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Denmark – Employer of Record
Our comprehensive solution and AVASO Payroll service enables customers to run payroll in Denmark while HR services, tax, and compliance management matters are lifted from their shoulders onto ours. As a AVASO Payroll expert, we manage employment contract best practices, statutory and market norm benefits, and employee expenses, as well as severance and termination if required. We also keep you apprised of changes to local employment laws in Denmark.
Your new employee is productive sooner, has a better hiring experience and is 100% dedicated to your team. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. AVASO Payroll allows you to harness the talent of the brightest people in 187 countries around the world, quickly and painlessly.
Denmark is the most southern of the Nordic European countries. In addition to the mainland country, the Faroe Islands, halfway between Iceland and Norway, and Greenland make up the balance of the state. 5.8 million people reside in Denmark and enjoy the world’s highest social mobility and a very high level of income equality.
Hiring, Negotiating and Doing Business in Denmark
Danish companies tend to have flat management structures and there is an emphasis on teamwork and consensus building. Meetings are open and workers are encouraged to contribute their ideas to the discussion. There is also a clear division between work and social life, and flexible work hours are not uncommon as most families have both parents in the workforce. Danes value modesty and they have a great sense of humor. They tend to be informal and extroverted at work, and they are highly egalitarian. They are not accustomed to working long hours, but have a reputation for hard work and making the most of the time they are in the office.
In Denmark, the majority of employment terms and working conditions are determined by agreement between the labor market parties as opposed to statutory regulations. There are very few statutory labor and employment rules in Denmark, and those that do exist are often the result of EU legislation. Approximately 70% of the entire work force in Denmark are members of a trade union.
Collective bargaining agreements (CBA) are a major factor in Danish employment law due to the important roles of the labor markets. CBAs with trade unions and employee representatives are very common in many industries and the majority of the Danish workforce is covered by a CBA. Therefore, employment conditions are to a wide extent regulated by CBAs, for example, hours of work, minimum pay, notice period, etc.
When negotiating terms of an employment contract and offer letter with an employee in Denmark, it may be useful to keep the following standard benefits in Denmark in mind:
Employment Contracts in Denmark
While a written employment contract is not required, best practice is to put a strong employment contract in place in Danish which spells out the terms of the employee’s compensation, benefits, and termination requirements. It is mandated by law that employees are entitled to a written contract after the commencement of their employment. Employees working at least eight hours a week on average, and whose periods of employment are intended to last at least one month, must be notified in writing of all material employment terms. An offer letter and employment contract in Denmark should always state the salary and any compensation amounts in Danish Krone rather than a foreign currency.
Bonus in Denmark
Incentive bonuses are becoming increasingly common in Denmark, even in the public sector. Employees who commute to the workplace from home are entitled to a statutory allowance. All other expenses and bonuses are negotiated in the employment contract.
Working Hours in Denmark
The average work week in Denmark should not exceed 48 hours, including overtime. However most collective bargaining agreements contain rules on standard work weeks and the typical number of working hours is 37-37.5 per week, Monday through Friday. Employees are required to be given at least on full day off throughout the week; this day is typically Sunday.
Overtime pay is governed by the CBA. Some CBAs allow employees to choose between receiving payment and time off in lieu of payment.
Vacation in Denmark
All employees in Denmark are entitled to 25 working days of annual leave provided that the employee has worked a whole calendar year in the year preceding the leave year. Additionally employees receive 1% of their gross salary in the form of a lump sum every May as a holiday allowance.
If the employee has been employed for a short period, 2.08 days of vacation per month of employment will be earned. The employee is still entitled to take up to five weeks of annual leave, but this will be unpaid.
As of 1 September 2020, the holiday year is from 1st September until 31st August with a subsequent holiday period enduring until 31 December the same year. The accrual and deductible period will be concurrent. In other words, employees will accrue leave in the same year in which they can take it, and they may take paid holiday leave before it is accrued. Professionals must take a minimum of 20 days holiday per year in accordance with working time regulations (unless there is a justifiable reason why they could not take the leave).
Employees are entitled to minimum of 25-days of paid holidays. There is a carryover period where 5 days may be carried over and must be used by the end of December. Unused holidays not exceeding 20 days of holiday are still to be paid to the ‘Holiday Fund’.
Denmark celebrates 10 public holidays, including:
- New Year’s Day
- Maundy Thursday
- Good Friday
- Easter Monday
- General Prayer Day
- Ascension Day
- Whit Monday
- Constitution Day
- Christmas Day
- Second Day of Christmas
It should be noted that there is no legislation on public holidays in Denmark. Collective bargaining agreements or individual employment agreements govern whether an employee is expected to work on such days. If an employee is entitled to the day off but is required to work, s/he is entitled to a bonus of 100%.
