Hiring foreign labor in Denmark
Delegating foreign workers to Denmark is becoming an increasingly common practice among entrepreneurs. In the face of globalizing markets and increasing international cooperation, companies are increasingly seeking opportunities for growth and expansion abroad. For many foreign companies, Denmark, with its stable economy and developed labor market, is an attractive place to provide services and implement projects. However, posting employees abroad involves many formalities and obligations, both on the part of the employer and the employee
Employers posting employees abroad must remember that they are not only bound by their labor, social security and tax laws. International regulations on the posting of workers and coordination of social security must also be taken into account. Most likely, it will also be necessary to apply the internal regulations of the country where the employee will be staying.
Rules for posting employees
If you work abroad or run a company providing services in Denmark, you must know and comply with the relevant laws. If you are posted to work in Denmark by a foreign company providing services there on a temporary basis, you are subject to the Posting of Workers Abroad Act.
As a posted employee, you are entitled to a safe and healthy working environment under the same rules as Danish employees. You are also subject to Danish laws regarding equal treatment, pay, non-discrimination and certain working time regulations. Regarding your right to leave, you are generally subject to the regulations of your home country, but you are guaranteed the minimum standards set by the Danish Holiday Act.
Posting of employees is characterized by temporariness – it is scheduled for a specific period of time and cannot be a permanent condition.
An employer posting an employee for a short period may extend the posting up to a maximum of 18 months by submitting a reasonable notice of extension. Such notification must be submitted before the 12-month posting period expires. The host country usually requires the posting employer to provide reasons for the extension, but the employer does not have the right to dispute them. The extension of the posting is considered an information obligation of the employer, not a request, so the host state cannot deny the extension.
If a reasonable notice is given, the posting employer must provide the working conditions specified for short-term posting for the entire duration of the posting, up to the end of the 18-month period.
What is International Hiring-Out of Labor?
International hiring-out of labor refers to the situation where employees of a non-Danish enterprise are provided to a Danish enterprise, and these employees perform work that is integral to the Danish enterprise’s operations.
The work may be part of the enterprise’s core services or a routine aspect of its operations, such as bookkeeping, cleaning, or canteen management. The key factor is whether the employee is essentially at the disposal of the Danish enterprise in a manner typical for an employee.
When is a Situation Not Considered International Hiring-Out of Labor?
Non-Danish employees are not subject to the rules governing the international hiring-out of labor when the work performed:
- is not an essential part of the enterprise’s core services or operations, or
- has been divided into an independent non-Danish enterprise.
Assessing Separation of Services
When there is uncertainty about whether the services are sufficiently separated, a specific assessment is required to determine if the work is clearly defined and part of an independent non-Danish enterprise. In such cases, it is crucial to identify which party is primarily responsible and bears most of the financial risk associated with the work performed.
When Do the Rules on International Hiring-Out of Labor Not Apply?
The rules don’t apply in the following situations:
- The employee has full tax liability in Denmark.
- The employee is subject to limited tax liability for wages/salaries earned in Denmark due to their residential status or because they are directly employed by a Danish employer.
- The arrangement for hiring out labor is between two Danish companies, thus it does not fall under the category of international hiring out of labor.
- The non-Danish employer providing the labor has a permanent establishment in Denmark.
- The employee works as an entertainer, musician, circus performer, or athlete.
The posting employer and the posted employee
Posted employee
A posted worker is a person who works in another country on a daily basis, but has been sent to Denmark for a specific period of time by the posting employer as part of the services it provides.
The definition of a worker depends on the regulations of the country to which he is posted. Work under a contract of assignment in other EU, EEA or Swiss countries is treated as semi-subordinate and co-subordinate work by the posting company. In practice, a delegated employee may also be a person employed in foreign country under a contract of mandate.
