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    Cutting employee-related costs through these tips

    Keeping employee-related costs in check!

    Although the end of the coronavirus pandemic is finally approaching, your organization may have suffered severe financial damage by now and you are looking to cut some costs. Even if this is not the case, it is still wise to see if you can reduce employee-related costs, without having to drastically change the terms of employment. This article will list various tips on how to save money on staff.

    Before you can start saving money on staff, it is important to first know exactly what employee-related costs your organization incurs. Only then is it possible to see whether or not you can cut these costs without impacting employees’ salaries too much. Or alternatively, to see whether or not you can generate more income off of your employees.


    Because of the coronavirus pandemic, many employees are working from home – either by choice or due to the coronavirus measures. You can check whether or not this working from home en masse has already saved your organization money on e.g. energy, office supplies, consumptions for employees as well as commuting expenses. And using a clever rotation system for flex workspaces, you may even be able to move your organization to a smaller (i.e. less expensive) location, if desired. Moreover, the pandemic has proven that most meetings can be held online, meaning that you can also save money on commuting expenses for letting staff come to office. The same applies to the fixed travel allowance, which may be discontinued now that employees are no longer commuting to work or going on work-related trips. Even though the current rules permit employers to continue paying their employees this untaxed fixed travel allowance for the next few months, it may be financially more advantageous not to do so. However, do check the terms of employment: the latter may prohibit you from discontinuing the payment of an untaxed travel allowance.
    Another thing you may want to look into is subscriptions. Perhaps you are still paying for subscriptions taken out for ex-employees. Also check if you are not paying for the same subscription twice and have employees look into which subscriptions they can do without. For example, an employee may be subscribed to a job-related magazine or newsletter (s)he never reads. And finally, you can save on office supplies by having employee print out only those files which are truly necessary and maybe even save money on company vehicles by having employees carpool to work. And if the terms of employment permit you to do so, you can remunerate employees for working overtime by giving them time off work instead of additional salary.


    Have employees involved

    It may be a good idea to have employees involved in your attempts to save on employee-related costs. For example, arrange for the possibility to submit ideas for saving money, which can also be done anonymously. But first, explain in detail to your staff why cutting costs is necessary. You can also promise a reward for the person who submits the best idea. Moreover, having employees involved means you will have more support for any cost-cutting measures implemented.

    Cutting costs

    Employees on sick leave can costs your organization a lot of money, since Dutch law mandates employers continue to pay wages to these employees. Moreover, employees on sick leave must be replaced, which also leads to additional staffing costs. Having a proper policy in your organization for sick leave and absenteeism may help curb the number of employees who need time off work to recover. Perhaps it is also wise to take out a sick leave insurance, called ‘ziekteverzuimverzekering’ in Dutch. However, make sure to weigh the possible costs of sick leave against the due premium for a sick leave insurance and compare the premium as well as the terms and conditions of difference insurance providers. Do not focus on the price only, but also on what you get in return and any possible extra costs you may incur. And while you are at it, you may want to check whether you can save on any other insurances you have taken out, such as a liability insurance.


    Understanding your costs

    Research by HRM specialist SD Worx, conducted among organizations in eight different European countries, found that 82% of Dutch organization have a good understanding of their HRM-related costs and wage costs. The research also shows that 81% of the organizations keep a close eye on wage costs and that a further 79% of the organizations also keep an eye on the total in employee-related costs. However, only 51% keep an eye on the costs of meetings with trade unions, employers’ associations, etc.

    Less expensive

    If you are somehow forced to lay off employees, make sure to check which procedure for terminating an employment contract is the least expensive for your organization. There is not always a choice, however, as the reason for the dismissal(s) determines whether the employment contract must be terminated through permission from the UWV (the National Institute for Employees’ Insurance and Regulations) or through a request to the subdistrict court to have a judge dissolve the contract. Alternatively, you can also discuss the dismissal with the employee(s) in question and arrive at a mutual agreement. Although employees will never agree to a termination of employment without demanding a financial compensation of some sort, it is still much less expensive an option than having to go to court or the UWV. When in doubt about whether or not a new employee is the right fit, make sure his/her contract is terminated during the probation period. And if you are sure an employee with a temporary contract is the right fit, you should offer him/her a permanent contract as soon as possible, as you will then pay a low WW-premium (unemployment insurance premium) instead of a high one for this employee. For an employee earning minimum wages, this could save up to € 85 per month!


