There are times when taking unpaid leave becomes necessary. But what happens to your residency status during this period? What’s allowed, what isn’t, and how does “garden leave” fit into the picture?
When is unpaid leave permitted?
Under Dutch labor law, unpaid leave is only permitted in specific cases, such as:
- Leave for childbirth (bevallingverlof) or caring for a child under 8 (ouderschapsverlof).
- Leave to care for a child or dependent (zorgverlof).
In these cases, you won’t lose your HSM status, even if your salary temporarily falls below the minimum requirement. However, your employer must notify the IND about the unpaid leave in advance, providing specific details about the nature and duration of the leave.
For other types of unpaid leave, including voluntary or extended absences unrelated to childcare or caregiving, your residency may be at risk. Since HSM salary requirements are calculated monthly, any income drop below the required level could result in the loss of your residence permit.
Understanding the difference: garden leave vs. unpaid leave
Many confuse unpaid leave with garden leave. However, “garden leave” refers to paid leave, where you remain employed and receive a salary while being suspended from work. This arrangement ensures uninterrupted income and allows time to search for a new job or transition to a different role. Garden leave is often used when employment contracts are terminated, providing a smooth handover period for both the employee and the company.
If your employer suggests “unpaid garden leave,” clarify the difference and its potential consequences for your salary, HSM status, and residency rights. Unpaid garden leave might not meet legal standards or protect your residency, so it’s crucial to confirm the exact terms of such leave.
Important note on the 30% ruling: Garden leave also impacts it. Dutch tax authorities start the 3-month countdown for job changes from the day you stop working, not the official end date of your contract. This means that extended garden leave can shorten this grace period, potentially complicating your ability to find a new job while retaining the ruling.
How does unpaid leave affect the 30% ruling?
State-approved unpaid leave, such as for childcare or caregiving, does not impact your 30% ruling. During this type of leave, the Dutch government and tax authorities treat it as though your salary remains at the required level for the ruling.
For other types of unpaid leave (e.g., personal leave requested by the employee), the situation is more complex. While you may supplement your income to meet HSM salary requirements, the 30% ruling automatically stops when unpaid leave begins. To keep the ruling active, you must ensure no more than 3 months pass between the start of unpaid leave and signing your next employment contract.
Failing to meet this 3-month limit could result in the permanent loss of the 30% ruling, which is especially important for expats relying on its significant financial benefits.
The downsides of unpaid leave
Unpaid leave has its benefits, such as allowing time to care for loved ones or manage personal obligations. However, it’s essential to consider the potential drawbacks:
- Impact on residency: Extended unpaid leave can jeopardize your HSM status and residency if your income drops below the required level.
- Financial considerations: Reduced annual income can directly affect your eligibility for loans or mortgages, as banks assess current earnings rather than future income potential.
- Reapplication processes: If your residency or 30% ruling is revoked due to unpaid leave, the process of reinstating these benefits can be time-consuming and uncertain.
Planning ahead is crucial. If you anticipate needing unpaid leave, consult your employer, check your employment contract, and explore alternative solutions to mitigate potential risks.
Final thoughts
Unpaid leave can be a practical solution for addressing life’s challenges, but it comes with significant responsibilities and risks, particularly for expats under the HSM program. Before committing to unpaid leave, ensure that your employer is fully aware of IND notification requirements and that you understand the potential impact on your financial and residency status. If in doubt, seek advice from a legal expert or contact the IND for clarification. With careful planning, you can navigate unpaid leave while safeguarding your long-term goals.