Negative consequences of ‘Wet Arbeidsmarkt in Balans’ underexposed

Due to uncertain economic and social developments, more and more companies need flexibility in their workforce. They choose to outsource parts of their business operations more often, in order to be able to scale up and down faster and easier if circumstances so require.

Because it is generally uncertain when this up or down scaling will take place, companies to which services are being outsourced - for example, facility service providers - are forced to offer their own people a flexible contract. However, these companies usually prefer to work with fixed contracts. Until now, this has not been a problem, but on 1 January 2020 the new Dutch ‘Wet Arbeidsmarkt in Balans’ or WAB (Labor Market in Balance) will enter into force. The new legislation will have major - mostly financial - consequences.

For example, under the new legal regime there is a substantial increase in the unemployment insurance premium for fixed-term contracts, while the decrease in the unemployment insurance premium for contracts for an indefinite period is lower. On balance, this leads to higher wage costs at companies that offer flexible labor. The new law also stipulates that employees are entitled to a transition payment from their first working day. Currently, this is the case after two years of employment. These extra wage costs translate into an unavoidable rate increase of 4 to 8%, depending on the sector and the mix of permanent staff and flexible staff.

A majority of companies that meet the need for outsourcing have to deal with a collective labor agreement that causes an annual increase in wages. Take the CLA for Private Security, which - through indexation and an additional periodical - also causes an increase in rates of 4%. The combination of WAB and collective labor agreement results in an extraordinary increase in rates of between 8 and 12% in this specific sector. In other sectors for facility services, such as those for cleaning services but also in the temporary employment sector, similar increases will occur.

The WAB not only causes rising staff costs at companies that are already part of a sector in which the margins are traditionally very thin. It also confronts clients of these companies with considerably higher rates.

The general intention of the WAB is undoubtedly good, but fact is that the goal not always justifies the means. Where the new legislation seems to be intended to improve the position of certain categories of employees, it is very likely that it will cost a significant number of jobs in the long term.

This article appeared in Het Financieele Dagblad (3 December 2019).