• Penalty Payments Form Wages
  • August 3, 2011 | Author: Eugene Weultjes
  • Law Firm: Greenberg Traurig, LLP - Amsterdam Office
  • The legislature uses a very broad definition of wages. Wages include everything that has been derived from present or past employment. Case law however, identifies three essential criteria for the term wages. There needs to be a benefit. The benefit needs to be derived from employment. The benefit has to be provided by the employer. The question of whether the benefit was enjoyed from employment and therefore could qualify as inextricably bound with the employment was subject of a dispute in a recent court case.

    An employee was employed until the 1st of April 2004. On the 21st of July, the employer was required to pay overdue salary payments to his former employee, as well as fulfill his obligations with regard to the former employee’s pension. In the case of nonpayment, penalty payments of € 250 per day were imposed. Penalty payments amounting to € 35,000 were eventually paid to the employee’s lawyer. The latter subsequently paid the employee after withholding taxes and social security contributions.

    The court of appeal in The Hague ruled that there was a correct withholding as the penalty payments were inextricably bound with the employment. The court qualified the penalty payments as salary payments and ruled that the withholding was justified. The employee was of the opinion that the penalty payments were enjoyed outside the scope of employment and withholding of tax was therefore unjustified. He suggested that the fact that he was a former employee had resulted in a termination of the employment and therefore the payments could never qualify as benefits derived from this employment. However, the fact that the penalty payments were imposed in connection with the employer’s obligation to pay the overdue salary, as well as the pension, resulted in an inextricable bond with the employment and were, therefore, a benefit of employment.