Introduction to Payroll in Denmark
The Kingdom of Denmark prides itself in offering workers flexibility and security, and attracting top talent in the country requires strict compliance with local employment legislation. Perhaps the most important bit of legislation to adhere to concerns payroll. Noncompliance with local labor laws not only risks potentially hefty fines and fees, but also hurts your relationship with your employees who might not get paid accurately or on time. To successfully navigate Denmark’s employment mandates, Skuad’s in-country expertise can support your payroll needs so you can focus on other areas of your business.
Skuad helps you conquer Denmark’s local labor laws spanning employee salaries, taxation legislation, deductions, bonuses, and more. Some examples include:
- Income, regional, or corporate taxes
- Social security, including health insurance, unemployment benefits, and pension
- Types of leaves and holiday compensation
- Other employee deductions
Payroll Process in Denmark
The payroll process is straightforward: pre-payroll, calculation, and post-payroll. What changes every process is the local legislation guiding its implementation.
The preparatory phase requires due diligence, as it's crucial for the success of forthcoming stages. The pre-payroll phase is where policy is set and inputs are collected and validated all in preparation for later stages.
Setting up the organization
Every organization will be unique in their philosophies, processes, and policies. Some of the important facets of your internal policies you need to standardize and prepare in the pre-payroll phase include:
Comprised of registered business numbers and other identifications, your business profile needs to be accurate and updated for any submission of statutory documentation later on, including invoices and tax forms.
It is best practice to customize policy based on place of work, even for multiple locations in the same country.
The different types of leave available for your employees will dictate rates and adjustments to attendance policy. It is critical that leave policy is clear, transparent, and compliant with local guidelines.
General attendance policy needs to be managed with the same high degree of accuracy and clarity. Overtime work, requests such as half-days and adjustments for performance-based bonuses — all of these factor into attendance policy. Furthermore, any tools used for attendance (biometrics, time sheets) need to be properly aligned and integrated into attendance policy.
The comprehensive coverage of Denmark’s labor laws span every facet of employment in the country. Often you will either need to secure in-house expertise or outsource to someone who can provide the in-country knowhow to successfully implement Denmark’s labor requirements into your internal policies.
An employee’s salary is a balancing act between mandatory guidelines and company policy. You’ll need to take a look at cost of living, market conditions, and industry averages to make a decision on base rates, and you also need to factor in deductions and benefits to complete your compensation package.
In Denmark, employers typically pay salaries during the last working day of the month. Always take into account local working norms when figuring out company pay schedules.
As mentioned before, the pre-payroll phase involves a lot of input gathering and validation. Much of the required information is employee information, as well as supporting documentation for anything that might impact salary calculation. This extends to invoices, reimbursements, and related material.
Payroll Calculation Phase
This stage is dedicated to the actual computation of wages. Local labor law dictates base rates and how deductions and mandated benefits work, but beyond that, company policies, differing base rates, and ongoing attendance adjustments make salary calculation complex and different for every employee. You can leverage software and payroll systems to make this work easier, given that they’re properly calibrated and aligned with the policies set during the pre-payroll phase.
This stage is when you send an advice to your payment processor or bank to implement salary disbursement. Again, software and solutions providers can help make this stage more cost-efficient through direct deposit features, automation, and other functionality.
You will need to account for salaries paid out as a significant business expense.
Payroll reporting and compliance
If you internally perform accounting, you’ll need to externally report the numbers. For compliance purposes, you will need to submit any statutory supporting documentation such as tax forms and invoices to the appropriate government body.
Want to see how the payroll process works? Get in touch with Skuad to see for yourself how payroll in Denmark is implemented.
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Payroll Processing in Denmark
With compliance concerns looming over every stage of the payroll process, it's highly recommended to outsource the effort to a trusted partner like Skuad.
Payroll Processing Company in Denmark
Skuad is a leading global HR platform and payroll processing solutions provider that can offer both the legal expertise to guarantee compliance and the platform to run seamless payroll procedures without any hassle.
