Employer of Record in Denmark

Denmark, officially known as the Kingdom of Denmark, is a Nordic country located in Northern Europe. Denmark is becoming increasingly popular as a leader in innovation and sustainability. With liberal trade policies and a small mixed economy, Denmark is an attractive destination for many companies looking for a new market in an inspiring environment. Despite being part of the European Union, the country has its own currency, language and laws. With one of the best education systems in the world, Denmark provides a wide selection of highly skilled people ready to hire and support the growth of companies.

Denmark is a very good destination to expand your business for many reasons. The most important of these is that it is a member of the EU and EEA. This simplifies many employment formalities.

The Danish business sphere is characterised by flat hierarchies, open communication and a collaborative approach. The business culture in Denmark is based on the values of equality, work-life balance and consensus decision-making. Meetings tend to be informal and everyone involved is expected to contribute their opinions and ideas. Punctuality and preparedness are valued, and business dress is usually casual, although maintaining a professional tone. Building trust and long-term relationships is paramount in Danish business culture, and networking and socialising play an important role in business dealings.

Employment in Denmark operates on the European concept of flexicurity, combining flexibility with security. Like many other European economies, the employment system in Denmark is highly adaptable, ensuring that all members of the working population have access to employment opportunities.

Danes value direct and honest expression of opinions, so presenting well-founded arguments and facts is important in discussions. In short, succeeding in the Danish business environment requires a focus on cooperation and equality, adaptability and a focus on building solid relationships.

What is an Employer of Record?

The Employer of Record service, also known as EOR, is one of the best and easiest ways to expand into new countries. It allows you to hire employees in a new country without having to set up a legal entity. With this service, a company can save a lot of money and time when expanding its operations.

An attractive option for global companies looking to expand their presence in Denmark, EOR services are becoming increasingly popular in Denmark. This trend is partly due to the complex rules and regulations associated with working in Denmark, which can be challenging for companies from abroad. By working with a local EOR provider, employers can ensure full compliance with all relevant regulations, while simplifying personnel management and payroll processes.

EOR services are commonly used during business development and global expansion phases to quickly hire employees in new markets. In this way, Employer of Record enables companies to test new markets without risk and start generating revenue with a local team while the registration process is still ongoing. What many companies do not realise is that Employer of Record can also be very helpful during periods of economic uncertainty or slowdown.

Employer of Record assumes legal responsibility for hiring full-time employees on behalf of other organisations. It’s responsibility is to manage their payroll, tax, benefits and other HR-related tasks for the client. The client company still retains full control over its actual operations.

There is an employment contract between the Employer of Record and the employee, while there is a commercial contract between the EOR and the end user, but no direct contractual relationship between the employee and the end user.

Labour law in Denmark

Collective agreements

The majority of labour law in Denmark is determined by collective bargaining agreements (CBAs). These types of agreements are signed by employers and labour market parties. The employer is obliged to comply with the agreement when signing it with a new employee. The CBA usually decides on the minimum wage, working hours, overtime and the minimum amount of paid time off.

Despite the lack of a minimum wage, workers in Denmark are paid some of the highest wages in the world and enjoy a very high level of wage equality. The most common rate is around 110 kroner per hour across the country. This amount may vary depending on specific collective agreements, so it is important to understand the relevant rules for your situation when hiring employees in Denmark.

Contract

The employer must provide the employee with a written contract. The contract may be in a language other than Danish. The employee is entitled to receive it within the first seven days of commencement of employment. 

Each contract must contain: personal data of the employee and employer or company, the employee’s duties and responsibilities, working hours, location of the workplace, notice period, probationary period, salary, start date, amount of paid time off, reference to collective agreements. Employees have the right to negotiate the terms of the contract.

The probationary period in Denmark can last up to three months. Two weeks before the end of the probationary period, employees in Denmark must be given notice. In Denmark, there are no specific regulations stipulating the duration of a probationary period. However, the probation period is typically outlined in the employment contract negotiated between the employer and the employee. It is uncommon for the probationary period to extend beyond six months.

