Stricter rules on freelancers drive up costs in Dutch public sectors

Stricter enforcement of rules against false self-employment in the Netherlands is driving freelancers to work through staffing agencies, raising costs for healthcare, childcare, and education by nearly 40 percent, according to an ABN Amro report released Tuesday.

Freelancers are increasingly turning to staffing agencies to avoid scrutiny from the Dutch tax authority (Belastingdienst), the report said. However, public institutions face higher costs because agencies are required to charge 21 percent VAT, which healthcare and education organizations cannot reclaim. Freelancers themselves are exempt from VAT.

"Organizations face substantial extra costs when they hire freelancers through agencies, due to the VAT and agency margins," Mario Bersem, an ABN Amro economist and the report’s author, told De Telegraaf. "In total, this makes hiring a temporary worker in healthcare, childcare, or education 39 percent more expensive."

The report warns that these rising costs could worsen staffing shortages in critical public sectors. Hospitals, schools, and childcare facilities may struggle to afford flexible workers as demand for them increases.

Currently, staffing agency workers account for only 1.4 percent of healthcare staff, 1.5 percent in childcare, and 1.7 percent in education, totaling about 37,000 workers. In the overall workforce, 4 percent are employed through agencies or secondment arrangements.

To address the issue, ABN Amro suggests exempting staffing agencies in semi-public sectors from VAT. While this would cost the government an estimated 300 million euros in lost revenue, the exemption could lower costs and ease staffing shortages.

"A VAT exemption would make agency workers more affordable and help address the shortage of flexible personnel," Bersem said. "It would also reduce market distortion, aligning with the government’s goal to limit the number of freelancers."