In practice, employment agreements and collective employment agreements often include a provision stating that the agreement will terminate by operation of law when the employee reaches the State Old Age Retirement Scheme age (AOW leeftijd) which is currently set at 65.5 years. The age for eligibility for the State Old Age Retirement Scheme will gradually increase to 66 in 2018, and ultimately to 67 in the year 2021.
On Jan. 1, 2016, the Work After the State Old Age Retirement Scheme Age Act went into force. The aim of the act is to make it more attractive for employers to hire retired employees and benefit from their years of knowledge and experience. According to the Act, employers can enter into more fixed term contracts with retired employees compared to regular employees. Retired employees can be offered up to a maximum of six fixed term contracts in a four year period, whereas for regular employees this is limited to three fixed terms contracts in a period of two years.
Another incentive under the Act is that there are fewer obligations for employers when it comes to retired employees who need to take sick leave. For regular employees, the employer is required to continue to pay at least 70 percent of that employee’s salary during the first two years of illness. For retired employees this period is reduced from 104 to 13 weeks, significantly reducing the financial exposure for employers. Additionally, the obligations for the employer to reintegrate the sick retired employee back to work are reduced, as is the requirement to reintegrate the employee with a different employer if no options are available with the actual employer.
The employer’s obligations are also reduced when it comes to an employee’s right to protection against dismissal during illness. Instead of a period of 104 weeks for regular employees, a retired employee loses protection against dismissal after 13 weeks of illness. Additionally, for retired employees, the notice period for the employer will always be one month, and will not increase up to a maximum of four months based on years of service, as is the case for regular employees.
Finally the costs for hiring retired employees are reduced. Upon termination of employment, the retired employee is not entitled to any transitional payment, as opposed to regular employees who are entitled to a transitional payment upon termination if they were employed at the company for at least two years. Also, a number of social security contributions normally payable by the employer no longer apply, thereby further reducing costs.