Most contracts are signed for an indefinite period, but it is possible employee has been employed for a shorter period. Temporary employees have identical rights to permanent employees.

Agency employees have the same statutory rights and benefits as permanent employees. No qualifying period applies. With regard to additional rights and benefits, agency workers mainly depend on the terms and conditions that have been established in their individual employment contracts and/or collective agreements that govern their relationship with the agency with which they are employed. Where a collective agreement is in force in the company where the temporary workers provide services, the company may be obliged to provide temporary workers with at least the same rights and benefits as those enjoyed by employees of that company.

Employers in Denmark may make minor changes, but the employment contract must give the employee at least 14 days’ notice of these changes. In the case of major changes, such as salary, responsibilities, working hours and place of work, the employer must inform the employee in accordance with the notice period.

Such changes are treated as a dismissal and a simultaneous offer of a new job. This means that if the employee does not accept the new terms and conditions, he or she will be considered dismissed. In such a case, there are risks of their own, such as unjustified dismissal compensation. If the contract is amended, the employee must receive an updated contract or an addendum to the contract no later than seven days from the date of the changes.

When negotiating the terms of an employment contract with a candidate in Denmark, it is important to keep in mind several statutory benefits and paid leave requirements, as well as ways in which the employer can support the company’s benefits strategy.

Employees in Denmark are entitled to receive a payslip each month, which can be made available online or in paper form, containing a breakdown of their salary and all deductions.

Equal treatment of men and women

Danish legislation on equal treatment of women and men and equal pay for both sexes requires that every company treats women and men equally in the workplace and pays them equal pay for work of equal value. Employers are not allowed to favour one gender over the other during promotion or pay one gender more than the other for doing the same job.

Danish law prohibits direct and indirect discrimination on the basis of:

  • Gender
  • Age
  • Sexual orientation
  • Race
  • Skin colour
  • Religion or belief
  • Political opinion
  • Disability
  • National, social or ethnic origin

Individuals are protected against discrimination at all stages of the employment process and are entitled to compensation if they experience discrimination.

Employees are protected against unjustified dismissal because of:

  • Marital status
  • Pregnancy, maternity, paternity or parental leave
  • Filing a complaint against the employer
  • Race
  • Skin colour
  • Gender
  • Sexual orientation
  • Faith
  • Political opinion
  • Social, ethnic and national origin
  • Age
  • Trade union membership and activities
  • Disability
  • Minimum wage

One of the most important things that everyone should know about employment in Denmark is that there is no minimum wage set by the government. Usually, the minimum wage is set by a CBA, which is signed by the employer and the labour market parties. Most of them set DKK 110 per hour as the minimum wage.

Working hours

In Denmark, employees work 37 hours per week. The working day in Denmark usually starts at 6:00 in the morning and ends at 6:00 in the afternoon. There are no regulations on overtime work in Denmark. Employees must negotiate overtime working conditions with their employer when signing their contract. Typically, employees are paid an additional 50% of their salary for overtime work. The sum of working time including any overtime must not exceed 48 hours in a week.

Each employee is entitled to a day off once a week. This is usually a Sunday. In addition, the employee must have at least 11 hours of time off every 24 hours. During the day, the employee is entitled to a break if the working time is longer than 6 hours.

When an employee works at night, he or she may work up to 8 hours per day.

Public holidays in Denmark are set by collective agreements, as are many other terms and conditions of employment, so they can vary from job to job.

There are 11 public holidays in Denmark:

  • New Year’s Day
  • Maundy Thursday
  • Good Friday
  • Easter Sunday
  • Easter Monday
  • General Day of Prayer
  • Ascension Day
  • Pentecost
  • Pentecost/Pentecost
  • Christmas

Employees do not normally work on public holidays. They receive full pay for these days off. However, compensation for public holidays for other employees depends on the individual or collective terms of their employment contracts. If a public holiday falls on a weekend, it is not carried over to another date.

