Employer of Record (EOR) Denmark
An Employer of Record (EOR) in Denmark, also referred to as a legal employer, is a service provider that takes on the responsibilities of managing various employment-related tasks on behalf of companies, ensuring compliance with Danish labor laws and regulations. The EOR handles payroll, tax filing, and other essential administrative functions, allowing businesses to engage workers in Denmark without the complexities of direct employment.
Roles and Responsibilities of Employer of Record (EOR) in Denmark
Key responsibilities of the Employer of Record (EOR) Denmark include:
- Ensuring meticulous adherence to Denmark employment laws.
- Managing the local payroll process with precision.
- Handling the filing of employment-related taxes and essential paperwork.
- Providing detailed payslips to the worker.
- Timely distribution of the worker’s salary payments.
EOR Solutions in Denmark
- EOR for Prospective Employees: Mercans offers seamless Employer of Record (EOR) solutions for businesses that have already identified their ideal candidates in Denmark. Our services encompass every aspect of the employee lifecycle, ensuring compliance with Danish labor laws and regulations.
- EOR + Recruitment: For those seeking assistance in talent acquisition, our EOR and recruitment services provide a holistic solution. We tap into our extensive network and expertise to help you find, onboard, and retain top talent, streamlining your expansion into the Danish market.
- Visa Sponsorship and Global Mobility: Navigating the intricacies of expatriate employment is simplified through our visa sponsorship and global mobility services. We facilitate the relocation of your international workforce, ensuring compliance with Danish immigration and employment laws.
- AOR for Contractor Payments: Businesses grappling with contractor payments can leverage our Assistance on Record (AOR) services. We handle the complexities of contractor payments, guaranteeing accuracy and compliance.
- Converting Freelancers to Employees: Mercans supports the transition from independent contractors to permanent employees in Denmark. Our expertise ensures smooth conversions while adhering to legal requirements.
- HCM Integration: Integrate Mercans’ EOR services seamlessly with your HCM system in Denmark for real-time data exchange, enhanced compliance, and cost-efficiency. Trust our expertise for a unified, compliant, and efficient approach, elevating your workforce management and payroll operations.
Things you need to know before hiring in Denmark
Employees vs Independent Contractor Compliance
|Regulated by national acts, collective agreements, EU legislation, and local labor courts. Two types: open-ended and fixed-term. Collective bargaining agreements may apply. Contracts can be verbal.
|Operate as sole proprietorships or limited companies. Agreements, regulated by the Danish Commercial Code, must be in writing. Can be hired directly or via third parties. No limitations on their use.
|External recruitment through job boards. Contract provided within 1 month, covering essential aspects. Background checks within EU privacy regulations.
|Hired directly or via third parties. Contracts specify pay rates, services scope, duration, and termination conditions. No limitations on their use.
|Tax Documents and Withholding
|Employers submit income and social security tax reports by May 1st. Independent contractors file personal income tax reports and pay social security contributions. Independent contractors' earnings may be subject to VAT.
|Payer's withholding for employees includes various taxes. Independent contractors pay personal income tax, municipal tax, church tax, and VAT.
|Remuneration and Payment
|Employees paid monthly via automatic deposits. Independent contractors issue invoices with no standard payment terms, agreed upon between the contractor and employer.
|Workers' Rights and Benefits
|Employees enjoy various rights and benefits.
|Independent contractors aren't entitled to these rights unless specified in the contract.
|Employees paid from the 15th to the 30th day of the month.
|Independent contractors issue monthly invoices with net 30-day terms.
This table succinctly captures the key distinctions between employees and independent contractors in Denmark, considering legal frameworks, hiring practices, tax considerations, remuneration, workers’ rights, and payment schedules.
Employment Contracts in Denmark
In Denmark, employment contracts are regulated by national acts, collective agreements, EU legislation, and local labor courts. The scope covers open-ended and fixed-term agreements, excluding those under the Seamen’s Act. Employers must furnish essential employment details within a month, encompassing names, job descriptions, start dates, and salaries. For posted workers, additional information, such as duration abroad and return conditions, is mandatory. Employers must promptly communicate any changes to employment terms, ensuring compliance with the Danish Appeals Authority’s Employment Committee. Non-compliance may result in compensation for employees, capped at 20 weeks’ salary for severe cases. The Act, effective since July 1, 1993, applies to agreements made on or after this date, with transitional provisions for existing agreements. Amendments have been introduced on specific dates, impacting sections as outlined in respective acts.
Denmark lacks statutory rules for standard working hours, typically defined by collective agreements or employment contracts, often set at 37 hours weekly. Usual working hours span Monday to Friday, 8 or 9 AM to 4 or 5 PM, with lunch breaks generally not factored into weekly hours.
