Payroll taxes: how does the system work?
Written by Ilias Aarrass7 min read · Published on · Last reviewed on 
In short
Payroll taxes cover wage tax and national insurance contributions, employee insurance contributions and the income-dependent healthcare contribution, filed and remitted per period.
- Wage tax and national insurance are withheld from pay; employee insurances and the employer healthcare levy come on top of your wage costs.
- Filing runs per period, usually monthly or four-weekly, and is due even when there is nothing to report.
- Errors compound because the tax authorities build up the annual wage; you correct them with a correction message.
- An employee may apply the payroll tax credit with only one employer at a time.
As soon as you have staff, you'll deal with payroll taxes. That's a collective name for various taxes and contributions you withhold from your employee's salary. For many starting employers it's an opaque whole. This article explains the system.
What are payroll taxes?
Payroll taxes are the total of taxes and contributions you as an employer withhold from your employee's gross salary and remit to the tax authorities. The difference between the gross salary and the payroll taxes is the net salary your employee receives.
What do payroll taxes consist of?
Payroll taxes consist of four parts: the wage tax, the national insurance contributions (such as state pension), the employee insurance contributions (such as unemployment insurance) and the income-dependent contribution for the Health Insurance Act. Together they form the amount you withhold and remit.
How do you file a payroll return?
As an employer you periodically, usually monthly or every four weeks, file a payroll return with the tax authorities. In it you report the salary and the withheld payroll taxes of all your employees. You then remit the amount you withheld.
Why do many entrepreneurs outsource this?
The calculation of payroll taxes is complex and the rules change annually. A mistake can lead to additional assessments and penalties. That's why many entrepreneurs outsource the payroll administration to a bookkeeper or specialised processor, who ensures everything is done correctly and on time.
What payroll tax consists of
Payroll taxes is an umbrella term for four components you withhold or pay yourself as an employer. The distinction matters: part is withheld from your employee's pay and part comes on top of your wage costs. Tax-free allowances run separately through the work-related costs scheme.
| Component | Who bears the cost |
|---|---|
| Wage tax and national insurance contributions | The employee, withheld from gross pay |
| Employee insurance contributions (unemployment, disability) | The employer, on top of pay |
| Employer healthcare levy | The employer |
| Any final levies, such as the WKR above the free space | The employer |
The payroll tax credit: one employer at a time
Your employee states whether the payroll tax credit applies with you. It may apply with only one employer at a time; applying it twice leads to an assessment for the employee at income tax time. Record the choice in your payroll records, along with the day-one details; see hiring your first employee.
Frequently asked questions
What falls under payroll taxes?
Four components: wage tax plus national insurance (withheld from pay), employee insurance contributions and the employer healthcare levy (on top of pay), and any final levies.
How often do I file payroll returns?
Per period, usually monthly or four-weekly, even when nothing changes. The filing and payment deadlines coincide, as with VAT.
What does an employee cost beyond gross pay?
Count on some 25 to 35 per cent extra in employer contributions, holiday pay and possibly pension. Exact contributions differ per sector. The trade-off between employing and hiring is in hiring a freelancer or employing someone.
What is the payroll tax credit?
The tax credits settled through the payslip, raising net pay. An employee may apply it with one employer at a time; with two jobs they pick one.
Can I run payroll myself?
You may, but the rules change annually and errors compound. For one or two employees, outsourcing to a payroll processor or bookkeeper is usually cheaper than the hours it takes.
Does this apply to me as a DGA?
Yes, your BV withholds payroll tax on your DGA salary and files returns for it. Only the employee insurances usually do not apply to a DGA. See customary salary.
Sources
- Withholding and remitting payroll taxesOverheid.nl · ondernemersplein.overheid.nl
- Registering as an employer and filing payroll returnsBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
