal relationship between the parties will fall into one of these categories:

• employment agreement;
• contract for services;
• contract of work.

A contract of work (agreement) is defined as an agreement whereby one party as an independent contractor agrees to produce particular work of a tangible nature for a sum of money to be paid by the other party. There is no master and servant relationship between the contractor and the other party and there is no obligation for the contractor to perform his duties personally. In practice, it is generally relatively straightforward to distinguish a contract for work agreement.

This chapter will discuss the elements, which should be taken into account to determine whether an agreement between parties should be qualified as an employment agreement or as a contract for services. The answer to this question will lead to the qualification of the worker, being an employee or an independent contractor.

Employment agreement
An employment contract is defined by the Dutch law: “Parties have entered into an employment agreement (relationship) when one party, an employee, commits himself to perform labor in the service of the other party, the employer, against remuneration during a certain period of time.”

Three core elements must be present in order for an employment agreement to exist under Dutch civil law:

• the employer is entitled to give orders as to how the work is to be carried out (relationship of authority). What is determinative is if the employer is entitled to give orders, not if he actually does.
• the work is to be carried out personally (exclusively) by the worker, and
• the worker receives remuneration (wages) for his work from the employer.

Substance over form
As stated in the introduction, the parties' intentions and the way they have given actual effect to the agreement, are relevant elements in deciding whether or not there is an employment agreement. If the situation meets the three core criteria, then, notwithstanding any arrangement, which the parties have agreed upon to the contrary, the contract may be classified as an employment contract (substance over form) and an employment agreement is deemed to exist. Factual elements to take into consideration are discussed further on in this chapter.

Legal presumption
If, for at least three consecutive months, work is performed for remuneration either for at least 20 hours per month or on a weekly basis, it is presumed that this work is performed under an employment agreement. This presumption of law is important in situations where it is unclear whether there is an employment agreement, either because no clear contract was reached or because the course of actual events differs from the agreements made in the contract. This legal presumption can be rebutted by evidence to the contrary.

Categories of employees
Employees can be employed on different types of contracts, namely:

• indefinite term;
• fixed-term;
• temporary (agency).

Contract for services
A contract for services is defined by the Dutch law. There is a contract for services when activities are conducted that consist of anything other than the creation of a work of material nature, the retention of property, publishing works or the carriage or transportation of persons or property.

The independent contractor is contracted on the basis of a contract for services or a management agreement, which is a specific form of a contract for services. These contracts can be entered into with a natural person or the individual person’s management company (Service Company).

Instruction right but no relastionship of authority
The existence of an instruction right is not decisive in qualifying the agreement. Following the law, the independent contractor is obliged to give effect to timely and responsible instructions provided by the principal regarding the performance of the services. This instruction right is however, not comparable to the relationship of authority between an employee and an employer.

Circumstances to take into consideration
So which circumstances (elements) in addition to any instruction right of the (potential) employer are relevant to determine whether a worker can be qualified as an employee or as an independent worker? Relevant circumstances include, but are not limited to:

• the nature and duration of work;
• the manner in which the work and working hours are determined;
• the integration of the work and the person performing the work into the organization and business operations of the person for whom the work is performed;
• whether or not there is an obligation to perform the work personally;
• the manner in which the contractual arrangement between the parties was established;
• the manner in which the remuneration is determined and paid;
• the amount of this remuneration;
• the question of whether the person performing the work runs a commercial risk (entrepreneurial risk);
• the weight given to a contractual clause when answering the question of whether an agreement should be regarded as an employment contract depends in part on the extent to which that clause actually has significance for the party performing the work;
• to what extent the person performing the work behaves as an entrepreneur in economic transactions.

b. General Differences in Tax and Social Security Laws

If an employment agreement is held to exist from an employment law perspective, it will be an employment agreement from a social security and tax law perspective. From a social security and tax law point of view, however, some working relationships are considered to be employment relationships, even though they do not meet all requirements of the Dutch Civil Code. However, as soon as the supposed employee can prove that he/she is, in fact, a self-employed worker, this presumption will be rebutted.