A delegated employee may also be a foreign national – a citizen of a third country who works for a company with its registered office or permanent place of business in an EU country, provided that they stay and work there legally. An employer may delegate such an employee to another EU, EEA or Swiss country on the same basis as a EU citizen. However, you should make sure that the host country will not require an appropriate residence title (e.g., a proper visa) for this employee to work.
Posting employer
If you are an entrepreneur with a registered office or permanent place of business and you employ employees, you can temporarily delegate them to work in another European Union (EU) country, the European Economic Area (EEA) or Switzerland as part of your company’s services abroad. You can apply delegation in the provision of services in the following situations:
- In connection with the performance of a contract between your company and an entity operating in another country.
- To a branch or company that is part of a group to which your company belongs.
A company sending employees to Denmark in the course of providing services must register in the RUT system (www.virk.dk/rut), administered by Erhvervsstyrelsen. Registration must be done no later than the day the work begins. With each new assignment, the company is also required to re-register and provide information on the employees performing the assignment and the place where the services are being provided.
A foreign company posts employees to Denmark in the following situations:
- The company sends an employee to Denmark to provide services to a recipient in Denmark, such as a company or an individual.
- The company has a temporary employment agency or similar capability through which it can hire its employee to a user company to work in Denmark.
- The company sends the employee to Denmark to work for a company that is part of the same group or otherwise affiliated with the posting company.
A prerequisite for being subject to the provisions of the Law on the Posting of Workers to Work Abroad is the existence of an employment relationship between the employee and the company that posts or provides the workers. An additional condition is that the company posting the workers has an actual place of business in the home country, meaning that it has significant operations there.
Temporarily posted employee
Your employer may temporarily assign you to work in another EU country. During the posting period, you will have the status of a „posted worker” and will be entitled to the same basic labor rights and working conditions as employees in the host country.
Temporary employees may be entitled to more favorable employment conditions than those generally applicable. Such more favorable conditions may be determined by:
- host country laws,
- generally applicable collective agreements,
- collective agreements applicable only to the particular user employer to which the employee is posted.
Regardless, the user employer must inform the temporary employment agency of the terms and conditions of employment applicable to its company before the posting begins.
Posting of drivers
The rules on the posting of drivers apply to those who are employed by a company based in another EU country. A driver is considered to be posted to work in Denmark when he or she performs freight or passenger transport, the road portion of combined transport or international transport that is not bilateral, within Denmark.
Delegation of workers in agriculture
If a posted worker performs agricultural work or domestic work, and housing is part of his or her salary, the employer is obligated to provide good and modern housing and provide clean bedding and towels.
The employer is also required to pay for insurance for the hired worker’s movable property at a rate equivalent to standard household insurance.
Posting of white-collar workers
If a posted employee performs white-collar work, the employer must cover all costs related to travel and stay in Denmark. This rule applies when an employee is sent from a permanent place of work in Denmark to work temporarily elsewhere. White-collar work includes typical activities in trade, sales and office work.
Long-term and short-term posting
The type of posting (short-term or long-term) affects the working conditions to be provided to the posted employee.
Long-term posting
If you post an employee for more than 12 months (or 18 months after giving reasonable notice in the host country), you must provide the employee with all the terms and conditions of employment applicable by law or generally applicable collective bargaining agreements in the host country, except for:
- provisions on the procedure and conditions for entering into and terminating an employment contract,
- provisions on non-competition clauses,
- provisions on supplementary employee equity plans.
Short-term posting
If you post an employee for a period not exceeding 12 months (or 18 months after giving reasonable notice in the host country), you must ensure that the employee’s terms and conditions of employment comply with the law or generally applicable collective bargaining agreements in the host country, in terms of:
- minimum rest periods and maximum working hours,
- minimum paid annual leave,
- wages (including all mandatory components) as defined by national law or commonly applicable collective agreements,
- occupational health and safety,
- protective measures for pregnant women, women immediately after childbirth and young people under the age of 18,
- equal treatment of women and men,
- accommodation conditions for workers in the host country, if provided by the employer,
- allowances or reimbursement of travel, board and lodging expenses, if they are required during the posting.
