Differentiated Aof premiums as of 2022
Through a reduction in the Aof premium for small enterprises, the government wants to further accommodate these organizations in terms of costs related to ill employees. The lower Aof premium is scheduled to go into effect on January 1, 2022. Medium-sized and large enterprises will in turn have to pay a higher Aof premium. In other words, 2022 will see the introduction of differentiated Aof premiums. But what exactly does this mean?
Organizations make a mandatory periodic contribution to the ‘arbeidsongeschiktheidfonds’ (Work Disablement Fund), abbreviated as ‘Aof’. This allows their employees to receive a benefit upon becoming work disabled. This mandatory contribution is called the Aof premium. Currently, all organizations pay the exact rate in Aof premium: 7.53% of their employees’ wages (rate for 2021). The Aof premium consists of three parts: an IVA premium, an WGA premium and a contribution for childcare. As of January 1, 2022, small enterprises will have to pay a lower Aof premium than medium and large enterprises.
The ‘Wet financiering sociale verzekeringen’ (Social Insurance Funding Act) will cover the definitions of ‘small enterprise’ and ‘medium/large enterprise’ for the purpose of the Aof premium. The definitions will be brought in line with the definitions used to determine the contribution made by organizations to the ‘werkhervattingskas’ (Resumption of Work Fund), called the Whk premium. At the moment, the Whk premium is differentiated based on the following three categories:
- small enterprises, defined as organizations with a taxable wage bill of at most € 346,000;
- medium-sized enterprises, defined as organizations with a taxable wage bill between € 346,000 and € 3,460,000;
- large enterprises, defined as organizations with a taxable wage bill larger than € 3,460,000.
The wage bill in question here is the one from two years ago; i.e. in this instance from 2019. The boundaries between the categories are based on 10 and 100 times the average wages on which premiums are due (the so-called ‘premieplichtig loon’ in Dutch) per employee per year. The UWV (the National Institute for Employees’ Insurance and Regulations) calculated these average wages to be € 34,600 in 2021. The UWV is in charge of determining in which of the above categories your organization falls and will relay this information to the Dutch Tax and Customs Administration. The latter will then inform your organization of the due Whk premium. You are permitted to object to the categorization of you organization if you believe the UWV has made a mistake.
As mentioned above, the Aof premium will only be differentiated based on two categories: small enterprises and medium/large enterprises. The boundary between these two categories will be set by a taxable wage bill (of two years ago) of 25 times the average wages on which premiums are due per employee per year. For 2021, this would amount to € 865,000. This means that if your organization’s taxable wage bill is equal or below this amount, it falls in the category of small enterprise. If the taxable wage bill is higher, you fall in the category of medium/large enterprise. Again, the UWV is in charge of determining in which of the two categories your organization falls and will relay this information to the Dutch Tax and Customs Administration. The latter will then inform your organization of the due Aof premium. As was the case for the Whk premium, you are permitted to object to the categorization of you organization for the purpose of the Aof premium if you believe the UWV has made a mistake.
More measures concerning employees on sick leave
The differentiation of the Aof premiums is part of a larger package of measures to make it easier, clearer and less expensive for organizations to continue paying wages to employees on sick leave and to reintegrate these employees when they get back to work. However, it is one of two measures for which an amendment to legislation is required. The other measure for which an amendment is required is the legislative proposal to make the opinion of the Organizational Health Physician leading in the assessment by the UWV (the National Institute for Employees’ Insurance and Regulations) of a reintegration procedure. Other measures – for which no amendment to legislation is (was) required – are the ‘MKB verzuimontzorgverzekerning’ (SME absenteeism insurance) introduced in 2020, the improved communication about the payment of wages to and reintegration of employees on long-term sick leave, and the increased say these employees have in decisions made about their situation during sick leave.