Taxes

Both employer and employee must pay taxes. The employer’s tax rate, called corporate tax, is 22%. The employee tax has two rates, depending on the employee’s salary. When it is up to DKK 56 500, the income tax rate is 27% and when it exceeds DKK 56 500, the rate is 42%. The rate of VAT and sales tax is 25%.

The total tax rate cannot exceed 52.06% (as of 2020), but this does not include several other smaller taxes, such as share tax and church tax.

Employees are required to pay labour market tax, local tax, state tax, share tax and church tax as part of their income tax.

Holiday

Every employee is entitled to 25 days of paid leave per year. This means that each month an employee receives 2.08 days of paid leave.

Holidays may be used consecutively as they accrue and for four consecutive months, for example from 1 September to 31 December of the following year. A maximum of one week of holiday may be carried over to the following year.

Employees are entitled to 25 days of leave per year, which may be paid (if they meet the relevant criteria) or unpaid. Those entitled to paid leave are those who are also eligible for at least one month’s notice in the event of termination, as well as paid sick leave and paid holidays. Such employees are also entitled to an annual holiday bonus of 1% of their salary.

Employees paid on an hourly basis receive a holiday bonus of 12.5% of their salary. Employers are obliged to pay this allowance into the Danish Holiday Pay Fund on a quarterly basis, and employees receive it when they take their holiday.

Employees are entitled to three consecutive weeks of leave per holiday year. Employers should generally respect an employee’s wish to take most of his or her leave during his or her child’s school holidays.

Some employment contracts and most collective agreements provide for an additional five days of holiday.

The holiday year runs from 1 September to 31 August of the following calendar year. If an employee is hired during this period, he or she is still entitled to 25 days of leave, but is only paid for the days he or she has accrued. The remaining days of leave are unpaid and the employer can deduct 4.8% of the monthly salary for each day taken. The same rule applies to leave due to force majeure caused by illness or accident of a family member. Unless otherwise agreed, the employer may deduct the same percentage for each day taken.

Maternity leave

To qualify for maternity benefits, an employee must have been employed for at least 13 weeks and worked 120 hours.

There are different types of leave available during pregnancy and after childbirth:

Pregnancy and childbirth leave starting four weeks before the due date.

Maternity leave, lasting up to 14 weeks after the birth.

Parental leave, lasting 32 weeks after the 14th week after the birth.

Between four weeks before the due date and 14 weeks after the birth, pregnant employees are entitled to receive 50% of their salary. Individual contracts or collective agreements may extend this right and provide full pay for part of the maternity leave.

Employees who do not qualify for maternity pay from their employer may be entitled to maternity pay from the government.

Male employees can take two weeks of paternity leave, also with pay at 50 per cent of their normal salary, within 14 weeks of the birth of their child.

These payments are financed by the national social security system and not by the employers.

Both parents also have the possibility to take up to 32 weeks of leave after this initial period of parental leave, and in some cases they can extend this period even further.

Sick leave

Employees are entitled to 30 days of sick leave. During this time, they can receive at least 90% of their salary. The first 30 days of sick leave are paid by the employer. If the sick leave lasts longer, it is paid by the authorities. Sick leave can last up to 22 weeks.

Employment contracts or collective agreements determine whether an employee is entitled to paid sick leave and in what amount. Salaried employees are usually entitled to sickness benefits.

In the event that an employee does not qualify for paid sick leave under the contract, he or she may be entitled to sick pay in accordance with the Danish Sickness Benefits Act, at rates set by the government. Sickness benefit is paid by the employer for the first 30 days. After the employer period, the municipality may reimburse or provide coverage for sickness benefits, subject to certain conditions.

Sickness benefit is usually not paid for more than 52 weeks in an 18-month period.

All Danish citizens benefit from universal health care funded by the government. A part of the population (about 42%) opts for supplementary health insurance to cover co-payments for prescriptions, dental care and services not covered by the state health insurance. 

