As an employer, you can choose to bear the financial risks associated with sickness and incapacity for work of current and former employees yourself. This is known as self-insurance. This option can be financially attractive and gives you greater control over the reintegration of current and former employees. At the same time, self-insurance entails responsibilities and risks. What exactly does self-insurance for Sickness Benefits (Ziektewet) and WGA benefits involve? What are the advantages, and what pitfalls should employers be aware of? In this blog, we explain how self-insurance works and what you need to consider.
Employers normally pay a Work Resumption Fund (Werkhervattingskas, Whk) contribution. This contribution helps fund, among other things, Sickness Benefits (Ziektewet) and WGA benefits. The Employee Insurance Agency (UWV) is responsible for paying these benefits and supporting current and former employees in their return to work. This is known as the public system.
Employers can also choose to assume responsibility themselves for these costs and for the reintegration of current and former employees. This option is available for Sickness Benefits (ZW), WGA (Return to Work for Partially Disabled Persons), or both. Employers no longer pay the contribution for the relevant scheme but instead bear the costs of certain benefits and assume responsibility for reintegration if an employee is awarded those benefits.
The practical implications differ for each scheme:
One major advantage of self-insurance is that employers gain greater control over the support and reintegration of current and former employees. You can take a more active role in the reintegration process and focus on achieving a swift and sustainable return to work. This may enable former employees to return to work sooner, potentially reducing benefit costs as well.
Self-insurance may also be more financially attractive than the public system. Instead of paying the relevant contribution, you bear the costs of the benefits yourself. If these costs are lower than the contribution you would otherwise pay, this can result in savings. Whether self-insurance is actually more cost-effective depends on factors including the size of the organisation, its sickness absence rate and the expected benefit costs.
To limit the financial risks, self-insuring employers can take out insurance with a private insurer. Depending on the policy terms, this can cover some or all of the risks. Insurers often also provide reintegration support, for example by engaging a reintegration service provider. However, the employer remains responsible for complying with its statutory obligations, even where the insurer performs certain tasks.
These advantages also come with financial and legal risks. Below, we discuss three key considerations.
1. Returning to the public system: costs may continue
As a self-insuring employer, you can decide to return to the public system, for example if costs turn out to be higher than expected. However, this does not automatically end your financial obligations. You remain responsible for benefits arising during the period of self-insurance. This is known as run-off risk. At the same time, you must resume paying the Whk contribution, which can result in overlapping costs.
Example: Suppose you return to the public system while a former employee has already been receiving WGA benefits for three years. You may remain responsible for those benefits for up to another seven years, while also having to pay the Whk contribution again.
You also cannot switch between the two systems without restriction. A switch is only possible on 1 January or 1 July, and an application must be submitted to the Dutch Tax Administration at least 13 weeks in advance. Furthermore, after ending your self-insuring status, you cannot become a self-insuring employer again for three years.
It is therefore important to assess in advance which costs and obligations will continue after switching systems.
2. Sickness Benefits: prepare UWV decisions carefully
As a self-insuring employer under the Sickness Benefits scheme, you do not decide whether a former employee is entitled to Sickness Benefits. That authority rests with the UWV. However, you are responsible for preparing these decisions. This means investigating the relevant facts and circumstances, gathering the necessary information and submitting a properly substantiated proposal.
The UWV reviews this preparatory work only to a limited extent. This means that it does not carry out the entire assessment again but checks to a limited degree whether the proposed decision is adequately substantiated. In certain straightforward cases, for example where a former employee voluntarily resumes work in full and consequently ceases to be entitled to Sickness Benefits, you may implement a decision independently.
Careful preparation is essential. If you fall short in this respect, you will generally be given an opportunity to rectify the shortcomings. If you fail to do so, or do so inadequately, the UWV may take over the work and recover the associated costs from your organisation.
You should also understand what measures may be available if a former employee fails to comply with their reintegration obligations. In such cases, you must ask the UWV to impose a measure, such as reducing the benefit.
3. WGA: handle sanctions and reassessments carefully
Under the WGA scheme, the UWV also decides whether a current or former employee is entitled to benefits under the Work and Income (Capacity for Work) Act (Wet werk en inkomen naar arbeidsvermogen, WIA). Unlike under the Sickness Benefits scheme, a self-insuring WGA employer may independently impose sanctions if a current or former employee fails to comply with their reintegration obligations.
When making such sanction decisions, you are treated as an independent administrative authority and must comply with the General Administrative Law Act (Algemene wet bestuursrecht, Awb). This includes preparing and substantiating decisions carefully, complying with any applicable duty to hear the employee and ensuring that the objection procedure is handled correctly.
Another important consideration is requesting reassessments in good time. A current or former employee’s degree of incapacity for work may change. A reassessment may establish that the person is less than 35% incapacitated for work, potentially bringing their WGA benefits to an end. Alternatively, the person may be found to be fully and permanently incapacitated for work, potentially entitling them to IVA benefits (Inkomensvoorziening Volledig Arbeidsongeschikten). As a self-insuring employer, you do not bear the cost of IVA benefits, so it is important to request such a reassessment from the UWV in good time.
Self-insurance can give employers greater control over the reintegration process and the costs associated with sickness and incapacity for work. At the same time, it requires a proactive approach and a thorough understanding of the financial and legal obligations involved. By carefully assessing the risks in advance, preparing decisions properly and taking timely action, employers can avoid unnecessary costs and legal disputes.
Do you have questions about self-insurance? Are you considering becoming a self-insuring employer, wishing to return to the public system, or facing legal questions in implementing the scheme? Please feel free to contact Sietske Bos-Bremmer or Ymke Stam, both Attorneys at Law specialising in employment law and employee participation.
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