Do you have employees and want to convert your sole trader business to a limited company (bv)? If so, the transfer of staff is something you simply cannot overlook. Fortunately, the law provides clear rules, but in practice there are steps you need to work through carefully. This article explains what is involved, so you can get started fully prepared.
Transfer of undertaking: the legal basis
When you convert your sole trader business to a limited company, there is in most cases a transfer of undertaking within the meaning of the law. This means that the rights and obligations of your employees transfer automatically to the new company. Your employees do not need to give their consent; the law handles this on their behalf.
In practical terms, this means that all existing terms and conditions of employment — such as salary, job title, working hours, and accrued years of service — transfer unchanged. The limited company effectively steps into the shoes of the sole trader as employer. This protects your employees, but it also places obligations on you.
What changes in practice for your employees?
On paper, little changes for your employees: their contracts simply continue and their legal position remains intact. Nevertheless, there are matters that do require attention in practice.
- Payslip: The name of the employer on the payslip changes to that of the limited company.
- Payroll administration: Your limited company receives a new payroll tax number; the payroll administration must be set up afresh.
- Employment contract: Formally, the existing contract continues, but many employers choose to issue a new written confirmation from the limited company.
- Collective agreement obligations: Check whether the collective labour agreement applicable to your sector also applies to the limited company.
- Pension scheme: Find out which pension fund you are affiliated with and whether the limited company is automatically required to participate.
Duty to inform: what must you tell your employees?
You are legally required to inform your staff in good time and in writing about the transfer. Failing to do so, or doing so too late, can have legal consequences. In your letter or email, you should include at least the following:
- The date on which the transfer takes place
- The reason for the conversion
- The legal, economic, and social consequences for the staff
- Any measures you intend to take
No fixed statutory deadline has been set, but in practice the rule is: the earlier you communicate, the better. Particularly if there is also a works council or staff representative body, you must involve them in good time.
Step by step: staff transfer in the conversion process
The staff transfer is one component of the broader sole trader to limited company conversion process. It helps to approach this in a structured way. A practical step-by-step plan:
Plan een vrijblijvend gesprek en ontdek wat we voor je kunnen betekenen.
Plan een gesprek- Step 1 – Take stock of your staffing situation: How many employees do you have? What are their contract types and terms of employment?
- Step 2 – Choose the right conversion method: The choice between a tax-neutral transfer, a taxable transfer, or an assets-and-liabilities transaction also affects how the staff transfer is structured legally.
- Step 3 – Draft the information letters: Inform your employees in writing about the forthcoming change.
- Step 4 – Arrange the payroll administration: Ensure the new limited company applies to HMRC for a payroll tax number in good time.
- Step 5 – Check collective agreement and pension obligations: Register with the appropriate industry pension fund and verify your collective agreement obligations.
- Step 6 – Retain the documentation: Put everything in writing and keep all correspondence carefully in your records.
What if an employee raises an objection?
In principle, an employee cannot refuse to transfer to the limited company, but he or she does have the right to resign if the transfer is unacceptable to them. In that case, the employment ends, but the employee bears responsibility for that decision. As the employer, you are in principle not liable for the termination.
Even so, it is wise to have a conversation with any employees who have doubts. A clear explanation of what does and does not change often dispels a great deal of uncertainty.
Tax considerations relating to staff and the limited company
Alongside the employment law aspects, there are also tax considerations. For example, once the limited company is established, you yourself as director and majority shareholder (dga) are no longer an ordinary employee; you are required to pay yourself a customary salary. This has implications for payroll tax and the level of your personal income.
Would you like to know more about this? A tax adviser in Eindhoven can help you map out the tax consequences of the conversion for both you and your employees.
Why Belastingadviseur Eindhoven
Converting to a limited company touches on employment law, taxation, and administration all at once. At Belastingadviseur Eindhoven, we guide entrepreneurs in the region through the entire process, from the very first step to the final registration of the limited company. We ensure you meet all your obligations, including the correct transfer of staff, so you can focus on running your business.
Do you have employees and are you considering making the move to a limited company? Get in touch with us for a no-obligation conversation via our contact page. We would be happy to think through the best approach for your situation.
Frequently asked questions
Do my employees transfer automatically to the new limited company?
In most cases, yes. In a transfer of undertaking, employment contracts and all associated rights and obligations transfer automatically to the limited company. Your employees do not need to give their consent.
Do I need to draw up new employment contracts for my staff?
Legally speaking, the existing contracts continue. Nevertheless, it is advisable to provide employees with written confirmation from the limited company, to avoid any ambiguity about the new employer and the applicable terms and conditions of employment.
What happens to my employees’ accrued years of service?
These are fully preserved. The transfer of undertaking ensures that years of service continue unbroken, which also has implications for matters such as redundancy payments and holiday entitlements.
Do I need to apply for a new payroll tax number for the limited company?
Yes, the limited company is a new legal entity and must apply for its own payroll tax number with the tax authority. The payroll administration of the sole trader business is closed and a new one is set up for the limited company.
We are happy to think along with you. For advice tailored to your situation we would gladly sit down with you. No rights can be derived from the content of this page and it may contain inaccuracies.
