Generation pact arrangements and leave: do not overlook the 50% employment requirement

Publication date: 24 September 2026

Most employers are familiar with the key tax rules governing generation pact arrangements. In practice, however, one important condition is regularly overlooked: throughout participation in a generation pact arrangement, an employee must generally remain actively employed for at least 50% of their original contractual working hours, except in a limited number of explicitly regulated situations.

This 50% requirement follows from the tax framework underpinning generation pact arrangements, as laid down in Article 8.7 of the Wage tax implementation regulation 2011 (Uitvoeringsregeling loonbelasting 2011). In essence, the regulation allows an older employee to reduce working hours while continuing to receive remuneration of up to their previous salary level without the arrangement being treated as an early retirement scheme (RVU) subject to the employer levy. The levy is currently 57.7% and is scheduled to increase to 64% in 2027 and 65% in 2028.

The 50% requirement does not apply during periods of illness, disability or regular paid leave. Only these three forms of absence may cause an employee's actual employment during any week to fall below 50% of their original working hours.

The position is different for other forms of leave or absence. Examples include employees participating in a generation pact arrangement who subsequently take carers' leave, study leave, a sabbatical, unpaid leave or another form of short-term or long-term absence. If, as a result, the employee's actual employment in any week falls below 50% of the original working hours, the arrangement may no longer satisfy the conditions of Article 8.7 of the Wage tax implementation regulation 2011 and may, in whole or in part, be regarded as an RVU.

Employers should not simply assume that this risk will resolve itself. If an arrangement qualifies as an RVU, the employer has its own responsibility to assess the position and, where required, comply with the applicable reporting and payment obligations.

Employers are therefore well advised to address additional forms of leave and absence explicitly in the design and documentation of their generation pact arrangements. Broadly speaking, there are two options:

• the leave request is not granted if it would cause the employee's actual employment to fall below the 50% threshold; or
• the salary supplement under the generation pact arrangement is temporarily suspended during the period of leave or other absence.

Because generation pact arrangements often remain in place for many years, this topic deserves explicit attention in the arrangement itself, employee handbooks and day-to-day administration. Periodic monitoring of employees' actual working hours can help prevent tax disputes at a later stage.