Hiring and paying employees in Denmark comes with a number of legal and regulatory requirements. Whether you are looking to hire a local or an expatriate worker, it’s important to understand the framework around payroll, benefits, and employment law in Denmark. This guide will provide a comprehensive look at what you need to know to manage Danish payroll, comply with the country’s employment laws, and offer competitive benefits to your employees.
Understanding Danish Employment Law
Danish employment law is governed by both statutory regulations and collective agreements. Some of the key aspects of the legal framework are:
Employment contracts
- Mandatory Written Contract: All employees must have a written contract outlining the terms of employment. This includes job duties, salary, working hours, and conditions.
- Probationary Period: A probationary period of up to 3 months is common. During this period, either party can terminate the employment with limited notice.
- Termination and Severance: Employees are entitled to protection against unfair dismissal. The notice period for termination can vary, generally ranging from 1 to 6 months, depending on the length of service.
Working hours and leave
- Normal Working Hours: The typical workweek in Denmark is 37 hours, spread across five days, usually Monday to Friday.
- Overtime: Overtime is not a common practice in Denmark but may occur. If it does, it’s usually compensated at a higher rate.
- Annual Leave: Danish employees are entitled to 5 weeks (25 days) of paid annual leave per year. This entitlement increases with length of service.
- Public Holidays: Denmark has 11 public holidays, during which employees are typically entitled to paid leave.
- Sick Leave: Employees are entitled to paid sick leave. The first 30 days are typically paid by the employer, with a statutory requirement for the employer to cover the sick leave in full or partially thereafter.
Labour unions and collective agreements
- Union Membership: A significant portion of the Danish workforce is unionised. Membership in a trade union is not mandatory but is common in many sectors.
- Collective Agreements: Many Danish workers are covered by collective agreements, which can provide additional benefits such as enhanced holiday pay, pension contributions, and more favourable severance terms.
Payroll and Taxation in Denmark
Payroll in Denmark is highly regulated, with strict rules on tax withholding, social security contributions, and deductions. Understanding the taxation system is crucial for any employer.
Income tax
Denmark uses a progressive tax system. The individual income tax rate includes:
- Municipal Tax: Rates vary between municipalities but are generally around 24-26%.
- State Tax: There are two state taxes— a bottom rate of 12.11% and a top rate of 15% on income exceeding DKK 552,000 (for 2025).
- Labour Market Contribution (AM-bidrag): This contribution is 8% of an employee’s gross salary, deducted at source.
Denmark has a flat tax rate on capital income, including interest and dividends, which is typically around 27-42%.
Social security contributions
Social security contributions are split between the employer and the employee and are calculated as follows:
- Employer Contribution: Approximately 16.6% of an employee’s gross salary.
- Employee Contribution: The employee pays the 8% AM-bidrag and social security on a sliding scale for pensions and unemployment insurance.
Payroll administration
Danish payroll is administered through a system called eIndkomst. Employers must report employee wages and deductions monthly. The Danish tax authority (SKAT) requires this data to calculate taxes and contributions.
Employers can use payroll software or outsource the payroll function to a service provider to ensure compliance with Danish tax laws and regulations.
Payroll process in Denmark
Managing payroll in Denmark requires a systematic approach to ensure compliance with local laws and regulations. Here are the key steps involved in processing payroll for employees in Denmark:
1. Registering as an employer
- Employer Registration: Companies hiring employees in Denmark must register with the Danish Business Authority (Erhvervsstyrelsen) and the Danish Tax Agency (SKAT).
- CVR Number: Obtain a CVR number (Central Business Registration) to legally operate and report employee wages.
2. Collecting employee information
- Gather the necessary information from employees, including:
- CPR Number: A unique Danish identification number required for tax and social security purposes.
- Bank Details: For salary payments.
- Tax Card: Each employee must provide a digital tax card (skattekort) issued by SKAT, which specifies their tax rate and deductions.
3. Calculating gross salary
- Determine the employee’s gross salary based on their contract, which includes:
- Base Salary: Agreed upon monthly or hourly wage.
- Overtime or Bonuses: As applicable.
4. Deducting taxes and contributions
- Employers must calculate and withhold the following from gross salary:
- Labour Market Contribution (AM-bidrag): 8% of gross salary.
- Income Tax: Based on the progressive tax rates outlined in the employee’s tax card.
- Employee Pension Contributions: If applicable under the employment terms or collective agreements.
5. Employer contributions
- Calculate and pay employer contributions, which may include:
- ATP Pension: Contributions to the Danish Labour Market Supplementary Pension.
- Social Security Contributions: Covering unemployment, training, and other statutory benefits.
6. Reporting to the Danish Tax Agency (SKAT)
- Submit monthly reports through the eIndkomst system. Include detailed information about:
- Gross salary.
- Taxes withheld.
- Labour Market Contributions.
- Pension contributions.
7. Paying salaries
- Deposit net salaries directly into employees’ bank accounts after all deductions.
- Payments are typically made on a fixed date each month, often at the end of the month.
8. Issuing payslips
- Provide employees with detailed payslips that outline:
- Gross salary.
- Tax deductions.
- Net salary.
- Contributions to pensions and other benefits.
9. Making employer payments
- Pay the withheld taxes and contributions to SKAT on the specified due dates.
- Ensure pension contributions are transferred to the appropriate pension fund.