In order to bring the categories used for the Whk and Aof premiums more in line with each other, the categorization for the Whk premium will be adjusted. The current definition of ‘small enterprise’ used for the purpose of determining the Whk premium will be made the same as the definition of ‘small enterprise’ used for the Aof premium. In other words, for both the Whk and Aof premium the boundary for this category will be set to 25 times the average wages on which premiums are due per employee per year. The adjustments mean that as of 2022, there will no longer be any difference between the categories used for both premiums. This makes it both easier for the UWV to categorize organizations and easier for organizations to understand the system. Moreover, the adjustment means a broadening of the categories for the Whk premium. As a result, more organizations will qualify as a ‘small enterprise’ (instead of ‘medium enterprise’), solving some of the problems which currently occur when benefits from the ‘werkhervattingskas’ (Resumption of Work Fund), called Whk benefits, are granted.
At the moment, the granting of a single WGA benefit or benefit regulated by the Sickness Benefits Act (both Whk benefits) instantly makes medium-sized enterprises a greater liability for insurers, even though the average chance organizations will apply for these benefits is relatively low. This means the number of times a medium-sized enterprise has applied for a Whk benefit is therefore only very slightly representative of that organization’s liability. If only a single WGA benefit or benefit regulated by the Sickness Benefits Act is granted to a medium-sized enterprise, the respective organization will immediately be regarded a high risk liability by insurers, even if this organization has not applied for a single Whk benefit in the previous years. The broadening of the categories used for the Whk premium is better in line with the actual insurance liability small and medium enterprises present. Moreover, the expansion also complies much better with the practices of private insurers, who only levy an individual premium when an organization’s taxable wage bill is many times higher than 10 times the average wages on which premiums are due per employee per year.
The introduction of differentiated Aof premiums does require an adjustment in the current software used by your organization for payroll administration and registration. After all, the software must be update to take into consideration which Aof premium is applicable.
Reason to further accommodate small enterprises
Especially small enterprises experience problems in having to continue paying wages to employees on sick leave and the costs of reintegrating those employees. They consider the high costs as disproportionate compared to larger enterprises, which have the exact same requirements with respect to employees on sick leave. Larger enterprises usually have more options (such as capital or business partners) to comply with these requirements. Moreover, small enterprises often also lack the knowledge and experience. This is why the government has decided to accommodate small enterprises in their costs through a lower Aof premium. The money saved this way can then be spent on e.g. taking out a ‘MKB verzuimontzorgverzekerning’ (SME absenteeism insurance).
The government has reserved a budget of € 450 million for the implementation of differentiated Aof premiums, as it is expected that small enterprises will in total save around this amount as a result of the lower Aof premium they must pay. This means the Aof premium for small enterprises in 2022 will go down by 1 percentage point as compared to 2021. For medium and large enterprises, the premium will go up by 0.1 percentage point. The latter also applies to organizations that have voluntarily taken out an insurance with the UWV against the ‘Wet op de arbeidsongeschiktheidsverzekering’ (WAO) and ‘Wet werk naar inkomen en arbeidsvermogen’ (WIA). The difference in Aof premium between both categories of organizations will thus be 1.1 percentage point. In 2023, it can be established how much of the reserved budget has actually been used. Any excess or deficit of this budget can then be offset against the differentiation in Aof premiums in the next year.
What does it all mean in practice?
Let’s look at an example to illustrate what the differentiated Aof premiums mean in practice: imagine an organization for which the total in employees’ wages on which premiums must be paid is € 36,000 per month. This would amount to a taxable wage bill of € 432,000 per year, meaning that the respective organizations falls in the category ‘small enterprise’. Currently, the organization must pay € 2,710.80 each month in Aof premium. As of 2022, this premium will go down by 1 percentage point, resulting in an Aof premium of approximately € 360 less. However, if the organization would be classified as a ‘medium/large enterprise’, the Aof premium would go up by approximately 0.1 percentage point. If the total in employees’ wages on which premiums are due is € 900,000 per month, this would result in € 900 more per month in Aof premium.