Focus on: Employment in Denmark

Introduction to the Danish labour market

The Danish labour market consists of small and medium-sized enterprises as well as large multinationals. Generally, the business sector is characterised by an excellent ability to adapt to market changes and a workforce with a high level of individual specialisation and education.

 

The Danish Model

The Danish labour market, the so-called “Danish Model”, has three main features:

1. bipartite/tripartite cooperation,
2. influential social partners (employers’ organisations and trade unions), and
3. collective agreements as one of the most important sources of regulation in labour and employment law matters.

Additionally, Denmark is known for “Flexicurity”.

 

Flexicurity

The Danish labour market is often characterised by what is known as “Flexicurity”. In an international perspective, this is a hybrid model combining the flexibility, i.e. job mobility, seen in some jurisdictions with the high degree of social security found in the Scandinavian labour markets. In brief terms, Flexicurity combines three main elements:

• Flexible hiring and firing rules due to, among other things, relatively short notice periods and either low severance pay or no severance pay at all
• An active labour market policy concerning the duty and right to participate in welfare to work programmes
• A high level of accessible benefits (social security) in case of unemployment

The fact that it is relatively easy to recruit, redeploy, fire and/or re-hire employees in Denmark is one of the reasons why the Danish Model is so flexible, and it is also one of the primary reasons why employers in Denmark are able to scale their workforce and quickly adapt to market changes with relative ease.

 

Sources of regulation and bipartite/tripartite cooperation

In Denmark, there are two primary sources of regulation on the labour market: legislation and collective agreements. Labour and employment law matters that are not regulated under legislation or collective agreements are subject to individual agreement only.

Legislation

Unlike many other European countries, Denmark does not have a general labour act laying down minimum entitlements for all employees. Instead, labour and employment legislation comprises multiple acts laying down either entitlements and obligations applicable for all employees or regulation protecting specific types of employees. For example, the Danish Anti-Discrimination Act, the Danish Holiday Act and the Danish Working Environment Act confer entitlements and obligations applicable to all employees. On the other hand, the Danish Salaried Employees Act provides minimum entitlements on, for example, notice periods, protection against unfair dismissal and pay during sickness absence for salaried employees (i.e. white-collar employees performing certain types of work) only, and there are similar acts laying down entitlements for seamen, vocational trainees, civil servants, etc. There is no act conferring entitlements for blue-collar employees in general.

Many employment terms and conditions are not regulated by law, including minimum pay, pension, average weekly working hours (except the European 48-hour rule), overtime pay, etc. As such, many terms and conditions are only regulated by individual agreement or collective agreement, if any.

Tripartite cooperation

Historically, the government has intervened as little as possible in the social partners’ ability to agree on labour matters in collective agreements and has, thus, left many employment conditions unregulated. However, due to, among other things, an increase in EU regulation of labour and employment law matters, Denmark has seen an increase in legislation in the field.

The government generally consults the social partners on most legislative initiatives concerning labour and employment law matters, even for issues that are normally regulated by law. The social partners have a great influence on the majority of legislation and initiatives concerning labour and employment law.

Collective agreements – bipartite cooperation

There are no generally binding collective agreements in Denmark. There is, however, a long-standing tradition for the social partners to enter into sectoral collective agreements and for unassociated, individual employers to enter into collective agreements with trade unions at company level. The collective agreements regulate key terms and conditions such as pay, pension, working time, paid and unpaid leave and supplementary training.

Employers become covered by collective agreements either because they become members of an employers’ organisation or conclude a collective agreement directly with one or more trade unions (either a collective agreement drafted specifically for the employer in question or an accession agreement to an existing sector-wide collective agreement). There are no up-to-date statistics on the coverage of collective agreements on the Danish labour market, but some estimate that about 70-80% of the labour market is covered by collective agreements. Typically, employers with blue-collar employees are more inclined to enter into collective agreements, whereas many private-sector employers employing only white-collar employees with higher education do not enter into collective agreements. One of the primary reasons for this tendency is that blue-collar employees are conferred very few entitlements by law, whereas salaried employees are (relatively) well-protected under the Danish Salaried Employees Act.