In addition, 30% of Danes have extended insurance that gives them greater access to healthcare providers. These additional insurance policies are most often offered by employers as a social benefit, although this is not a legal requirement.

Under Danish law, employers are required to pay a fixed amount per year to the employee’s occupational disease insurance plan in the labour market. 

The amount varies depending on the number of occupational diseases in the industry concerned.

In addition, employers are also obliged to take out insurance covering „industrial injuries”. „Temporary” injuries may be considered „industrial injuries” even if they do not require medical treatment. Such injuries qualify as industrial if they have mental or physical consequences that affect the injured person either temporarily or permanently.

Employer/employee contributions

The national social security scheme covers health insurance, child benefit, maternity benefit, disability pension and others. Both employees and employers contribute to this fund.

Employers pay between DKK 930 and DKK 1,388 per month. Employees pay DKK 111.32 per month.

Termination

The employer has the right to terminate the contract when the employee’s performance at work is not good enough. The reason for termination must be justified.

Ending employment in Denmark is relatively straightforward compared to other EU countries. Salaried employees who have been employed by the same employer for 12 months are safeguarded against unfair dismissal.

If the employee has worked for the company for up to six months, the notice period is one month. If the period of employment was longer than six months, the notice period is three months. Employees who have worked for the company for more than nine years are entitled to six months’ notice.

The terms and conditions of termination of employment in Denmark may vary depending on the individual agreements entered into by employees or their representatives. 

Severance entitlements are similar, but employees with more than 12 years of service are entitled to one month’s salary, those with more than 15 years are entitled to two months’ salary and those with more than 18 years are entitled to three months’ salary.

In Denmark, employers are generally not obligated to notify a trade union or employment agency in the event of termination. However, specific requirements may be outlined in employment contracts, collective agreements, or industry regulations, so it’s advisable to check the relevant documentation for any contractual obligations.

Handling employee dismissals and severance payments can be complicated for companies that are expanding overseas for the first time.

Employers are required to give notice with a notice period of one to six months, depending on the employee’s length of service. Collective agreements may even require a 70-day notice period.

Employees who are over 50 years of age are entitled to 90 days’ notice after nine years of employment and 120 days’ notice after 12 years.

Employees are required to give one month’s notice, unless the collective agreement provides otherwise, such as no notice requirement or a period of up to 28 days.

Employees who have been dismissed by their employer with cause are entitled to the following benefits:

  • If they have worked for the same employer for at least 12 years: One month’s salary.
  • If they have worked for the same employer for at least 17 years: Three months’ salary.

Employees who have been dismissed without cause and have worked for the same employer for at least one year are also entitled to compensation. In general, the maximum payment is half the salary for the notice period. Depending on the age and length of service of the employee, this amount can be increased up to six months’ salary.

Employees who are pregnant, on parental leave or acting as shop stewards or safety representatives are generally entitled to substantial compensation in the event of termination.

Employees covered by the Danish Salaried Employees Act have better protection against dismissal after 12 months of employment. For these employees, a dismissal that is not deemed to be reasonably justified by the employee’s conduct or the company’s circumstances may entitle the employee to compensation.

Before dismissing an employee for performance reasons, the employer must give the employee a written warning and a chance to improve performance before deciding to dismiss. This is to document insufficient performance and minimise the risk of potential complaints.

Employer of Record service in Denmark

Accessing new customers to increase revenue, attracting global talent and extending the reach and prestige of a brand are just some of the reasons why organisations decide to expand globally.

While there are many promising opportunities when expanding internationally, it also comes with a number of challenges, including hiring remote employees in different countries and the administrative difficulties of setting up entities legally. Setting up an office or subsidiary in a foreign country involves high costs and a lengthy process that can slow down expansion and even temporarily halt company growth.

In order to run a danish business, it is important to have a thorough understanding of payroll and tax rules in Denmark. By using Employer of Record, a company can hire in Denmark foreign or local employees and effectively deal with the complexity of the country’s regulations. Whether it is social security contributions in Denmark, income tax, expansion management, withholding fees or business tax, EOR handles it all, ensuring full compliance.