Sick Leave in Denmark
Employees are entitled to sickness benefits for the first 14 days they are absent from work. After 14 days and up to one year, benefits are paid by the local authority at a rate of 90% of the employee’s salary or a maximum of DKK 3,016 per week.
Maternity / Paternity Leave in Denmark
It should be noted that while employees are entitled to differing amounts of maternity/paternity leave in the first year of a child’s life, employers are not required to pay their employee during said period of leave. The maternity/paternity leave is financed by the social insurance.
Female employees are entitled to 4 weeks of maternity leave prior to the expected date of birth plus an additional 14 weeks after the birth.
Female salaried employees are entitled to 50% of their salary for a total of 18 weeks.
Men are entitled to two weeks parental leave at 50% of salary which must be taken within the first 14 weeks after the birth.
After the first 14 weeks of maternity leave, each of the parents is entitled to take parental leave for up to 32 weeks, which can be extended for a further 8 or 14 weeks.
Termination/Severance in Denmark
Termination of employment in Denmark is relatively uncomplicated compared to other countries in the EU.
There is no general legislation regarding probationary periods in Denmark, however, for salaried employees a probationary period of up to three months can be agreed upon.
The notice period is typically determined by the Salaried Employees Act, collective bargaining agreement, or the employment contract. Unless the CBA states otherwise, the employees are entitled to the following notice period:
- Until 2 years and 9 months’ employment – 3 months’ notice
- Until 5 years and 8 months’ employment – 4 months’ notice
- Until 8 years and 7 months’ employment – 5 months’ notice
- And subsequently – 6 months’ notice
Employees are also entitled to the following severance pay per the Salaried Employees Act:
- One month’s salary if the employee has been continuously employed with the same employer for at least 12 years, but less than 15 years.
- Two months’ salary if the employee has been continuously employed with the same employer for at least 15 years, but less than 18 years.
- Three months’ salary if they have been continuously employed with the same employer for at least 18 years.
Employees can challenge a termination in court if they deem it unfair.
Tax Rate in Denmark
Income tax rates are progressive in Denmark and the income tax payable is calculated on an annual basis.
Employees are obligated to pay national tax, municipal tax, health tax, and social security tax. Church tax is an obligation only if the employee is a member of the Danish Lutheran church.
- Social security is a gross tax, taxed at 8%.
- Municipal taxes vary based on the different municipalities. In 2015 the average municipal tax was 28%.
- Personal income is taxed at 15% on the salary after deduction of 8% social security tax exceeding DKK 459,200 (for 2015).
- The combined total of local tax, health tax and state tax cannot exceed 51.95%.
There are a number of allowances in Denmark that offset against a taxpayer’s income, reducing their overall tax burden. The most common allowances are:
- Personal Allowance which entitles taxpayers to a certain amount that is not taxed (DKK 43,400 for the 2015 year).
- Employment related allowances including trade union and unemployment fund fees, child maintenance and private pension contributions can total 8,000 DKK per year. Full time employees are expected to make monthly contributions of 90 DKK.
- Transport allowance for taxpayers who travel a long distance each day to their place of work. The allowance is calculated based on the number of days worked and the distance traveled. There is no deduction for the first 24 km traveled each day and it does not matter what mode of transport is used. It is the taxpayer’s responsibility to calculate this and include it on their personal income tax return.
Social security in Denmark is mainly funded through taxes, but also by social security contributions to a lesser extent. Social security contributions are deducted from salaries at a rate of 8%. Employer contributions can reach 8,000 DKK per year, while employee contributions can total 90 DKK per year. Social security in Denmark includes:
- health insurance
- child allowance
- holiday pay
- sickness benefits
- maternity benefits
- disability benefits
Registration at the Civil Registration Office, where a CPR number is issued, is a legal requirement for all residents in Denmark. The CPR number allows residents to be able to benefit from healthcare and social security benefits in Denmark.
Health Insurance in Denmark
Denmark has an extensive public healthcare system. See tax section above.
Additional Benefits in Denmark
Flexible work hours are common in Denmark. As stated earlier, employees who commute from home are entitled to a statutory allowance for the expense.
Bottom Line on Benefits in Denmark
Generally, we recommend budgeting 20% as benefits cost on top of the gross salary to allocate the total employer’s cost including benefits in Denmark.
Why Globalization Partners
Establishing a branch office or subsidiary in Denmark to engage a small team is time-consuming, expensive and complex. Labor law in Denmark has strong worker protections, requiring great attention to detail and an understanding of local best practices. AVASO Payroll makes it painless and easy to expand into Denmark. We can help you hire your candidate of choice, handle HR matters and payroll, and ensure that you’re in compliance with local laws, without the burden of setting up a foreign branch office or subsidiary. Our Denmark PEO and Employer of Record solution provides you peace of mind so that you can focus on running your company.
If you would like to discuss how AVASO Payroll can provide a seamless employee leasing or PEO solution for hiring employees in Denmark, please contact us.