Posting conditions for temporary employees
If you run a temporary work agency and post employees abroad, you must provide them with at least the same terms and conditions of employment that apply to temporary employees in the host country.
Law on posting workers abroad
The Law on Posting of Workers Abroad implements the EU Directive on the posting of workers. The directive aims to ensure fair competition and respect for workers’ rights when workers are posted to another member country.
The Directive ensures that workers posted to an EU or EEA member country are guaranteed certain working conditions applicable in the host country.
The Posting of Workers Abroad Act also implements the EU Enforcement Directive. This directive aims to better enforce the rights contained in the Posting of Workers Act and prevent abuse and circumvention.
Based on Directive 96/71, the Danish Posting of Workers Act of March 25, 2011 does not specify the minimum wage rates that foreign service companies must pay their posted workers in Denmark. The act also does not require companies from other EU member states to enter into collective bargaining agreements with Danish unions.
Taxes related to the posting of workers to Denmark
Danish Law L921 on tax on the hiring of foreign labor came into effect on September 19, 2012. The law applies to the hiring of labor. The Danish entrepreneur for whom the work is performed may be considered a so-called „de facto employer” by the Danish tax authorities in accordance with the double taxation agreement and the L921 Act.
The term „de facto employer” refers to an entrepreneur who actually uses the employee’s labor and bears responsibility and risk for the employee’s performance, as opposed to a formal employer with whom the employee is employed.
When an employee with an employment contract with one company (the formal employer) performs work for another company abroad (the actual employer), this situation is known as „international hiring of labor.” The Danish tax authorities (SKAT) have released a handbook detailing the rules for applying the new tax on the hiring of foreign labor. According to the handbook, the term „international labor hire” refers to employees hired by foreign entrepreneurs who are sent to work for Danish entrepreneurs and perform work that is an integral part of the Danish entrepreneur’s business. The International Hiring-Out of Labor Always Involves Three Parties:
- A Danish enterprise hiring the labor.
- An employer from a country outside Denmark supplying the labor, such as a temp agency or another company.
- A non-Danish employee who is employed by a non-Danish employer.
It is irrelevant whether the contract for the supply of labor is termed a contract for international hiring-out of labor or a project contract. What matters is whether the non-Danish employee is, in effect, working for the Danish enterprise under conditions that essentially correspond to being in the service of the Danish enterprise.
Work that is an integral part of a Danish business includes both tasks that are part of the company’s core business and routine services that supplement that business (e.g., accounting services, cleaning).
If a Danish business hires an employee who resides outside of Denmark and whose employer is non-Danish, the employee is subject to taxation under the rules for international hiring-out of labor. Consequently, the business/you are responsible for paying the applicable tax.
Law L921 introduces a special form of taxation on the wages of foreign workers, amounting to 35.6%. This tax has two parts:
- Labor Market Tax (8% on gross income).
- Labor market tax (30% after deducting the labor market tax)
The collection of this tax is the responsibility of the Danish company using the labor of foreign employees. The basis for calculating the tax is the gross remuneration of the foreign employee, as submitted by the foreign company employing the employee.
The Danish entrepreneur is obliged to withhold the tax at the time of payment of the invoice for the service rendered to the foreign contractor. This obligation exists both when a Danish company employs foreign employees under a contract directly with a foreign employer and when the employment and payment of wages is made through another employer or a temporary employment agency.
A Danish entrepreneur who withholds tax on the hiring of labor shall prepare a monthly list of the employees who have provided work for him and the amounts of tax withheld (the amounts of remuneration and tax withheld are expressed in Danish currency at the exchange rate on the date of tax withholding). The Danish entrepreneur is required to pay the withheld tax by the 10th day of the month following the month in which he withheld tax and paid the invoice. Large Danish companies that are subject to advance taxation rules must pay the tax no later than the last day of the accounting month.