For most collective agreements, it is a difficult process to opt out of or terminate the agreement once an employer has become a party to it. For this reason, it is very important for employers in Denmark to carefully consider whether they wish to become a member of an employers’ organisation and/or enter into one or more collective agreements directly with any trade unions.

Individual agreements

Any matters not regulated by law or collective agreement are subject to individual agreement between the employer and the employee. As such, for employers that are not covered by any collective agreements, there is a very high degree of flexibility when deciding what terms and conditions to offer (pay, pension, working time, paid and unpaid leave, supplementary training, etc.).

The current employment situation

Currently, the employment rate in Denmark is very high with an unemployment rate at only 2.9% in the beginning of 2024. As a result, many employers in both the private and the public sector are struggling to attract and retain qualified employees.

High income tax

As the Danish welfare system is largely financed through taxation, the high level of accessible benefits in case of unemployment (as well as other welfare services) have resulted in income tax rates that are generally considered very high. For example, the top marginal tax rate is 55.90% in 2024.

To enable employers (that are Danish tax subjects) to recruit skilled talent from abroad, there is a special tax scheme in place for highly paid foreign employees or scientists, allowing them to be taxed at a flat effective tax rate of 32.84% for up to 7 years, subject to certain conditions.

Legislation and labour market trends to note

These are some of the statutory entitlements and associated potential issues that are relevant for many foreign employers to note:

• For salaried employees, the legislation on variable cash-based incentive plans is quite restrictive compared to other jurisdictions. Salaried employees are, as a starting point, entitled to a pro rata part of their variable cash-based incentives based on the period in which they are employed (i.e. until the effective date of termination). A condition of continued employment at the payment date is, as a starting point, not enforceable.
• The taxation of variable incentives, whether cash-based or share-based, is relatively complex, especially if a scheme includes claw-back or deferral mechanisms, and using schemes based on legislation in other jurisdictions may cause issues. Some benefits, such as company car and mileage allowance, are also subject to complex tax regulation compared to many other jurisdictions.
• The use of restrictive employment clauses (post-termination restrictions) is very strictly regulated. Any failure to meet all applicable requirements under Danish law, including failure to provide the required information to employees, will result in restrictive employment clauses being completely invalid.

These are some of the trends that are relevant for many foreign employers to bear in mind, especially if they are looking to recruit talent in the Danish labour market:

• In recent years, many Danish employers have increased their contractual benefits related to paid leave in connection with childbirth and adoption.
• Although there is no obligation for employers to make pension contributions, employers can set up a tax-privileged pension scheme, and many employers with more than a few employees choose to do so. It is quite common for the employers’ pension contribution to be 8-10% of the base salary.
• There is currently focus on work/life balance. Due to the low unemployment rate and a shortage of labour, the government is working towards more full-time and fewer part-time employees in the public sector, but more and more employees in both the public and private sector wish to reduce their working hours and/or working days.
• After the corona pandemic, many employees have become accustomed to working remotely. While many employers are mandating that employees return to the office, at least some of the time, many white-collar employees expect to have a relatively high degree of flexibility regarding remote work.

 

Recent developments in Danish employment law

Amendment of the Danish Act on Statement of Employment Terms and Certain Working Conditions

On 1 July 2023, the new Danish Act on Statement of Employment Terms and Certain Working Conditions entered into force. The Act implemented the EU Directive on transparent and predictable working conditions. With the Act, the list of information that employers must provide to employees in writing (either in employment contracts or other documents) was expanded, and the deadline for providing the information was reduced to 7 days from the commencement date of employment (for some types of information).

Furthermore, new substantive rules entered into force. The most relevant new substantive rule is that employees are now entitled to take up parallel employment, provided it can be carried out outside the working hours of their main employment and provided it is not incompatible with the main employment due to, for example, conflicts of interest. Another relevant change is that for employees with unpredictable working hours, employers can only require the employees to work at specific times if the employer has provided information in writing on the reference days and hours during which the employer can require them to work.

The Act necessitated an update of template employment contracts and company policies, and many employers had to provide addenda to existing employees’ employment contracts.