If there is an employment agreement, payroll taxes must be withheld and paid. The Income Tax Act 2000 and the Salaries Tax Act 1964 do not contain a definition of what constitutes an employment agreement. The tax laws are in line with the private criteria as stated under the subject ‘employment agreement’.

The employer is responsible to determine whether the labour relationship qualifies as an employment relationship for tax and employed persons’ income contributions (‘social premiums’). If the labour relationship is qualified as an employment relationship (eventually in court), than the employer is/was responsible to withhold income taxes as well as the worker’s income contributions.

Tax and social security authorities have developed guidelines containing criteria by which it is to be determined whether the worker is performing his activities as an employee (Dutch Civil Code), an employee for tax and social security reasons or as an independent contractor. Relevant circumstances include the number of expected assignments.

Until May 1st 2016, an independent contractor could request the Dutch Tax Authorities to issue a ‘Declaration of Independent Contractor Status’ (in Dutch: “Verklaring Arbeidsrelatie” or “VAR”), which enabled the independent contractor to make a reasonable case for self-employed status to his principal. With this declaration, the principal was indemnified against claims of the Dutch Tax Authorities (wage tax levy).

However, as of May 1st 2016, the Assessment of Employment Relationships (Deregulation) Act (in Dutch: “Wet Deregulering Beoordeling Arbeidsrelaties” or “Wet DBA”) entered into force as a result of which the ‘Declaration of Independent Contractor Status’ is abolished. Further to that, principals are no longer indemnified against possible claims of the Dutch Tax Authorities. In addition, new assignments for independent contractors must be contracted in compliance with this new act.

In order to exclude risks in advance and to be sure about the work relationship between the independent contractor and the company, it is important to ensure there is no possibility of any employment relationship between the parties and that the contractor is not working under any form of authority. In order to facilitate this, the Dutch Tax Authority published - in compliance with the Assessment of Employment Relationships (Deregulation) Act (in Dutch: “Wet Deregulering Beoordeling Arbeidsrelaties” or “Wet DBA”) - several ‘model agreements’, which may be used. Please note that there is a lot of discussion about the quality of these ‘model agreements’.

Please note that it is plausible that the Dutch legislator will replace the Assessment of Employment Relationships (Deregulation) Act in the near future, as several legislative proposals have been submitted on this matter.

c. Differences in Benefit Entitlement

The most important differences in benefit entitlements and other rights and obligations between an employee and an independent contractor are stated below.

In 2026, the contribution rates are as follows:

d. Differences in Protection from Termination

General
Dutch law gives employees fairly extensive job security. Once entered into, an employment agreement can only be terminated unilaterally if certain conditions are met and certain formalities complied with.

Although the rules are rather restrictive, it is not the intention of the Dutch labour law to impose unreasonable restrictions on the employer where dismissals are justified.

The protection from, and the conditions under which unilateral termination of an employment agreement is possible under Dutch civil law, do not apply for independent contractors.

Employment agreement for a definite period
It is possible to enter into an employment contract, which terminates without having to comply with any particular formalities simply by fixing the term of the agreement for a definite period. The agreement will then terminate automatically at the end of the fixed period of time.

Notification obligation
One month before the termination of a fixed-term employment contract of six months or
longer, an employer must notify the employee whether the employment contract will be extended or not (in Dutch: aanzegverplichting). If so, the employer must also inform the

employee about the terms and conditions for extension. If the employer does not inform the employee, the employee has a right to claim salary during the period in which the employer is in violation (up to a maximum of one monthly salary).

For fixed-term employment contracts shorter than six months or contracts with no fixed end date, such as for the length of a specific project, this notification is not required.

Employment for an indefinite period
If no specific period is mentioned, or the agreements exceed the legally permitted period or number of consecutive contracts, an employment contract will be deemed to be a contract for an indefinite period of time. This employment agreement will not terminate automatically.

Consent of Employee Insurance Agency (‘UWV’)
In case of dismissal on economic grounds or because of long-term incapacity of work, an employer can terminate an employment contract by giving notice after the Employee Insurance Agency has given permission to do so by granting a dismissal permit. The Employee Insurance Agency will only grant permission if there is a reasonable ground for dismissal and redeployment within a reasonable period of time is not possible (even after training) or reasonable. After permission has been granted, notice is to be given with due observance of the notice period. Due to the time involved in obtaining permission from the Employee Insurance Agency, the employer can deduct the duration of the procedure from the notice period (provided that at least one month of notice remains).

