Recommendation When developing a termination contract as an employer, ensure that you can continue to claim tax refunds under past TEQ agreements with the employee concerned. This can be done by explicitly mentioning this issue in the comparison agreement. To request the 30% decision from the Dutch tax authorities, the following information is required: A copy of the employment contract (with the addition above) or a payslip; In the Netherlands, on the basis of Dutch social security, employers must pay at least 70% of the last wage earned over two years for sick workers. This is, of course, a difficult rule for employers, especially if it happens and they have not covered that risk with an insurance agent. At the end of these two years, the employment often ends. At the end of an illness, another disadvantage for (larger) employers as such also stagnates on the differentiated employer social security premium for a period of 10 years (!) because the history of illness/disability is taken into account in determining the applicable differentiated premium. This means that the premium for a 10-year period is higher than it would have been if the worker had not been ill. As a result, it is often agreed that the employee should report better before the termination date. Example John earns 600,000 euros in 2014 (t-2) and 700,000 euros in 2015 (t-1). His employment was terminated on 31 December 2016.
In 2016 (t), he earned 650,000 euros and received a severance package of 850,000 euros. The income for the t-1 year is 100,000 euros higher than the t-2 year. The income for the t year is 50,000 euros plus 850,000 euros plus 900,000 more than the year t-1. The penalty fee due is calculated as follows: 1,000,000 euros (100,000 euros plus 900,000 euros) less 600,000 euros – 400,000 x 75% – 300,000 euros. In the event of termination of the employment relationship, it is customary to enter into a termination contract which establishes that it is a permanent scheme and replaces all previous contracts. Therefore, such a clause may lead workers who are still entitled to a tax refund not to want to repay such a refund to the employer. Sometimes tax refunds can be very large. The employee could take the position that the old TEQ contract is no longer valid from the signing of the final termination/settlement agreement. This may result in unintended financial consequences and tax authorities may argue that the employer has granted the worker a net benefit that must be obtained, which further increases the financial impact of compensation, ex gratia (non-contractual) payments for statutory or employment loss are exempt from tax on the first $30,000.