Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Denmark might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labor contracts for employees in Denmark including local benefits.
When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. In Denmark, benefits are guaranteed by national legislation as well as collective agreements with trade unions or workers’ councils.
Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into Denmark.
What Employee Benefits are there in Denmark?
Benefits and entitlements for Danish employees are based on a framework of statutes, European Union (EU) directives and collective and trade union agreements. Foreign companies hiring employees in Denmark must operate within this flexible arrangement of legislation that provides safeguards and guarantees for the workforce.
These include the Holiday Act 2020, the Salaried Employees Act (Funktionærloven), rules governing employee contracts alongside statutes prohibiting discrimination and ensuring equal pay for men and women. However, unlike many European nations, Denmark’s flexible employment market does not have a comprehensive labor code.
Minimum guaranteed benefits, either from legislation or agreements, include:
- Minimum wages
- Paid vacations
- Working hours
- Termination, notice periods and severance
- Sick leave
- Maternity allowances and benefits
Denmark’s Employment Certificates Act stipulates that all employees receive written confirmation of all entitlements.
The responsibilities of foreign companies reach further than simply complying with tax, social security, and payroll regulations, however. Failure to comply with specific regulations applying to benefits and entitlements runs the risk of fines and sanctions. It is vital that employers have a firm grasp of what is guaranteed for their employees, as this will affect the employer-employee relationship.
It is a complex picture.
This is where Bradford Jacobs steps in to point you in the right direction, drawing on over 20 years’ experience as a Professional Employer Organization (PEO) and Employer of Record (EOR).
What Compensation Laws exist in Denmark?
The employer-employee relationship in Denmark is based on a mix of contractual arrangements, statutes, and case law. Collective and trade union agreements also feature and are drawn up in conjunction with the Danish Employers’ Federation. Some statutes apply to all workers, while others apply only to salaried staff:
- The Holiday Act guarantees a statutory five weeks’ annual vacation. Entitlement to holiday pay is built up in the year prior to the ‘holiday year.’
- The Employment Rights Act imposes obligations on employers to pay the same to people undertaking the same work.
- The Salaried Employees Act primarily covers business and office positions where employees must work a minimum of eight hours per week to qualify for the Act. Provisions cover such as notice periods, dismissals and sickness pay.
The requirement for employers to respect employees’ rights stretches further than simply complying with tax and payroll procedures. Statutes apply to such as maternity allowances and benefits, holidays, sick pay, and severance payments. However, those regarding minimum wages and working hours, for example, are governed by collective or trade union agreements and individual contracts between employers and employees.
Drawing up contracts is tricky enough, but in Denmark it is vital for employers to be up to speed with responsibilities to their staff over benefits, compensation, and minimum requirements. Denmark has a confusingly fluid and flexible employment market. Do not take the risk of paying penalties for ignoring these responsibilities.
Compensation, entitlements, and benefits include:
- National Minimum Wage: Minimum wage rates are governed by employer associations, trade unions and Collective Bargaining Agreements (CBAs). The monthly average minimum for 2021 was around DKK 40,600 (€5,456, US$6,350).
- Sick Leave: Employment contracts should cover employees’ entitlements when they are ill. If not, the employers typically pay full salary for 30 days from the first day but will require a doctor’s certificate. Subsequently, benefit is paid by the relevant municipality subject to restrictions.
The maximum benefit is DKK 4,460 (€600, US$696) divided by 37 (hours) for a maximum of DKK 120 (€16, US$19) per hour.
- Working Hours and Breaks: A typical working week should be 37 hours over five days, which may be specified in collective or contractual agreements and include a daily 30-minute rest period.
The European Union’s Working Time Directive, which is applied in Denmark by the Working Environment Act, decrees that the average working week cannot exceed 48 hours (including overtime) averaged over four weeks.
The Act also stipulates that: A minimum 11 hours’ daily rest away from work, with a break for a shift exceeding six hours; no more than six workdays between two days off; night workers must not average more than eight hours each 24-hour period.
There are exceptions and some industries may apply different working hours and breaks, for example, agricultural workers and those caring for people, animals, or plants.
- Overtime: There is no specific legislation governing extra working hours, outside of the European Union (EU) Working Time Directive that sets an absolute maximum of 48 hours.
Employers contractually agreeing to overtime, generally pay 1.5 times the normal hourly rate for the first three hours, then twice the rate for extra hours or working on weekends or public holidays.
- Paid Vacations: Since September 2020 employees receive 25 working days paid vacation, although some employers add another five. These extra days can be carried over to the following year or worked for pay in lieu.
Vacation days accrued in the qualifying ‘holiday year,’ which runs from September 1 until 31 August, can be taken up to December 31 of the following year. Employees have 2.08 days of paid vacation for each employment month in the holiday year.
Non-qualifying workers receive a holiday allowance of 12.5% of their pay.
- Maternity Benefit: This is administered by the Public Benefits Administration (Udbetaling Danmark) and is calculated on hourly wage and hours worked over the three months before starting leave.
The maximum allowance is DKK 4,460 (€600, US$696) divided by 37 (hours) for a maximum of DKK 120 (€16, US$19) per hour. Those earning less than DKK 120 receive their usual hourly wage.
