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Employment in Denmark

Danish employment law is relatively straightforward and flexible. There are minimal statutory requirements with regards to contracts, termination procedures as well as employee pensions and holidays. Employer compliance requirements are therefore much lower than in other European countries. As the following only aim to act as a guide in the broadest sense, it is still recommended that professional legal advice be sought when employing in Denmark.

Key points on employment in Denmark

Historically, one key characteristic of the Danish labour market is its high unionisation rate, with esteemed Danish law firm Norborrn Vinding estimating that up to 75-80% of the Danish labour force being a member of a trade union.

Employees are categorised into three groups:

Executive officers

Salaried employees (white-collar)

Salaried workers (blue-collar).

Unlike some European countries, Denmark does not have a general labour statute conferring certain minimum rights on employees. Instead, legislation is fragmented in the sense that many individual statutes are applicable depending on the type of employment relationship involved. For example, the Danish Salaried Employees Act only applies to salaried employees (white-collar workers), and there are specific statutes which apply to seamen, vocational trainees, civil servants and employees in the agricultural sector. Hence, it is important to determine the legal status of the employee in question because it determines the legal framework under which the employee is governed.

  1. Contracts

     

    Collective bargaining agreements

    With many employees being members of trade unions, collective bargaining agreements (CBA) are extremely commonplace among the Danish labour market. CBAs typically contain employment terms such as wage, salary, working hours, overtime pay, holidays, pension, notice periods, etc.

    An employer may become party to a CBA in 3 ways:-

    1. Through membership of an employers’ association

    2. By making a CBA directly with a trade union

    3. By signing an adoption agreement to the effect that the employer undertakes to comply with the terms and conditions of a specific CBA

    The advantage of being party to a CBA is that the employer only needs to adhere to a common known set of collective agreements without the need to enter into separate negotiations for each employee. The downside however is that the agreements that do not necessarily take into account the specific needs of the individual employer foe example in relation to salary and working time. The employer is also forced to hand over the power to make decisions on terms and conditions to the labour market organisations.

    Employers are free to choose whether to be bound by CBAs. However, refusal may result in the trade unions initiating industrial action against the employer.

    Collective agreements are usually in force for 2-4 years, with renewals typically taking place every 2nd to 4th year.

    Employment contracts

    Employment contracts typically account for the remaining 20% of the Danish workforce. In general, due to the flexibility of the Danish labour market, it is possible to enter into a wide range of different contracts, e.g. on fixed-term employment, probationary periods and the like. Further, employers may hire replacement workers for a specified period of time. As a result of recent case law, employers can now freely employ persons who are not members of a particular trade union.

    Under the Employment Contracts Act, an employer is under a legal obligation to ensure that the employee receives written notification of all essential employment terms. Failure to comply with the Employment Contracts Act could result in the employer becoming liable to pay compensation to the employee in question of up to 20 weeks’ salary.

    An employment contract must describe the employee’s:-
    • salary conditions
    • workplace
    • working hours
    • annual leave
    • notice period

    There are no legislative requirements as to the duration of an employment contract.

  2. Probation Periods

    There does not appear to be any specific rules in the Danish law on probationary period. It is likely that a probation period would only apply if written into the employment contract.

  3. Termination Procedures

    a. Notice periods

    It is relatively easy to dismiss employees in Denmark compared to other countries in the EU due to a general lack of statutory termination rules in the legislation, as well as the generous and easy access to unemployment benefits. However, special rules may apply to the dismissal of:

    • Employees on maternity/paternity or parental leave
    • Employees from certain minorities or affiliated with trade unions or political parties
    • Employees elected or appointed as representatives such as shop stewards or employee board members

    Notice periods would generally depend on both the type of employee and the specific notice period contained in the CBA or employment contract.

    • Blue-collar workers: Depends on the employment contract or the collective agreement
    • Salaried (white-collar) workers: 1-6 months depending on length of continuous employment according to the Salaried Employees Act
    • Executive officers: Depends on the employment contract/service agreement

    Notice periods contained in the collective bargaining agreements vary a great deal, but are typically shorter than those of the Salaried Employees Act.

