Hiring your first employee

Hiring your first employee is a milestone: it means your business has grown enough to justify the cost and complexity. But it's also a step that surprises many freelancers—the real cost of paying someone goes far beyond their salary. This guide walks through what changes, what it costs, and the alternatives to consider first.

The true cost: salary is just the start#

When you hire someone on a permanent employment contract, the cost to you is not just their gross salary. You must pay employer contributions on top.

The main employer contributions are:

• Social security contributions (werkgeversbijdrage): roughly 15–20% of gross salary, depending on the type of work and sector. This goes to pension, disability, unemployment insurance, and health insurance.
• Wage tax withholding: you're acting as tax collector here, deducting income tax and employee social contributions from their salary and handing them to the Belastingdienst. (This isn't an extra cost to you, but it's a responsibility.)

A concrete example: If you pay someone €3,000 gross per month, you're also paying roughly €450–€600 in employer contributions. So the total monthly cost is €3,450–€3,600. That's 15–20% on top.

Add to this:

• Employer's liability insurance (werkgever aansprakelijkheidsverzekering), depending on the industry and risk profile.
• Pension scheme contributions (depending on your employment contract and collective agreement).
• Holiday pay, bonuses, or profit-sharing (if promised).

The real annual cost of a €36,000 gross salary employee is closer to €42,000–€44,000 once you include employer contributions.

The legal and admin obligations#

Once you hire someone, you have legal duties:

Employment contract. You need a written employment contract, even for part-time or fixed-term staff. It should include:

• Job title and duties.
• Salary and payment frequency.
• Working hours and holiday entitlement.
• Notice period (typically 1–3 months).
• Non-compete or confidentiality clauses (if relevant).

Have a lawyer or HR consultant draft the first one; it's a template investment that costs €300–€600.

Payroll administration (loonadministratie). Every month you must:

• Calculate gross salary, deductions (income tax, employee social contributions), and net pay.
• Maintain records.
• Pay the Belastingdienst on time (usually by the 15th of the following month).
• File quarterly or annual payroll tax returns (aangifte loonheffing).

Many freelancers handle this themselves using payroll software (€30–€100/month), but others hire a payroll service (€200–€400/month) or accountant. It's not optional.

Employer reporting:

• Report your employee to the SVB (Sociale Verzekeringsbank) and to the Belastingdienst.
• File annual payroll reports.
• Keep records for 7 years.

• Draft or obtain an employment contract (lawyer: €300–€600)
• Register the employee with the Belastingdienst and SVB
• Set up payroll administration (DIY software, payroll service, or accountant)
• Understand the monthly payment and reporting cycle
• Check for collective labour agreements (cao) in your sector
• Consider employment insurance (werkgever aansprakelijk)

The sector complication: collective labour agreements (cao)#

In many sectors in the Netherlands, there are collective labour agreements (cao)—legal minimum terms for wages, working hours, holidays, and benefits. If your sector has one, you must follow it, even if you'd prefer to negotiate lower wages.

This is a significant constraint for small operators. A sector cao might specify minimum wages 15–30% higher than you'd negotiate privately, or mandate pension contributions beyond the basic legal minimum.

Before you hire, check if your sector has a cao. Search on the FNV or CNV websites, or ask other business owners in your field. If you're not bound by a cao, you have more negotiating room—but you still must respect the legal minimum wage.

Alternatives before you hire#

Before you commit to a full-time or permanent employee, consider whether one of these fits better:

Freelancer or contractor (uitzend). Hire someone on a project or hourly basis. You pay them directly, no payroll admin, no employer contributions, and you can end the arrangement quickly. But you need to hire through an agency (takes a cut, maybe 15–25%) or handle invoicing/contracts yourself. Good for temporary peaks.

Shared employee. Some freelancers in the same sector club together and share one part-time employee. Costs and admin are split, and you have built-in backup coverage.

Partner in a partnership (VOF) or co-founder. If you want someone as an equal, not subordinate, consider forming a partnership or bringing them in as a co-founder. Different tax and liability structure. Read our guide to working together in a VOF for more.

Outsource the work. Before hiring, check if you can outsource the task to a specialist (design, accountancy, marketing, etc.) more cheaply than hiring someone. Often the answer is yes for specific, high-skill work.

The tax angle: what's deductible#

Here's the good news: all the costs of employment are deductible from your business profit for tax purposes.

• Gross salary: fully deductible.
• Employer contributions: fully deductible.
• Employer liability insurance: fully deductible.
• Payroll admin service: fully deductible.
• Pension/benefits contributions: fully deductible (subject to limits).

So if your real employment cost is €42,000 per year, and you deduct it all, it reduces your taxable profit by €42,000. At a tax rate of roughly 36–49.5%, that's a tax saving of €15,000–€21,000. That cushions the net impact somewhat.

But the tax deduction doesn't erase the cash cost—you still need the cash flow to cover it every month.

Getting set up: the checklist#

1. Do a cash-flow stress test. Can you afford €3,500–€4,000 per month for the next 12 months? If not, wait or consider a part-time hire.
2. Check the sector cao. Understand the minimum wage and any contractual minimums.
3. Get a contract drafted. (Lawyer €300–€600.)
4. Choose your payroll method. Software (€30–€100/month), a payroll agency (€200–€400/month), or your accountant.
5. Register the employee. Before they start, notify the Belastingdienst and SVB.
6. Communicate clearly. Make sure they understand their salary, hours, tax deductions, and your expectations.

When hiring makes sense#

Hiring is worth the cost and complexity when:

• You have steady demand. Hiring a permanent person only works if you have ongoing work to fill their time.
• You can't do it yourself anymore. You're at a point where you either hire or lose clients/income.
• The economics work. The person's productivity more than pays for their cost. (Often true for support roles, sales, or specialized skills you don't have.)
• Your cash flow is stable. You can cover salary reliably, month after month.

If you're just testing the waters or have sporadic work, a freelancer or contractor is wiser.

Frequently asked questions#

Hiring your first employee is a big step. It's not just about doubling your team—it's a shift in your business model, cash flow, and complexity. Make sure the timing and economics truly work before you commit. And don't underestimate the real cost: factor in employer contributions, payroll admin, and insurance from day one. ZZP Belasting helps you forecast your profit and tax liability, so you can see exactly how much room you have for a new team member.

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