The maximum average working week over four months stands at 48 hours, with an opt-out available if compliant with the Working Time Directive through collective agreements.
Overtime pay/ compensation follows collective bargaining agreements, commonly at 50% for the initial 3 hours and 100% thereafter. Employees may opt for time off instead of payment. Public holiday work warrants a 100% pay bonus based on the average salary.
Denmark does not have a prescribed probation period. Employers commonly institute a three-month probationary period, subject to a 14-day notice period.
Payroll in Denmark
Denmark does not establish a minimum wage for areas lacking a collective bargaining agreement. Public sector positions often adhere to collective bargaining agreements specifying the minimum wage, averaging DKK 110 per hour. While these agreements extend to certain private sectors like construction and hospitality, they don’t encompass the majority of salaried employees. Payment frequency is typically monthly, with payday varying between the last day of the month and the 15th of the following month.
The payroll cycle in Denmark is typically monthly, with payday occurring between the last day of the month and the 15th of the following month.
Mercans’s Payroll Capabilities
Mercans offers comprehensive payroll capabilities to ensure efficient and compliant payroll management. Our services encompass payroll cycle management, including setup, processing, and administration, for both employees and contractors in the local currency. We also handle statutory filings and payments, providing a seamless and reliable solution for your payroll needs.
Social Security in Denmark
Social Security Contributions
The Danish social security system, primarily financed through ordinary tax revenue, involves minimal social security contributions for employees and employers. Here are key details about social security, tax deductibility, contributions, rates, and other relevant aspects in Denmark:
|Employer Social Security Contributions
|ATP: Pension contributions made by the employer. DKK 2,272 per year -
AUB: Contributions from employers that fund apprenticeships and vocational training, also known as Reimbursement System. DKK 2,791 per year
AES: Contributions from employers towards occupational injury and disease. DKK 215-5,157 per year, depending on the type of work and risk to the employee
FIB: Financing of ATP contribution for those without a job due to sickness, maternity leave, or unemployment. DKK 592 per year -
Maternity leave fund: Employers are obligated to contribute to the maternity fund. DKK 1,350 per year -
Payment during holidays or holiday allowance (in Danish: "Feriepenge"): Hourly-paid employees are entitled to holiday allowance paid quarterly into FerieKonto (monthly for hourly-paid employees). 12.5% of the employee's salary. Monthly paid employees, who are entitled to compensation during sickness, get paid holiday instead of holiday allowance (in this case allowance becomes 1% of wages). The 1% holiday allowance is paid once a year in May (the payment of holiday allowance for monthly paid employees happens two times a year, one in May and one in August) -
AFU: The Danish Labor Market Fund for Posted Workers ensures employees posted to Denmark receive wages owing to them. DKK 48 per year
Denmark Employee Hiring Cost
In Denmark, hiring an employee involves various costs beyond the gross annual salary. For instance, if the gross annual salary is DKK 9,999.96, the total annual employer costs amount to DKK 8,050.44. This includes contributions to social security, labor market supplementary pension (ATP), and other public social security schemes. Therefore, the comprehensive annual cost incurred by the employer, encompassing both the gross salary and associated contributions, is DKK 18,050.40. It’s crucial for businesses to consider these additional expenses to accurately assess the overall financial commitment associated with hiring employees in Denmark.
|Gross Annual Salary
|Total Annual Employer Costs
|Aes (labour market insurance)
|Financing Contribution (FIB)
|ATP (Labour Market Supplementary Pension)
|Barsel.dk (Maternity contribution)
|AUB (Education contribution)
|AFU (Labor Market Fund for Secondary Persons)
|Administration of Holiday Fund
|Administration of Frozen Holiday Pay
|Ferietillæg (1% holiday appendix)
|Total Annual Cost
Annual Leave, Maternity Leave, Parental Leave, Sick Leave, Bereavement Leave, and Sabbatical Leave in Denmark are governed by comprehensive leave laws and regulations.
Holidays: Denmark observes various holidays, including the following:
|New Year’s Day
|Easter: Maundy Thursday, Good Friday, Easter Sunday, and Whit Monday
|Great Day of Prayer: Abolished as a public holiday from 2024 onwards
|Ascension Day: Falls 40 days after Easter Sunday, always on a Thursday
|Pentecost: Whit Sunday and Whit Monday
|Closing Days (Danish Closing Act)
|31 December (after 3:00 pm)
|New Year's Eve
|Days Off (Collective Agreements)
|International Workers’ Day
|New Year’s Eve
|Other Celebrations and Special Days
|Birthday of H.M. Queen Margrethe II of Denmark
|Second Sunday in May
|Mother’s Day in Denmark, Finland, the Faroe Islands, Greenland, and Iceland
|Father's Day – Unlike in Finland, Iceland, Norway, and Sweden, where Father's Day is in November
|Greenland's National Day
|National Day of the Faroe Islands, Ólavsøka
|Flag day for Danish military personnel posted abroad
Paid Time Off (PTO):
Vacation/Annual Paid LeaveEmployees are entitled to up to 10 weeks of paid annual leave during the transition year, with a maximum of five weeks in the transition period.