    In some cases, the termination must be reasonably justified either by the conduct of the employee or the circumstances of the employer. Unjustified terminations may leave the employer liable to paying the employee compensation. Before effecting a notice of termination, it should be clarified whether firstly, the termination will be lawful and the possible consequences of a termination.

    b. Compensation 

    Compensation would generally depend on both the type of employee and the specific clause contained in the CBA or employment contract.

    • Blue-collar workers: Only if provided for in the employment contract or the collective agreement
    • Salaried (white-collar) workers: 1-6 months depending on, inter alia, length of continuous employment according to the Salaried Employees Act – the usual level being between 1-3 months
    • Executive officers: Only if provided for in the employment contract/service agreement
  4. Statutory Leave

    a. Annual Leave 

    Under the Holiday Act, all employees have a right to 5 weeks (25 days) holiday annually. Salaried employees (white-collar employees) are entitled to paid holiday and a supplement of 1% of their annual salary. Blue-collar workers receive a holiday allowance equal to 12.5% of their annual salary. Most employers offer an additional week’s holiday, equalling to a total of 6 weeks’ holiday entitlment per annum.

    The Holiday Act applies to all employees in Denmark except executive officers. For some employees, the holiday rules have been incorporated in the their respective CBA, meaning their holiday rights are determined by the CBA instead.

    b. Maternity Leave

    Pregnant female employees are entitled to 4 weeks leave before the anticipated date of birth, a compulsory 2 weeks leave after the birth and then 12 weeks of maternity leave. 15 weeks after the birth, each of the parents is entitled to 32 weeks of parental leave, which may be extended or postponed. Male employees in Denmark normally take shorter paternity leave than they do in other Scandinavian countries.

    Unless otherwise provided by statute, collective agreement, company policy or the individual employment contract, parents on leave have no entitlement to their salary, only benefits. However, female employees covered by the Danish Salaried Employees Act are entitled to receive 50% of their normal pay during pregnancy and maternity leave (14 weeks).  Parents may also not be discriminated against due to leave in relation to changes in their employment positions, possible increases in salary or bonus and other employment benefits.

    c. Sick Leave 

    Under the Danish Sickness Benefit Act, sickness benefits are paid to the employee based on income and hours worked for up to 22 weeks in 9 months. Employers are required to pay sickness benefit for the first 30 days.The company must report sick leave and apply for reimbursement of sickness benefits through NemRefusion.

    The employee is required to have been in employment for at least 8 weeks and worked at least 74 hours for the employer in question.

    More information on the above is available (in Danish) from the Danish National Labour Market Authority.

  5. Pensions and Benefits

    Statutory Pension and worker’s compensation insurance

    Employees and employers are liable to pay contribution to the Danish Supplementary Pension Scheme. This contribution is a fixed monthly amount of 270 DKK. The employee pays one third (90 DKK) and the employer pays the rest (180 DKK). In addition, the employer must also pay small amounts for compulsory work-related insurances and certain other items.

    The total costs of social security and occupational insurance average approx. 8,000-10,000 DKK p.a. per employee.

    Unemployment benefits 

    An employee can take out an insurance at a Danish unemployment fund (“A-kasse”). The unemployment funds are private associations, often connected to trade unions and other professional organizations.

    Unemployment fund membership is voluntary and contribution is tax deductible. The annual contribution varies from one unemployment fund to another, but usually ranges from 5000 – 7000 DKK per annum.

  6. Working Hours

    There are no statutory rules on working hours (with the exception of the protective rules contained in the Danish Working Environment Act and the Danish Act on Implementation of Parts of the Working Time Directive). These provisions prescribe that all employees are entitled to an uninterrupted rest period of at least 11 hours for every 24-hour period as well as one weekly rest period of 24 hours. The maximum weekly working hours must also not exceed 48 hours over a 4-month period. Stricter rules apply to young employees, while more lenient rules apply in certain sectors or circumstances. Working hours are normally regulated by CBAs, which is also the case with overtime. Thus, if no CBAs apply, no statutory rules on overtime apply and the employer must only comply with the restrictions laid down by the above mentioned Acts.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Denmark. For companies which intend to employ their staff directly through their incorporated Danish entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Denmark.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Denmark.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly
– the company doesn’t have an appropriately incorporated entity in Denmark
– the company wants to work within a defined budget
– the company wants to limit its initial commitment in Denmark
– the company needs help with tax, employment, immigration and payroll compliance in Denmark

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