Payroll Management in Denmark
Skuad also offers payroll management, which involves the maintenance of financial records and other payroll-related supporting documentation. This aspect of payroll is also guided by local labor law.
Payroll Compliance in Denmark
As a member state of the International Labor Organization (ILO) since 1919, Denmark is a key partner for the promotion of the organization’s standards for decent employment practices. The country’s labor laws are designed to protect and safeguard worker rights and put their welfare first, following standards set by ILO and further implementing locally suitable addendums.
Denmark’s labor laws are not codified under one act, but are spread among:
- The Salaried Employees’ Act
- The Holiday Act
- The Act on Restrictive Covenants
- The Discrimination Act
Payroll Components in Denmark
Gaining a working understanding of the components of payroll in Denmark is the crucial first step to ensuring compliance with the regulations that guide them. Payroll can be broken down into the base pay and the pluses and minuses. Essentially, it consists of the benefits and bonuses followed by taxes, contributions, and other deductions.
There are no nationally mandated minimum wages in Denmark. Instead, collective agreements largely govern all aspects of remuneration. Through these collective agreements, the minimum wage in Denmark is 110 Danish Krone, or DKK, per hour. It's equivalent to $16 USD per hour. Denmark’s exchange rate currently stands at $1 for every DKK 7.15.
Generally speaking, Danish employees work 37 hours per week. Employees typically set work hours Monday to Friday within the time frame of 6 a.m. to 6 p.m.
Overtime is also governed by collective agreements and employment contracts, with maximum overtime capped at 48 hours per week over the usual 37. Overtime is usually paid at 1.5x or 2.0x the normal base rate of pay.
Employers are required to contribute DKK 2,271.60 ($317.77) in social security contributions every year. Employees, on the other hand, contribute DKK 1,135.80 per year.
Employees in Denmark are entitled to paid sick leave of up to 30 days.
Parental leave in Denmark spans 50 weeks, where new mothers can take four weeks of paid leave before childbirth and 14 weeks after. Both new mothers and fathers can freely share 32 weeks of parental leave after that point.
There are a number of statutory public holidays in Denmark, in addition to “closing days” identified by the Danish Closing Act and days off decided upon under collective agreements. The public holidays are:
- New Year's Day
- Maundy Thursday
- Good Friday
- Easter Sunday
- Easter Monday
- Great Prayer Day
- Ascension Day
- Whit Sunday
- Whit Monday
- Constitution Day
- Christmas Day
- Second Christmas Day
Employees in Denmark are generally taxed up to 52.07% (55.9%, with labor market tax) of their income. There are different tax rates for various kinds of income (e.g. personal, capital, taxable) as well as a market labor contribution tax.
Other important aspects you may want to know are probation and termination. There are no nationally mandated probation terms for employees in Denmark; these are instead agreed upon between parties under contract, and seldom exceed six months.
Trade union agreements dictate the terms of termination, but generally, employees governed by existing agreements must be notified in the following manner:
- One-month notice period for employees who have worked for up to six months
- Three-month notice period for employees who have worked from six months to three years
- Four-month notice period for employees who have worked from three years to six years
- Five-month notice period for employees who have worked from six years to nine years
- Six-month notice period for employees who have worked for over nine years
Looking for a deeper understanding of payroll in Denmark? Book a demo and Skuad’s experts can help.
Outsourcing Denmark Payroll Processing
For many growing businesses, outsourcing to remote workers is a vital part of their strategy for scaling internationally. This translates to compliance issues not only in Denmark, but anywhere else they want to engage remote employees. All of these compliance concerns require extensive in-country knowledge and can bog down HR and payroll processes, so partnering with an expert provider like Skuad is often a best practice for companies looking to continue their growth.
A global HR and payroll processing solutions provider like Skuad is invaluable for navigating the complexities of local labor compliance. Furthermore, Skuad’s capability as an HR platform can help you get set up almost anywhere else in the world.
Ready to outsource payroll in Denmark and focus on scaling your business? Book a demo from Skuad now.