With a dynamically evolving regulatory context, companies have a responsibility to comply with employment and taxation-related regulations in different jurisdictions. They seek to understand the global risks associated with aspects of labour and take action to minimise them. This, in turn, means that in order to succeed in international labour markets, companies need to focus on the use of effective HR management models such as EOR. This approach ensures compliance with extensive legal and regulatory requirements, reduces risk and supports specific business needs.

EOR services can, in practice, be more affordable than hiring employees directly, as they save on benefits, payroll taxes and HR administration. Moreover, they allow for a reduction in the risk of receiving fines and penalties resulting from inadequate compliance with local labour laws.

The costs and pricing structure when employing workers abroad under the Employer of Record model vary and depend on the destination country, the type of worker and the services required. Typically, the EOR will charge a fee for its services, which may be based on a percentage of the employee’s salary or be a flat fee per employee. Before engaging with an EOR, it is important to fully understand the cost structure and pricing.

Legal issues are also important when using Employer of Record services. Some countries have regulations on the supply of labour that may affect the operation of EORs. It is worth learning about the Danish legal system governing the supply of labour.

Working with Employer of Record enables companies to transfer the responsibility for complying with new labour and human resources legislation in Denmark to Employer of Record.

Services offered by Employer of Record include:

  • Preparation of an employment contract adapted to local requirements
  • Recruitment and induction of new employees
  • Registering employees with local authorities
  • Management of employee benefits package
  • Organising visas and work permits in Denmark
  • Processing of payroll and payment of salaries to employees
  • Handling taxes and social security
  • Ensuring compliance with local labour laws
  • Providing human resources support on behalf of clients.

Benefits of using Employer of Record services in Denmark:

A company expanding globally can save time and money because it no longer needs to set up a local office or subsidiary to hire new talent in Denmark. Setting up a subsidiary in Denmark can be costly and time-consuming.

Employer of Record services help mitigate compliance risks. Lack of local knowledge of labour laws, payroll regulations and tax requirements can result in costly compliance errors. 

EOR service providers are HR and employment experts in the countries in which they operate and ensure full compliance throughout the course of employment. Additionally, using EORs when hiring local talent helps companies avoid misclassifying employees.

Just as importantly, Employer of Record contributes to productivity within an organisation. If HR and payroll teams do not have to spend time analysing and adapting to the various rules and regulations in Denmark, this frees up valuable resources that can be focused on the company’s expansion.

With the Employer of Record service, a company can expand into Denmark without incurring the risk of setting up a legal entity. This is a win-win solution for any company as it lowers employment costs in Denmark and saves time. There are many other advantages to working in Denmark: benefits for employees related to health, parental leave and insurance. Another important thing is that EU and EEA citizens do not need a visa or work permit to work in Denmark. All this makes employment in Denmark very easy and beneficial. However, for employees who are citizens of a country outside the EU/EEA or Switzerland, the employee must apply for a residence and work permit before entering Denmark.

Although employment requirements in Denmark are often considered less complex than in neighboring countries, laws and regulations still vary and can be easily misunderstood. Using the services of EOR in Denmark allows you to access the opportunities of the Danish market in a few days, while EOR takes care of the formalities related to the employment of employees in accordance with the regulations.

Employer of Record’s responsibility in assessing the competencies of individual employees may include verification of professional qualifications and confirmation that the employee is not subject to any contractual restrictions.

End-user companies should bear in mind that, in practice, compensation is only as good as the reliability of the party providing it. Therefore, they must ensure that, should compensation be awarded, the EOR will be able to meet its contractual obligations.

Where an agreement covers several jurisdictions, it may be necessary to include country-specific annexes to address local regulatory issues.

Occasionally, EOR activities are presented as the provision of services rather than as the provision of work, either unintentionally or intentionally, in order to avoid defining the nature of the provision of work. The activities of the EOR in practice may include both service aspects and aspects related to the provision of work.