    Taking a different approach in salary negotiations can also save your organization a lot of money on both current and future staff. You can, for instance, opt to pay employees a net allowance to cover certain costs instead of giving them a salary raise for the same purpose. Although such an allowance must be included in the ‘vrije ruimte’ (the budget for untaxed benefit and allowances), it may still turn out to be less expensive than having to pay payroll taxes and employer’s contributions over a higher salary. You can also give employees the option to exchange a portion of their taxable wages for untaxed wages via the so-called ‘cafetariaregeling’. This will not only give them a financial advantage but also the ability to adjust their remuneration to their wishes. Moreover, your organization will save money on not having to pay payroll taxes and employer’s contributions over the exchanged wages. Do, however, remember to include untaxed wages in the ‘vrije ruimte’. And also remember that a final levy of 80% is due if the ‘vrije ruimte’ is exceeded.


    In any case, it is wise to use the ‘vrije ruimte’ as much as possible. Since this budget has been increased for the duration of 2021, it gives you more room to provide employees with untaxed benefits and allowances. This means that making smart use of the ‘vrije ruimte’ – while complying with all rules, or course – will save you quite some money. As long as you stay within the scope of this budget, you do not have to pay any taxes or employer’s contributions over the respective amount.
    Money can also be saved when hiring new employees. If you hire an employee who was unemployed and received an unemployment benefit, you may be able to cut wage costs by having the employee work a unpaid two-month trial period, called ‘proefplaatsing’ in Dutch. During this trial period, the employee keeps his/her unemployment benefit and you do not have to pay the employee any wages. The UWV must approve the trial period. Another option is to hire a so-called ‘Wajonger’: an individual who receives a benefit through the ‘Wet wajong’ (Disability Benefit Act for Young Disabled Persons). You can then request the UWV to approve paying lower wages to this individual because his/her disability or handicap means the Wajonger has a lower performance at work. Also check if the employee falls under the UWV’s no-risk policy. If this is the case, the Wajonger will receive a benefit through the ‘Ziektewet’ (Sickness Benefits Act) for the first five years of employment if (s)he must go on a long-term sick leave due to his/her disability or handicap. As employer, you then do not have to pay wages during this sick leave.


    And finally, your organization may be entitled to a Wage Cost Allowance (called ‘loonkostenvoordeel (LKV)’ in Dutch) of € 2,000 or € 6,000 for (re)hiring an individual from a specific group of people. Or, when negotiating salary with a new employee who will be earning around minimum wages, keep in mind the upper limit for eligibility for the Low-Income Allowance (called ‘lage-inkomensvoordeel (LIV)’ in Dutch). It would be a shame if the employee in question will earn just above this limit – i.e. 125% of minimum wages, equal to an average hourly wage of max. € 13.12 (in 2021) – in which case your organization misses out on an allowance of (at most) € 960 per year.

    This article is written by Lotte van Rees, Freelance Specialist ‘Loonheffingen’.


    Changing the terms of employment

    Sometimes, there is no other option than to change the terms of employment for your employees. However, you cannot just implement changes. Even if an employment contract contains a clause stating that changes can be made unilaterally, i.e. without involving the employee in question, it is still required for the organization to have a compelling business-related interest for changing the terms of employment. This interest must outweigh the interest of the employee to keep the same terms of employment. Employees are in turn obliged to agree to any changes in the terms of employment if these changes are reasonable in regards to the changed (financial) circumstances the organization is in. Of course, good communication is key here. And do not forget to have the works council and/or staff representatives involved either!

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