- Maternity / Paternity / Parental Leave: This provides for four weeks pre-natal and 14 post-natal for the mother; two weeks “paternity leave” for father or co-parent immediately following birth or within the 14 weeks as agreed with employer; 32 weeks’ parental leave can be shared.
- Termination and Severance: There is no statute covering severance pay. Those covered by the Act on Salaried Employees (Funktionærloven) who have been in continuous employment for between 12 to 17 years are entitled to a severance payment of between one to three months' salary if dismissed by the employer. Some Collective Bargaining Agreements (CBAs) provide for improved terms.
- Notice Periods: These apply to both employer and employee as agreed in the contract or collective agreements. The amount of notice is also governed by years of service, from one month in the first year up to six months for over nine years’ service.
Individuals not covered by the Salaried Employees Act or a CBA are still entitled to receive a reasonable period of notice, depending on type of work and their length of service. Employees who resign must give at least one month’s notice.
Social Security in Denmark
Denmark’s social security programs are financed primarily through normal tax revenues with only minimal contributions from employees and their employers, who are responsible for withholding their workers’ contributions and remitting them to the authorities.
All Danish employers must pay annually into the Danish Labor Market Supplementary Fund (ATP) and other funds. In 2021 employers contributed DKK 2,271.60 (€305, US$354) into the ATP; DKK 1,150 (€154, US$180) into the maternity fund and an average of DKK 5,000 (€672, US$780) into the industrial injuries fund. Additionally, an average of DKK 5,300 (€712, US$826) is paid into a variety of other public social security funds.
Employees pay only into the ATP at an annual rate of DKK 1,135.80 (€152, US$177).
Statutory Employer Costs in Denmark
Employer Payroll Taxes for Social Security:
Employees make an contribution to Danish Labor Market Supplementary Fund (ATP) DKK 1,135.80 (€152, US$177). Employer contributions, however, are more varied.
Annual employer contributions:
- ATP - DKK 2,271.60 (€305, US$354)
- Maternity fund - DKK 1,150 (€154, US$180)
- Industrial injuries insurance (estimate) - DKK 5,000 (€672, US$780)
- Extra public social security funds (part estimate) - DKK 5,300 (€712, US$826)
Corporate Income Tax (CIT): The rate is 22%, below the average for members of the Organization for Economic Cooperation and Development (OECD). Danish companies are taxed on worldwide profits, excluding any from Permanent Establishments (PEs) based abroad or foreign property. Foreign companies based in Denmark are taxed on their locally sourced profits. Returns should be filed no later than six months after the end of the financial year and by September 1 at the latest. Where their tax year ends between January 1 and March 31, returns must be filed that same year.
National Minimum Wage: Denmark does not have a mandatory national minimum wage, with rates governed between employer associations, trade unions and CBAs
What Benefits are guaranteed in Denmark?
Some employee benefits are guaranteed by mandatory regulations, others are set by individual employer-employee contracts or by Collective Bargaining Agreements (CBAs). Statutory requirements include the following:
Maternity / Paternity Leave: Four weeks pre-natal and 14 post-natal; two weeks paternity leave for father or co-parent immediately following birth or within the 14 weeks if agreed with employer; 32 weeks’ parental leave can be shared.
Maternity Benefit: Calculated on hourly wage and hours worked over previous three months before starting leave. The maximum allowance is DKK 4,460 (€600, US$696) divided by 37 (hours) for a maximum of DKK 120 (€16, US$19) per hour.
Sick Leave: If not covered by a CBA, benefits are paid by the local municipality, calculated on average pay over the previous three months, to a maximum of DKK 4,460 (€600, US$696) divided by 37 (hours) for a maximum of DKK 120 (€16, US$19) per hour.
Working Hours: Typically, 37 hours over five days, as per contract or CBA, falling within a maximum of 48 hours (including overtime) to comply with the European Union’s Working Time Directive.
Holiday Entitlement: Since September 2020 employees receive a minimum 25 days paid working days off.
What Restrictions exist for Benefits and Compensation in Denmark?
Maternity Leave: Mothers must have worked at least 160 hours in the previous four months and at least 40 hours per month for at least three of those months. Self-employed must have worked at least six months in the previous 12. Unemployed who belong to an unemployment fund (A-kasse) are entitled to benefits.
Unemployment Benefit: Applicants must have belonged to a registered unemployment insurance fund for at least 12 months, have registered with the Public Employment Service (jobcnetret), and on jobnet.dk with an approved CV within seven days.
Sick Leave: The employee must have worked a minimum 240 hours in the previous six months and at least 40 hours per month for five of those months. The employee would have qualified for unemployment benefit if not taking sick leave. Benefits are generally restricted to a total of 22 weeks.
Health Insurance in Denmark
Danish residents are automatically members of the universal health care system, which is financed by state funds and taxes. Mainly free access covers hospital treatment, specialist care, mental health and long-term care services with referrals overseen by GPs.
Residents of other Nordic countries, or European Union or European Economic Area nations generally receive free health care but must have documentation proving they are members of a healthcare insurance scheme in their home country.
Benefit from our advice!
Legally protected compensation and benefits are an essential factor in ensuring contracts comply with Denmark’s various labor regulations which can be set by statutes or collective and trade union agreements. Bradford Jacobs ensures compliance with these crucial requirements to avoid delays in becoming operational.
Contact one our consultants today to learn more about how you can guarantee the best benefits available for you employees!