Tax residency of a posted employee
An employee is subject to unlimited tax liability in their country, which means that he must account for all of his income (including remuneration for work) regardless of where it is earned, if he is a tax resident in their country.
Taxation of an employee posted to Denmark
As an employee delegated from a foreign company to work in Denmark, for example, you would want to be exempt from paying Danish tax for the first six months of work. However, you may be required to pay Danish tax from the first day of your stay if SKAT determines that you have been hired by a Danish company. Then the following rules apply:
- 8% so-called am-bidrag tax and 30% income tax,
- The Danish company is obliged to pay the tax,
- The rules for hiring employees apply regardless of whether the foreign employer is registered as a tax payer in Denmark.
How to count periods of posting?
As per the official stance of the European Commission:
- Periods of posting must be counted separately for each service performed.
- Periods of posting of consecutive employees add up if they are sent by the same employer to the same place to perform the same task. In assessing whether the same task is being performed in the same place, the identity of the service provided, the work performed and the address or addresses of the place of performance are taken into account.
The regulations do not clearly define the rules for calculating posting periods. Therefore, before posting an employee, check for specific regulations in the destination country. Remember that countries of the European Union, the European Economic Area and Switzerland may deviate from the general rules set by the European Commission.
Conditions for remuneration of posted employees
Regardless of whether the posting of a worker is short-term or long-term, you must determine and pay the wages of posted workers on the same basis from the first day of posting.
The remuneration of a posted worker includes all mandatory components of remuneration that are required by national laws or collective bargaining agreements deemed universally applicable or applicable to all local workers in a given geographic area or economic sector.
In practice, this means that you must provide the posted worker with all the salary components and allowances that a local worker performing work in the same industry, occupation and region would receive. This does not mean that the amount of the delegated worker’s salary will be identical to that of a local worker, but the basis for its calculation and the components of the salary must be the same.
This rule does not apply to the posting of temporary workers, whose wages must be identical to those of employees of the user employer in the host country.
Remember that amounts paid to cover expenses actually incurred in connection with the posting, such as:
- the cost of travel to and from the place of posting,
- the cost of food and accommodation.
These expenses are reimbursed or paid to the posted worker independently of the wages due and cannot be taken into account when comparing the amounts actually paid as wages with the amounts due under the law of the host country.
There is no statutory minimum wage in Denmark. Wage rates are set by collective bargaining agreements negotiated by trade unions and employers’ organizations. The standard workweek in Denmark is Monday through Friday, totaling 37 hours. The average monthly gross salary is 47,000 DKK (7,000 USD). However, it’s important to note that this amount can be significantly reduced after taxes, potentially dropping to half.
The employee’s gross income, which is the basis for calculating the hiring-out of labor tax, includes salary, bonuses, commissions, allowances, and other benefits such as:
- Time off in lieu earned for work performed in Denmark
- Holiday pay earned for work performed in Denmark
- Travel and transport allowances
- The value of free meals and lodging if the employee is not classified as traveling
- Other types of taxable employee benefits
- The non-Danish employer must provide you with documentation showing the employee’s gross income.
Social insurance for a posted employee
If you are posting an employee in the course of providing services to another EU, EEA or Swiss country, the question may arise as to which country you should make social and health insurance contributions for the employee. The general rule is that an employee can be subject to the legislation of only one country.
As a general rule, the employee is insured in the country where he performs work – that is, during the period of posting, the employee should be insured in the host country. However, the regulations allow for social and health insurance contributions to be paid in the country from which the employee was posted.
Posted employees are entitled to medical benefits in the host country during the posting period. These benefits are provided under the rules of that country and in facilities that have an agreement with the local health insurance fund. Benefits are available on the basis of the European Health Insurance Card (EHIC card). An EHIC card can be applied for by the posted employee or the posting employer authorized by the employee.
