10. Payroll attention points
This series addresses the most relevant topics regarding the 30 percent ruling. In this post: Payroll attention points
In this last section of the 30% ruling codex, we address the most important payroll attention points.
Relevant income for the salary norm
In determining whether an employee meets the salary norm, the taxable salary is decisive. This includes:
- Applicable deductions (e.g. employee pension contribution, foreign social security employee premiums) and inclusions (e.g. reimbursement provided for health insurance contributions);
- Benefits in kind (e.g. company car);
- Variable pay (e.g. bonus options).
The salary norm is based upon income tax principles for residents. This basis differs slightly from that for wage tax purposes. As such, in determining whether an employee meets the salary norm, the Dutch tax authorities look at the employee’s income from current employment. Should an employee also be taxable abroad (e.g. salary-split), the total (worldwide) employment income is considered for determining the salary norm. Unfortunately, there are no specific rules for part-timers. Hence, the part-time salary should meet the applicable salary norm (no conversion to full-time salary) for meeting the specific expertise test, which may be problematic in some cases. There are only some specific relieving rules for pregnancy or parental leave situations.
Application 30% ruling on benefits in kind
Upon granting of the 30% ruling, the ruling can be applied on both regular salary and benefits in kind. In case the 30% ruling is applied on benefits in kind, please note that the 30% allowance in cash can only be paid out in cash if the salary is sufficient. Therefore, the 30% ruling on the benefit in kind is exchanged with the salary in cash. This means that the benefit in kind is reported in full (and not only for 70%) and then the salary in cash is further reduced with 30% of the benefit in kind. This is called the ‘cost neutral method’. Please see an example below.
Employee’s original salary is € 5,000 per month. He has a company car with a monthly taxable value of € 1,000. The maximum 30%-allowance is 30% of € 6,000, i.e. € 1,800. The salary in cash is decreased to € 3,200.
Income from current employment / variable remuneration
The basis of the 30% ruling is the income from current employment that is earned during the period in which the 30% ruling is applicable. It is meant to avoid that the 30% ruling applies to salary that becomes taxable after the termination of employment. Therefore, it is in principle not possible to apply the 30% ruling on e.g. bonus and stock options that become taxable after the last day of the employment. Only when such income becomes taxable in the month following the month of termination, the 30% ruling can still be applied in this benefit (provided that this is still within the granted duration period. As such, it is tax wise often more beneficial to exercise options before or immediately after the termination of employment.
Termination of employment
The 30% ruling is only applicable on income from current employment. A redundancy payment is considered as income from previous employment and, therefore, the 30% ruling cannot be applied to such remuneration. The same applies to compensation of loss of benefits. Hence, there could be a difference between the situation that some remains eligible to exercise options within 30 days of last workday (i.e. income from current employment) and where this employee will not be entitled to exercise anymore, but is reimbursed for the loss of such benefits (i.e. always income from past employment).
Gardening leave deserves to be specifically addressed as described in our blog. The Dutch tax authorities believe gardening leave payments qualify also as income from past employment (since the active employment stopped). This could have the following implications when this view is right:
- The 30% ruling may not be applicable on salary received during inactive months;
- The employment can be considered already actually terminated in which case the 30% ruling also ends. The 30% ruling may then only be applied on income that is considered income from current employment that becomes taxable not later than one month following the month in which the active employment activities are terminated.
- Continuation of the 30% ruling with another Dutch employer may be jeopardized when there is more than three months’ time between the start of gardening leave and concluding of a new employment agreement with a new employer.
Case law is dynamic and expert advice is needed when terminating an employment of employees with the 30% ruling, especially if he is given relief from active working activities and/or has various equity benefits.
In order to facilitate the position-taking for employers whether or not to apply the 30% ruling in the payroll on payments in the context of termination of employment, we refer to our decision tree document.
From a wage tax point of view it is possible to accrue pension entitlements on the 30%-allowance. The employer is not obliged to do this, but if the employer would like to grant pension entitlements on the 30% allowance, the pension regulation should also allow for this. Often this has to be fine-tuned with the pension insurer.
The employer must be aware that certain (ET) costs cannot be paid tax free in addition to the 30% allowance. Reference is made to our overview of listed examples and its tax treatment of various typical benefits granted to hires from abroad.