10. Annual reconciliation
- At the end of the financial year:
- Reconcile payroll records with the reports submitted to SKAT.
- Issue an annual tax statement (Årsopgørelse) for employees, detailing their income and tax deductions.
Employee benefits and perks in Denmark
Denmark is known for offering a range of employee benefits designed to ensure high quality of life for workers. These benefits are a key part of employment contracts in the country.
Pensions and retirement
- Mandatory Pension Contributions: Denmark has a highly-regarded pension system that includes both public and private elements. Employers are required to contribute 12-18% of an employee’s salary into a pension plan, although employees may also contribute voluntarily.
- The ATP Pension Scheme: Employees automatically participate in the ATP pension scheme, which provides a basic pension for retirement.
Health and wellness
- Public Healthcare: Denmark provides universal healthcare for all employees through the public system. Employers typically do not need to contribute directly to healthcare costs.
- Private Health Insurance: Some employers offer private health insurance benefits as an added perk, though this is not mandatory.
Parental leave
- Maternity Leave: Maternity leave in Denmark typically lasts 18 weeks, with full pay during the first 14 weeks. The remaining 4 weeks are unpaid or covered by a government scheme.
- Paternity Leave: Fathers are entitled to two weeks of paid leave.
- Parental Leave: After maternity or paternity leave, parents are entitled to a total of 32 weeks of parental leave. Some employees may be eligible for paid leave through collective agreements or employer-sponsored plans.
Vacation and time off
Employees are entitled to at least 25 days of paid holiday annually, with many companies offering additional paid vacation days. Holidays are often taken during the summer months, which is a popular time for family vacations.
Bonus and profit sharing
Many companies in Denmark offer performance-related bonuses or profit-sharing schemes. These are typically structured in collective agreements or negotiated individually.
Hiring foreign employees in Denmark
If you are hiring an expatriate or foreign national in Denmark, there are additional considerations:
Work permits and visas
- Employees from outside the EU/EEA will need a work permit to work in Denmark. The most common work visa is the Positive List Scheme for individuals with job offers in sectors where there is a shortage of skilled workers.
- EU/EEA Nationals: Citizens of the EU/EEA do not require a work permit to live or work in Denmark.
Taxation for foreign employees
Foreign employees moving to Denmark may be eligible for the Tax Scheme for Expats. This scheme allows a lower tax rate (around 27%) for the first three years of employment, provided the employee meets specific criteria.
Hiring process in Denmark
The hiring process in Denmark involves several steps:
- Job Advertisement: Jobs are often advertised publicly or through recruitment agencies. Danish job ads must comply with discrimination laws.
- Interview Process: Interviews can be in-person or via video call. It’s important to avoid any discriminatory questions relating to age, gender, religion, etc.
- Offer and Negotiation: Once a candidate is selected, an official offer is made. Salary negotiations are common and can depend on industry norms or collective agreements.
- Onboarding: After an offer is accepted, employees go through an onboarding process where they are introduced to the company’s systems, policies, and benefits.
Conclusion
Hiring and paying employees in Denmark requires a solid understanding of the country’s employment laws, payroll systems, and benefits.
From taxation to pension contributions and parental leave, ensuring compliance with Danish regulations is key to maintaining a positive relationship with employees and avoiding legal challenges.
By providing competitive wages, adhering to the legal requirements, and offering attractive benefits, businesses can attract and retain talent in Denmark’s competitive job market.
For international companies, it is advisable to work with local payroll providers or consultants who can ensure that your business complies with all relevant laws and regulations in Denmark.
FAQ
Foreign workers from outside the EU/EEA require a work permit, typically obtained through the Positive List Scheme or Pay Limit Scheme. Employers must ensure the job offer meets the criteria for these schemes and assist the worker with the necessary documentation.
Employment contracts can be written in Danish or English, depending on the workforce. However, ensuring employees fully understand the terms is crucial, especially for foreign workers.
Employers must comply with the General Data Protection Regulation (GDPR) when handling employee data. This includes securing payroll information and ensuring only authorised personnel have access to sensitive data.
Bonuses are not a legal requirement in Denmark unless specified in the employee’s contract or a collective bargaining agreement. Many companies use performance-based bonuses to incentivise employees.
Stock options and employee share schemes are increasingly common, particularly in start-ups and international businesses. These arrangements must comply with Danish tax laws to ensure proper treatment for both employer and employee.
Remote work is not specifically regulated by Danish law but can be agreed upon in the employment contract. Employers should ensure remote work policies cover aspects like working hours, equipment provisions, and data security.
Overtime is typically outlined in collective agreements or employment contracts. While it is not widely practised, overtime that occurs is often compensated with additional pay or time off in lieu.
While Denmark’s public healthcare system is comprehensive, some employers offer supplementary private health insurance to attract and retain employees. This can include access to private hospitals or faster medical services.
Employees working across multiple countries are subject to specific agreements under EU law or bilateral treaties. Employers must determine where social security contributions and taxes are owed based on the employee’s primary place of work.
While not mandatory, written termination agreements are highly recommended to avoid disputes. These agreements should clearly outline the terms of the termination, including any severance pay or notice periods.
Temporary workers are subject to the same basic rights as permanent employees under Danish law. Employers must ensure contracts specify the duration of employment and comply with relevant collective agreements.