Use-it-or-lose-it policyParties can agree on alternative holiday arrangements, and excess leave can be carried over to the following year.
PTO Payout at TerminationEmployers must account for and pay any accrued and outstanding holiday pay when the employment relationship ceases.
Maternity, Paternity, and Adoptive Leave:
Maternity LeavePregnant employees can take 4 weeks before the due date, followed by 14 weeks of mandatory maternity leave. An additional 32 weeks of parental leave can be shared and extended up to a maximum of 46 weeks.
Paternity LeaveFathers are entitled to 2 consecutive weeks of paid paternity leave and up to 32 weeks of shared parental leave, extendable to 46 weeks.
Adoptive LeaveAdoptive parents are entitled to 4-8 weeks of leave for adopting a child from abroad and 1-2 weeks for adopting a child in Denmark.
- Employers pay for the first 30 days of sick leave, followed by up to 22 weeks covered by social benefits. Eligibility criteria include past employment hours, vocational training, and apprentice status.
Dependent Care Leave:
- Employees can take up to 5 days of paid leave per child within 12 consecutive months when hospitalized with their children under 14 years.
- Employees who lose a child before the age of 18 are entitled to 26 weeks of unpaid leave.
While there is no legal obligation in Denmark to provide a 13th-month salary payment, employers commonly extend bonuses to their employees.
Employee Termination, Severance Pay and Notice Period
Employers must have a valid reason, such as incompetence or organizational needs, to terminate an employee. If dissatisfied, employers usually issue warnings to provide an opportunity for improvement.
For white-collar workers with 1 to 12 years of service, the severance pay is 1 month; for blue-collar workers covered by a collective agreement, severance pay is applicable if employed for at least 3 years. The payment is a multiple of either 5,000 DKK or calculated based on a specific formula. The monthly severance pay is determined as the monthly salary minus 15% and minus the monthly unemployment benefit. This amount is paid in one portion after 3 years of service, two portions after 6 years, and three portions after 8 years. However, due to high initial replacement rates, severance pay is rarely disbursed. The calculation involves averaging across white and blue-collar workers.
The notice period, applicable to both parties, is specified in the employment contract or collective agreement. Under the Act on Salaried Employees, employees must provide one month’s notice before resigning, while employer regulations vary based on the employee’s tenure.
Personal Income Tax
Individuals in Denmark are subject to national income tax, municipal tax, labour market tax, and church tax. Under the ordinary tax scheme, various types of income are considered, including personal income, capital income, taxable income, share income, and property value. These income types are taxed at different rates, affecting the value of deductions based on the specific income category.
|Tax Rate (%)
|Municipal Tax (average)
|Labour Market Tax
|Up to DKK 58,900
|More than DKK 58,900
Work Permit in Denmark
Denmark offers various work permits tailored to the location of employees and their intended activities in the country. Citizens from Nordic countries, such as Finland, Iceland, Norway, and Sweden, enjoy streamlined access without the need for specific work or residence permits. Likewise, family members from these Nordic nations can easily join individuals working in Denmark.
For citizens of the European Union (EU) and the European Economic Area (EEA), no visa is required for living, working, or studying in Denmark. However, adherence to the immigration rules set by the Danish Immigration Service and the Danish Agency for International Recruitment and Integration is essential. Other non-Nordic citizens must undergo a visa application process, enabling a 90-day stay. For those intending to stay longer, obtaining a residence and work permit becomes imperative.
Among the various work visas available, the Fast-Track Scheme, Pay Limit Scheme, and Positive List stand out as the most common. These encompass diverse categories such as research and pay limit visas.
Requirements for Denmark Work Visas
EU nationals seeking a Denmark working visa need specific documents, including a valid passport or national ID, a passport-size photo, a completed application, and documentation justifying residence as a worker.
Non-EU citizens must meet specific criteria and submit essential documents. This includes proof of visa fee payment, a passport copy, a power of attorney form, and either an employment contract or an official job offer. Certain visas may necessitate evidence of educational qualifications, Danish authorization for regulated professions, and other stipulated requirements.
Applying for a work visa in Denmark is a relatively quick and straightforward process compared to some other countries. However, due to the extensive list of requirements, applicants should be prepared for potential delays. Employers need to be well-versed in the application steps to ensure a smooth process.
Navigating Denmark’s employment landscape is made seamless with Mercans’ expertise. Our comprehensive solutions ensure compliance with intricate regulations, enabling a smooth and successful employment experience in this dynamic environment.