It is possible to challenge a decision made by the UWV through legal proceedings in court.

Notice periods
Minimum notice periods must be observed in terminating an employment agreement.

Dismissal without UWV consent
Termination of an employment agreement without the approval of the UWV is null and void, unless the termination:

• is by mutual consent; or
• is for urgent reasons; or
• has been decided on by a Court; or
• occurs during the ‘trial period’; or
• is of a fixed-term agreement; or
• is in respect of the employment of a managing director as defined in the company's articles of association.

Termination by Court proceedings
A judge can terminate an employment contract in case a reasonable ground for dismissal exists and redeployment within a reasonable period of time is not possible (even after training) or reasonable. An employment contract can be terminated by court decision by filing a petition for dissolution in case of:

• frequent and disruptive absence due to illness;
• unsuitability for the position / underperformance (other than because of illness);
• culpable acts or omissions of the employee;
• refusal to work due to a serious conscientious objection;
• impaired working relationship as a result of which the employer cannot reasonably be required to continue the working relationship;
• other reasons and/or circumstances (by way of an exception).

There is a possibility of appeal against a court’s decision.

The statutory transition payment

An employee is entitled to a statutory transition payment (in Dutch: transitievergoeding) when an employment contract is terminated on initiative of the employer or by operation of law, subject to a few exceptions (including dismissal for urgent cause).

When calculating the amount of the statutory transitional payment, the length of employment will be taken into consideration. For calculating the duration of an employment contract one or more employment contracts between the same parties (or successors) that have followed each other with intervals lasting no longer than six months will be counted together.

The transition payment is 1/3th of a monthly salary for every year of service. The transition payment is capped at EUR 102,000 gross as per January 1st 2026 or - if the employee is entitled to a higher transition payment, a maximum of one annual salary.

The transitional payment is not due in case the employee terminates the employment contract, unless this termination is a result of seriously culpable actions on behalf of the employer.

Fair dismissal payment
In addition to the statutory transitional payment, the court may also award a fair dismissal payment, however, only in case of seriously culpable acts and omissions on the part of the employer. This only applies to exceptional situations.

Exceptions to the entitlement of the transitional payment
There are a number of exceptions regarding transition payment, the most important of which are set out below.

The statutory transitional payment will not be owed if the employee is younger than 18 and the average working hours did not exceed 12 hours per week. The transitional payment will also not be owed if the employee’s employment contract ends because of reaching the pensionable age or another age at which the employee is entitled to a pension. Furthermore, the transitional payment will not be owed if the employer has been declared bankrupt, has been granted a moratorium on payment, or is subject to the debt restructuring scheme for natural persons. Furthermore, transitional payment will not be owed if the employment is terminated or not continued as a result of a grave culpable act or omission on the part of the employee.

Contract for services
As stated, the protection from, and the conditions under which unilateral termination of an employment agreement is possible under Dutch civil law, do not apply for independent contractors. As an employment agreement, a contract for services can be concluded for a definite or for an indefinite period. The contract for services should include an earlier termination clause as well as a reasonable notice period, because an independent contractor can otherwise be entitled to a severance pay. If these criteria are met, a principal can easily terminate the contract for services by giving notice while observing the applicable notice period.

e. Local Limitations on Use of Independent Contractors

There are no limitations on the use of independent contractors under Dutch Law.

f. Leased or Seconded Employees

If a business does not want to hire (more) employees and does not want to come to a contract for services either, there are several possibilities under Dutch Law to attract workers. This chapter discusses temporary/agency workers, so-called ‘pay rolling’ and secondment.

Temporary/agency workers
An agreement under which an employee is supplied to a third party (the recipient), by the employer (the supplier), in the practice of the profession or operation of business of that employer, to carry out the third party’s work under the third party's management and supervision in accordance with the orders/instructions given to the employer/
supplier by the third party, will be held to be an employment agreement between the supplier (‘uitlener’) and the temporary worker ('uitzendkracht’). Temporary employment
agencies, placement agencies and labour pools fall within this definition.

