Regulation of domestic work, Netherlands
Private domestic work is often undeclared in the Netherlands. Therefore, the Dutch government liberalised the regulation of private domestic work with new tax and social security measures in January 2007. Private domestic workers and their private clients are not obliged to declare this kind of work to the tax and social security authorities when the work lasts up to three days a week. However, the workers still have to report their full income for their yearly income tax.
Private domestic work in the Netherlands is regulated by the Regulation on domestic work (Regeling dienstverlening aan huis). This regulation came into force on 1 January 2007 and implies that a private person can hire another private individual for domestic work up to a maximum of three days a week. Domestic work typically includes jobs in the household such as cooking, cleaning dishes, housecleaning, doing the laundry, shopping, small repair and maintenance jobs in and around the house, childcare, car driving and gardening.
The domestic work regulation was introduced due to dissatisfaction with the Regulation on employment in domestic services (Regeling Schoonmaakdiensten Particulieren), implemented on 1 January 1998. The influence of the 1998 regulation was small as it was little used. The original aim of this regulation was to expand the market for private cleaning services and make the labour market more accessible for low educated groups. Later on, two further goals were added: the formalisation of undeclared work and encouraging the labour market participation of those who hire private domestic workers. An important motivation for the first of these two objectives was a request by the European Commission for more information about the meaning and volume of undeclared work in the economy. A study by van Nes et al (2004) provided this information and the subsequent debate in the governmental discussion panels led to a new kind of regulation.
The 1998 regulation was first replaced by the Regulation on exempt domestic workers (Regeling vrijgesteld huispersoneel), which defined the relationship of the private domestic worker and the client as being different from the classic employer–employee relationship. This meant that both parties were exempt from paying taxes and social security contributions on the domestic work, as long as it did not exceed two days a week. The domestic worker only had to pay the annual income taxes from this work. The 2007 regulation has increased the period of exemption from two to three days of domestic work a week.
In the Netherlands, the domestic work of private persons is often not declared for tax and social security purposes. Therefore, a new type of regulation was implemented. One of the objectives of this regulation is to make a larger proportion of such work visible to the authorities. A second motivation was to encourage more people from low educated groups to participate in the labour market. A third argument was that lowering the threshold for domestic work also boosts the labour market participation of the hiring persons.
The new regulation stipulates that a private person who hires another private individual is not obliged to pay tax or social security premiums in relation to this work, or to register the worker at the tax and social security offices as long as the hired person does not work more than three days a week. The hired person is regarded as an entrepreneur or independent contractor, but without the corresponding tax facilities. Not paying social security contributions also means that the hired person has no right to receive social security benefits in case of losing work, sick leave or disability and that no retirement pension capital accrues. The value-added tax (VAT) regulation does not apply either. When a person is hired by means of a personal care budget (persoonsgebonden budget) for disability reasons, the private domestic worker can be paid from this budget.
Private persons who are hired by other private individuals receive the entire wages for their work. They have the right to be paid at least the minimum income level, including the vacation allowance of 8%. In case of illness, there is continuation of income for six weeks. The hired person has to report the income in their yearly income tax and this income is included in the other income tax regulations, such as prepayment, transference of income between partners or tax returns. The domestic work regulation allows private persons to work for more than one private person. In all cases, the ‘three days a week’ criterion applies for each job; however, a part of a day for one client counts as one work day. Thus, for example, the domestic worker can work for three days of four working hours for one person, three days of four hours for another person and three days of four hours for a third person. In the case of more than three days of work for one person, the classic employer–employee relationship applies, including all of the legal obligations of this relationship. The domestic work regulation does not apply when the hiring of the private person is mediated by a temporary work agency; in this case, the private person is employed by the agency.
The domestic work regulation is primarily a tax measure and relieves the tax burden of people working in the lower end of the labour market. It is also a social security measure, in the sense that no premiums are paid and no benefits are granted. Some other tax and social security measures are planned, but have not yet been implemented.
Evaluation and outcome
Achievement of objectives
The domestic work regulation came into effect in 2007, but does not seem to be well known among the general public. Several bureaus mediating private domestic work between workers and private household clients have set up internet websites. Many of these bureaus focus on childcare, but some are active in mediating other forms of domestic work. All of the websites explain the regulation.
Obstacles and problems
Not many people are aware of the new regulation, which reduces its effectiveness. In the beginning of 2008, questions on this subject were discussed in the Dutch House of Parliament (Tweede Kamer der Staten General). As a result, the secretaries of state of the Ministry of Finance (Ministerie van Financiën) and the Ministry of Social Affairs and Employment (Ministerie van Sociale Zaken en Werkgelegenheid, SZW) promised to examine how the promotion of the regulation might be improved. In a letter of December 2008, both secretaries of state announced a new advertisement campaign in periodicals and newspapers, the placement of banners on internet websites and the launch of a new website. These measures have been introduced in addition to the brochure issued when the regulation came into force and the clear explanation on the website of the Tax Administration (Belastingdienst).
The regulation has not been evaluated so far. Van Nes et al (2004) estimated the labour market volume of private domestic work by means of a survey among 2,800 households in the Netherlands. They divided the labour market for private domestic work into four categories and provided figures for the formal market of domestic work as well as the informal market carried out by family, friends, neighbours or other persons in the close environment. In total, about 3.9 million households use this kind of work. About 45% of the work is declared and 55% is undeclared. Private domestic work (72%) and childcare for children aged 4–12 years (70%) are often undeclared. Childcare for children aged 1–4 years (40%) and small jobs in and around the house (44%) are somewhat less likely to be undeclared, although these proportions are still significant. Considering the costs in terms of wages, the labour markets did not differ much. For declared work, the wage costs amounted to €1.2 billion while they totalled €1.3 billion for undeclared work.
One problem with registering the volume of private domestic work is that the income tax form does not specifically ask about this kind of work. It has to be declared on the form in the general list of ‘results of other income sources’; thus, no differentiation can be made between these various types of income sources. Further survey research will therefore be required in order to gain more information on the impact indicators.
There are many good reasons for formalising the labour market of private domestic work. A potential effect is that it boosts the market for such work, as well as supporting low income groups in the labour market and encouraging the labour market participation of partners with children – either to take a job or to increase the number of weekly working hours. This complies with the aim of the Dutch Cabinet to increase the number of weekly working hours of part-time work.
The demand for childcare assistants is another important reason for government intervention. A problem is that many households cannot find domestic workers and these workers cannot find households. Thus, a potential labour market may be developed. However, it is unclear whether this shortage of supply is due to a lack of transparency in the market or to a lack of people wanting to apply for domestic work.
Another lesson learnt is that there is little insight into the reasons why people make use of undeclared work. More research is needed to study the motivations of those who avail of domestic work, on the demand side as well as on the supply side.
The domestic work regulation is a relatively simple regulation that could easily be transferred to other countries. The regulation is in line with measures like the mini-jobs in Germany, the small jobs scheme in Slovenia and the voucher systems in Austria and Belgium.
- Ministry of Social Affairs and Employment (Ministerie van Sociale Zaken en Werkgelegenheid, SZW)
- Dutch Ministry of Finance (Ministerie van Financiën)
Homburg, G. and Renooy, P., ‚Witte werkster en dienstencheques’, Economisch Statistische Berichten (ESB), 15 June 2007, pp. 375–378.
Nes, P. van, Gravesteijn-Ligthelm, J., Boom, L. van den, Spijkerman, M. and Acht, J. van, De markt voor persoonlijke dienstverlening, Rotterdam, SEOR, Erasmus University Rotterdam, 2004.
John Klein Hesselink, TNO Work and Employment