While EOR services bring many benefits to global companies in Denmark, there are also some challenges to watch out for, including:

Language barriers: Danish is the official language of Denmark, so employers may encounter language-related difficulties when communicating with the EOR provider or employees.

Data Security: As with any outsourcing process, data security is a key issue, so employers need to ensure that their EOR provider has strong data security protocols in place.

Cultural Differences: As with any international business venture, employers must take into account cultural differences in Denmark, such as working hours, vacation time and benefits.

Competition: In Denmark’s increasingly competitive job market, companies must offer attractive salaries and comprehensive benefits packages to attract the best talent.

By entrusting Employer of Record with the challenging aspects, you can concentrate on the crucial task of growing your business into Denmark.

EOR and PEO

Although these terms are often used interchangeably, there is a difference between EOR and PEO (Professional Employer Organization) services. In the context of PEO in Denmark, employees are on the payroll of the client company, which is responsible for handling all human resources issues. The EOR partner in Denmark, on the other hand, acts as the formal employer of the employees, dealing with payroll in Denmark, benefits, taxes and other administrative duties on behalf of the client company.

EOR and AoR

The Registration Agency (AoR) is an institution that serves companies to ensure that they comply with the rules when hiring independent contractors.

AoR guarantees the proper classification of employees and acts on behalf of its clients to hire them, put them to work and make payments.

In this way, AoR resembles EoR, although the human resources services it provides are less extensive.

Although EoR and AoR are different, they provide analogous services. Both of these types of organizations typically perform three main functions that facilitate the hiring process.

They act as intermediaries between the client company and its employees. EoR acts as an employer for employees in legal and tax matters. In reality, however, employees work for the client company and perform services on its behalf. This means that the client company can easily use EoR services to employ workers in countries where it does not yet have its own legal identity, without losing control over its personnel.

Although AoR is not an employer for employees, it still acts as a mediator between the client’s company and them. She typically handles issues such as contractor fees, expenses, and record keeping on her behalf.

Enterprises choose to use AoR services in situations where they want to hire independent contractors, while avoiding the need to deal with the office support activities that such a process usually involves. This allows for full compliance with labor and employment law regulations. In particular, it is worth considering the use of AoR services in the case of:

Plan to hire international contractors without exposing yourself to the risk of violating regulations.

Avoid misclassification of employees as contractors.

Support needs in managing payroll for your subcontractors.

Willingness to outsource time-consuming tasks such as time tracking or invoice management.

A recruitment agency is a company that supports other organizations in acquiring and hiring potential employees for specific positions. They often have the ability to fill positions quickly because they already have a cataloged set of pre-verified and suitable candidates.

Recruitment agencies, EoR and AoR are sometimes confused as recruitment agencies sometimes offer EoR or AoR style services for the employees they place with clients. Both EoR and AoR can sometimes also provide personnel management or recruitment services.

However, the clearest way to understand the differences between them is that the recruitment company focuses on acquiring employees, while the task of EoR or AoR is to properly hire employees in accordance with the regulations.

Summary

The future of EOR services in Denmark looks promising as more and more companies turn to EOR providers to simplify their workforce management processes and ensure compliance with local regulations. The increasing importance of remote work and flexible employment models contributes to the key role that EOR providers can play in supporting enterprises in these areas.

As the world of work continues to evolve, EOR services are likely to become even more relevant to companies planning to expand their business in Denmark and elsewhere. By working with a reputable EOR provider, employers can simplify HR and payroll processes, minimizing union risk and focus on developing their own business.

Overall, the use of EOR services in Denmark is expected to continue to grow in the coming years as companies seek to reap the many benefits these services offer. A key aspect of success in utilizing EOR services in Denmark is working with a reputable and experienced provider who is knowledgeable about the local labor market and regulations.

With the right EOR provider, companies can streamline their HR and payroll processes, comply with local regulations and focus on growing their business both in Denmark and beyond. With the support of EOR services, businesses can thrive in the dynamic and ever-changing context of the future of work in this country.