All standard labour law provisions apply to this temporary employment agreement, (although exceptions apply in relation to consecutive fixed-term agreements). Other terms can be laid down by collective bargaining agreement and there is a collective bargaining agreement for temporary workers.

The recipient of the temporary services is liable for all damage suffered by temporary workers during the performance of their duties. Temporary workers who have been working for the recipient for 24 months or more, count towards the recipient's group of regular employees, adding to the number of staff required to establish a works council.

‘Payrolling’
Payrolling makes a distinction between the material and the formal employer. The payroll company is the employer by paper, but the principal is the employer, which exercises the authority over the employee. Payrolling can vary from outsourcing the payroll administration and formal employership, to transferring all existing employment contracts to the payroll company. Distinguishing formal and material employership may lead to a discussion of which party has a certain obligation towards the employee. For instance reintegration obligation when the employee is sick.

The collective bargaining agreement for payrolling states payrolling, consists of a triangular relationship where the principal recruits and selects the employee. The employee then enters into an employment contract with the payroll company, to then be exclusively available to the principal.

The legal status of payroll agreements has been clearly defined in the Dutch Civil Code (in Dutch: Burgerlijk Wetboek), in particular in Articles 7:690, 7:692 and 7:692a Dutch Civil Code. Under Dutch law, a payroll agreement is legally qualified as a specific type of temporary agency work agreement. The key distinguishing feature is that the agreement between the payroll employer and the client (the third party) is not concluded for the purpose of bringing together supply and demand on the labour market. In other words, the payroll employer does not perform an allocation function. In a payroll construction, the worker is recruited and selected by the client rather than by the payroll company. In addition, the payroll employer may only make the employee available to another party with the client’s consent. This results in an exclusive provision of labour, which further differentiates payrolling from regular temporary agency work.

Payroll agreements are subject to a stricter employment law regime than regular temporary agency agreements. First, the flexible dismissal regime of Article 7:691 Dutch Civil Code explicitly does not apply to payroll agreements. As a result, payroll employees enjoy the same level of dismissal protection as employees who are directly employed by the client. Second, payroll employees are entitled to the same primary and secondary employment conditions as employees directly employed by the client in comparable positions. This includes pay, working hours, holidays and other benefits, with the exception of pension arrangements, which are subject to a separate statutory regime. This principle is laid down in Article 8a of the ‘Waadi’ (Act allocation of labour through intermediaries). Furthermore, payroll agreements may be entered into for either a fixed term or an indefinite period.

Whether a contractual relationship qualifies as a payroll agreement depends on the actual circumstances and the intention of the parties, rather than solely on the wording of the written contract. While the payroll company is the formal legal employer, day-to-day supervision and management are typically exercised by the client. In practice, payroll constructions are often used to outsource formal employer responsibilities, such as payroll administration and certain employment law risks, while maintaining operational control over the workforce.

The Dutch Supreme Court has confirmed that an employment relationship can qualify as a temporary agency work agreement even if the employer does not perform an allocation function. This clarification has been crucial in bringing payroll constructions within a clear statutory framework and preventing unfair competition on employment conditions. At the same time, the legislature has deliberately chosen to subject payroll agreements to stricter rules than regular agency work, in order to safeguard equal treatment and prevent the misuse of flexible labour arrangements to circumvent employment protection.

Secondment
Employers who do not provide intermediate services on the labour market or only occasionally supply manpower services to fellow employers do not fall into the category of 'employer/supplier'. The most important difference is that the specific provisions for suppliers and temporary workers, as set out above, do not apply to such secondments.

An employee who is seconded to a third party to perform his job under that party's management and supervision, in accordance with the orders given by that third party, will remain employed by his employer. The conditions under which the employee is employed will remain the same and must be adhered to by the third party. A secondment will usually be for a fixed period or for the duration of a specific project.

It is advisable for the employer and the third party to set out the conditions of secondment in an agreement which should specify the terms on which the secondment will take place, including any terms in relation to indemnities, confidentiality, non-solicitation, notice periods and the method of payment for the services rendered.