‘I started a contract 9 weeks ago to work in the Netherlands. The agency told me I had to work through a particular management company, because of the tax laws in Holland. Apart from a couple of small advances, I still haven’t been paid!’
Clearly a difficult situation. For those who don’t know, contracting in the Netherlands operates a bit like a post-IR35 nightmare – it appears that the Dutch tax authorities are entitled to treat the whole of payments for services as salary, regardless of whether or not they are paid to a company. The tax authorities are also entitled to go back down the payment chain, and demand payment of any unpaid taxes from those further back down the payment chain; even though contractors may work under short term contracts, they have rights to paid holidays; and if the cumulative period of such contracts exceeds a certain period, then the contractor may have similar rights in relation to redundancy payments when the contract ends as if they had been permanent employees.
Tax rates are high, but there are some fairly generous allowances for foreigners working in the Netherlands. Use a UK agency, and you can pay UK national insurance using an E101; with a Dutch agency, you have to pay Dutch social security instead. The client and the agency will generally insist on the contractor having all tax and social security payments deducted at source under a PAYE-type system (assuming the agency itself operates such a scheme), or (if the agency doesn’t) using a management or umbrella company with a fully tax-compliant package, or operating an escrow procedure using something called a ‘G’ account.
Against this background, some might think it hardly surprising that the Netherlands has not developed much of a contracting industry of its own (I of course couldn’t possibly comment on that!). Dutch companies do however have the occasional need to fill skills gaps, and often hire in foreign contractors for the purpose.
Here, it seems that the agency didn’t operate a tax-compliant scheme themselves. To comply with their obligations to their client (ie to make sure the client didn’t get a bill from the Dutch tax man for any tax you should have paid but didn’t) the agency therefore had no real alternative but to require you to use a management company that did operate such a scheme. And that’s where things began to get complicated – you signed and accepted the contract with the agency, but declined to sign the management company’s contract, because that introduced different terms you didn’t accept. Meanwhile, the agency asked you not to send timesheets until they’d sorted out their own paperwork with the management company (remember, it was the agency who specified this management company). And you and other contractors were expected to work on, regardless of the fact that you haven’t been paid. I understand it’s now got to the point where the client has become so fed up with its contractors spending so much time chasing payment that the client has instructed the agency to remove the management company from the loop, and operate their own tax-compliant system. Which the agency are now trying to do, but (so far) failing dismally!
All of this of course brings no credit, either to the agency, or to the management company; neither does it do any favours to either the Client or the Contractor. I can’t understand how it can take the agency or the management company so long to sort these apparently simple things out – and yes, they are simple – I know of one management company which has been operating a tax-compliant system for the Netherlands for over a year now, and another which set up such a package in a morning, not more than 2 weeks ago!
The agency is a UK agency, and the contract with them (which you tell me you have signed) is under UK law. So let’s start there. What you want, first and foremost, is to get paid what is properly due to you, as and when it falls due for payment, and without having to spend unnecessary amount of time, energy, or money in making that happen.
The contract provides that you are entitled to be paid every 2 weeks after submitting timesheets. The agency asked you to withhold your timesheets; whilst you may have acceded to that request so far, you are not obliged to continue to do so, and in order to bring this to a head the first thing you must do is to send them your timesheets to date. Attach an invoice for the amount that is due, and accompany both with a letter saying that you require payment to be made strictly within the period provided for by the contract (thus making time of the essence). Draw to their attention that you did not conclude any agreement with the management company they nominated, and that since your contract is with the agency, you are looking to them to make payment. It is up to the agency to work out and apply all such deductions as they are required by law to make – and to pay you the balance.
17th September 1999
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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