Changes to statutory entitlements on childbirth-related leave

In 2022, a major amendment of the Danish legislation on the entitlement to leave in connection with childbirth and adoption entered into force. On 1 December 2023, new rules took effect regarding “social parents” and “close relatives”.

For children born or adopted from 1 January 2024, legal parents may transfer some of their maternity, paternity and/or parental leave to social parents. Social parents are defined as a) a parent’s spouse or cohabiting partner who is intended to have a parent-like relationship with the child and who is not the child’s parent, b) a known donor who is intended to have a parent-like relationship with the child and who is not the child’s (legal) parent, and c) a known donor’s spouse or cohabiting partner who is intended to have a parent-like relationship with the child and who is not the child’s (legal) parent.

Likewise for children born or adopted from 1 January 2024, a solo parent may transfer some of their parental leave to close relatives. A parent is considered a solo parent if: 1) one of the child’s parents is dead, 2) the child is adopted by a solo parent, 3) the child has been born through assisted reproduction technology and the donor is not a legal parent, or 4) the child’s mother is a surrogate mother who is not considered a parent under the laws of the country of birth. A close relative of a solo parent is defined as: a) the solo parent’s parents and siblings (including half-siblings) of 18 years of age, and b) a dead parent’s parents and siblings (including half-siblings) of 18 years of age.

Currently, employees who have three or more children at the same time are entitled to an additional 26 weeks of parental leave to be shared between the parents. The government has proposed a bill under which this entitlement might be changed so that parents who give birth to two or more children are entitled to an additional 13 weeks of parental leave each (no longer shared) from 1 May 2024. Solo parents will be able to request 13 weeks additional leave to be taken by a social parent or close relative.

Many employers need to update their company policy on leave in connection with childbirth and adoption, if any, to take the new rules into account.

 

The Danish Whistleblower Act

The Danish Whistleblower Act entered into force on 17 December 2022. On 17 December 2023, the scope of the Act was extended to include private-sector employers with 50-249 employees which are, thus, now also required to have a compliant whistleblower scheme in place.

 

Abolishment of Great Prayer Day as a public holiday

On 1 January 2024, the Danish Act on the Consequences of the Abolishment of Great Prayer Day as a Public Holiday entered into effect. Great Prayer Day was a public holiday falling on the fourth Friday after Easter, but it has now been abolished as a public holiday and is therefore, as a starting point, a normal working day. Great Prayer Day was the first public holiday to be abolished in more than 200 years.

Any provisions providing special terms and conditions for salary and employment on public holidays in legislation, collective agreements, individual contracts, company policies, etc. no longer apply in relation to Great Prayer Day. If employees’ effective annual working time has increased as a result of the Act, the employees are entitled to compensation. Employees paid by the hour are compensated with their agreed usual pay, exclusive of any public holiday allowance etc. Employees receiving a fixed (usually monthly) salary are entitled to a pay supplement of 0.45% of their annual remuneration (calculated in the same way as remuneration during paid holiday under the Danish Holiday Act) that accrues concurrently and must be paid with the fixed salary it relates to or with the salary for May and August.

The Act and the preparatory works thereto were relatively unclear on a number of issues, meaning there is still some uncertainty regarding the application of the Act. For example, it has been widely debated whether it is possible for employers to derogate from the Act, e.g. by providing extra paid leave instead of pay supplement, either unilaterally or by mutual agreement with the individual employees. It has also been widely debated how exactly the pay supplement must be calculated. The outstanding uncertainties will most likely not be clarified until the courts have decided cases regarding these issues.

The Act necessitated an update of employment contract templates and, for some employers, company policies, and many employers had to provide addenda to their existing employees’ employment contracts.

