Many companies are being strongly affected by the coronavirus crisis, facing a sharp decline in turnover, while fixed costs continue as if it were business as usual. In order to support employers, the Dutch government has issued NOW, a temporary scheme for emergency salary subsidies. But will NOW fully compensate those pension contributions that employers are supposed to continue pay? And if not, can employers postpone the payment of pension contributions to ensure continuity of their businesses? We set out the key areas for employers to consider. This article is also available in Dutch.

Pension contributions and NOW

If a pension scheme applies between employer and employee, the employer must pay to the pension provider the full pension contribution, consisting of an employer's part and often an employee's part. The employer is entitled to withhold the employee's share from the employee's gross monthly salary, provided that this the employment agreement specifically allows this. The general principle of NOW is that employers should continue to pay 100% of salaries to its employees. Employers can request subsidies of up to 90% of salary costs, in proportion to their expected revenue loss of at least 20%. Besides this reimbursement of salary costs, NOW contains a surcharge for: (i) the employee's share of the pension contributions that the employer pays to the pension scheme on the employee's behalf, and (ii) all employer's contributions, such as holiday allowance, social security contributions, the employer's levy under the Healthcare Insurance Act, and also the employer's share of pension contributions. In order to increase enforceability of NOW, the surcharge is fixed at 30% of the employer's salary costs, but whether this surcharge is sufficient to cover the anticipated costs depends on the sector and, sometimes, on the individual employer. The total pension contributions often amount to 15% of the wage bill, while the other contributions employers have to pay often exceed 20%. In some cases, the NOW subsidy simply does not cover all costs and many – mainly small – employers will struggle to pay. To safeguard business continuity, a struggling employer may have to prioritise what gets paid - and what goes unpaid for now. Whether payment of pension contributions can be postponed during the coronavirus crisis is an important issue. The Dutch Central Bank had indicated that pension providers pursue a considered accounts receivable policy, where the boundary between postponement and cancellation will be closely guarded.

Employer can suspend unilaterally

Where a radical change of circumstances arises, the Dutch Pensions Act allows the employer to suspend or cancel payment of its share of pension contributions. To make use of this "payment pause", the following must be demonstrated:

• the employer does not participate in a compulsory sectoral pension fund (since a statutory obligation to pay contribution applies in that case);
• the payment pause is included in the pension arrangements between the employer and the employee (contained in the employment agreement or in a collective labour agreement that the employer is subject to); and
• the administration agreement between the employer and the pension provider allows for a payment pause.

The legislature has indicated that the inability to pay could qualify as a radical change of circumstances, which can justify the use by employers of this payment pause option.

Postponement of payment of pension contributions upon agreement with the pension provider

The Labour Foundation, the Federation of the Dutch Pension Funds and the Dutch Association of Insurers have agreed on potential leniency measures for employers in financial difficulties as a result of the coronavirus crisis. Pension providers can, as a goodwill gesture and within the limits of the law, come up with solutions tailored to the sector or the individual employer. These solutions can include extending payment deadlines, adjusting payment arrangements and/or adopting a more lenient accounts receivable policy. The accrual of pension continues, even while contributions temporarily stop. The employer must continue to pay the employee's usual share of the pension contribution, as withheld from the employee's gross monthly salary.

Amendment of pension scheme

Another potential (far-reaching) measure is to amend the pension scheme to ensure that both the contribution payments and the pension accrual are temporarily paused. If the employer is subject to a compulsory sectoral pension fund or if the pension scheme is set out in a collective labour agreement, only the social partners (trade unions and organisations representing employers) can pass a resolution for this purpose. However, if the pension scheme has been agreed between the employer and the employee, the employer is entitled to amend the pension scheme, provided that:

• the employer has obtained the consent of the works council; and
• the employee has consented or the employer can prove that the importance to the employer of doing so is so great as to outweigh, by the standards of reasonableness and fairness, the employee's interests which are harmed by the changes.

This strict test for unilateral change of the pension scheme would be done on a case-by-case basis; for example, assessing whether the employer has received the NOW subsidy and to what extent this subsidy covers the employer's pension contribution costs.

Liability risks for inability to pay

A basic principle of NOW is that employers should continue to pay 100% of employees' salaries. Given the fact that the employer generally withholds the employee's share of the pension contributions from the employee's gross monthly salary, the employer will generally have sufficient financial resources to pay the employee's share of pension contributions. Should the employer nevertheless refuse to pay this, and at a later stage no longer be able to do this due to inability to pay its bills, the employer's directors run the risk of being held personally liable. If an employer is subject to a compulsory sectoral pension fund and unable to pay its bills, the employer has a statutory duty to timely notify the sectoral pension fund. A notification of at least 14 days should qualify as timely. A breach of this obligation to notify could lead to the joint and several liability of the employer's directors for the unpaid pension contributions.

Help of the UWV

In the case of an employer's inability to pay pension contributions, the Dutch Employee Insurance Agency (UWV) must take over the employer's unpaid contributions, subject to a maximum of one year, and pay these to the pension provider. This support can only be requested by the employee; the employer can make its employees aware of the option.