 

Amendment of the Danish Holiday Act

On 31 December 2023, an amendment of the Danish Holiday Act entered into force. The Act (re)introduced various obligations and entitlements, of which the following are the three most important:

• The Act introduced an entitlement for employees who have less than 1 day of holiday remaining after the end of the holiday year/accrual period, i.e. after 31 August, to require the employer to pay out the holiday.
• The Act reintroduced an obligation for employers to pay out untaken holiday beyond 4 weeks after the end of the holiday period, i.e. after 31 December, if the value of the holiday does not exceed the threshold of DKK 5,000 before tax and labour market contribution for employees entitled to holiday with pay and DKK 3,000 after tax and labour market contribution for employees entitled to holiday pay.
• The Act reintroduced an option for employers to pay out untaken holiday to employees in connection with termination of employment, provided the value of the untaken holiday does not exceed DKK 2,500 after tax and labour market contribution.

 

Changes to immigration law

In recent years, the government has introduced – and is still introducing – initiatives to enable employers in Denmark to recruit foreign employees more easily.

For example, in 2023 a new “supplementary pay limit scheme” was introduced, allowing employers to hire and obtain work permits for foreign employees with a minimum salary of DKK 393,000 per year (in 2024), subject to certain additional requirements, as opposed to the minimum salary of DKK 487,000 (in 2024) under the regular pay limit scheme.

Further, from 17 November 2023, a new exemption from the requirement to have a work permit when working in Denmark entered into force. Employees of a foreign company that is in the same group of companies as a Danish company with at least 50 employees may now, subject to certain additional conditions, perform work in Denmark for the Danish company for two separate periods of up to 15 days in any 180-day period without obtaining a work permit.

In 2024, the government intends to propose a bill to, among other things, abolish the requirement to pay salary to employees with a work permit into a Danish bank account under some occupational schemes and to change the deadline for using a Danish bank account from 90 to 180 days for other schemes. As it is often an issue for foreign employees to obtain a Danish bank account within 90 days due to the anti-money laundering obligations and processing time of banks, the proposed change will make it easier to comply with the legislation when employing foreign employees.

 

Registration of working time and exemption from working time regulation

On 23 January 2024, an act amending the Danish Act on the Implementation of the EU Working Time Directive was adopted. This Act will, among other things, implement the conclusions reached by ECJ  in the ruling in the so-called COOO/Deutsche Bank case. The Act will enter into effect on 1 July 2024, and it contains several elements, two of which will be relevant to all employers:

 

Registration of working time

Employers will be required to implement an “objective, reliable and accessible” system for recording individual employees’ daily working hours for the purpose of ensuring (and documenting) compliance with the applicable rules on daily and weekly rest periods (11-hour and 24-hour rules) and maximum weekly working hours (48-hour rule).

The Act does not specify how the system should be designed, and the legislature has emphasised that employers have a high degree of flexibility in this regard. The system must, however, meet these minimum requirements:

• The system must allow for registration of the individual employees’ daily working hours.
• Employees must be able to access information about themselves in the system.
• The information must be stored for 5 years (from the end of the 4-month reference period in accordance with the 48-hour rule).

During the Parliament’s reading of the Act, the Ministry of Employment stated that, in the Ministry’s opinion, it will fulfil the requirements of the Act if the system can register the total number of hours worked by the individual employees per day, whereas it is not required to register the time of day at which the work is performed. Further, it was specified that if an employee works according to, for example, fixed working hours or a work schedule, it will fulfil the requirements if the working hours are registered in advance and any deviations are then registered on an ongoing basis as work is performed.

 

Exemption for “self-organisers”

The Act introduces a possibility of exempting certain employees from the rules on maximum weekly working hours, the entitlement to a daily break and the working time rules regarding night work. The exemption can be applied to employees who meet the following conditions, i.e. the so-called “self-organisers”:

• the employee’s working hours must either have a length that cannot be measured or determined in advance, or the employee must be able to organise their working hours themselves; and
• the employee must either be able to make independent decisions, or the employee must perform managerial functions.

The exemption only applies if it is agreed and specified in the self-organiser’s employment contract or an addendum to the employment contract. It is not specified in the Act which categories of employees can be considered self-organisers, or how this assessment should be made. What is clear, however, is that the number of employees who can be considered as self-organisers is expected to be limited.

If self-organisers can be exempted from the rules on rest periods, they can also be exempted from the requirement to register the number of daily working hours.

 

By Yvonne Frederiksen