Employee Benefits and Compensation in Denmark: A Complete Guide

What are Employee Benefits?

Employee benefits are additional perks and benefits the company offers all its employees. These benefits are selected based on corporate policy and compensation plans.

Both employees and companies benefit from employee benefits in several ways. These lower workforce turnover while maintaining employee motivation. Businesses can attract top talent in the market by providing additional perks with compensation.

Denmark is an employee-friendly country where collective bargaining agreements define how employers should offer benefits to employees. Companies must stick to the agreements and keep their employees motivated and satisfied. 

In addition to the mandatory perks stipulated by the government and the collective agreements, the employees also receive supplemental benefits like a company car, health insurance, etc. 

Compensation Laws in Denmark

Several compensation laws govern the benefits and compensation policy in Denmark. While collective bargaining agreements regulate most benefits, the government also plays an active role in designing compensation laws. Some of the regulations include:

• The Danish Act on Equal Pay states that both men and women will be paid equally if the nature of the work is the same.
• As per the Salaried Employees Act, the employer must give notice to the employee before terminating their employment contract.
• The New Holiday Act 2020 states that the holiday year will run from 1st September to 31st August next year. The employees will earn 2.08 days of leave every month under this act.
• The labor law of Denmark states that if an employee works for more than 37 hours, the company must pay overtime ranging between 150% to 200% to these employees.

How to Design an Employee Benefits Program for Employees in Denmark?

The compensation structure in Denmark depends on the benefits that are a part of the employee’s pay. You must have a budget before you start with the activity. 

Let’s look at some crucial steps in creating a compensation and benefits policy in Denmark.

Step 1: Decide your goals and budget

Creating a benefits plan will be easier with a budget. Additionally, you must decide on the objectives that your benefits program must achieve. These objectives will depend on the company’s and the industry’s size. Moreover, you should also examine various collective bargaining agreements while creating the goals for your benefits plan. 

You can consider the following aspects while defining the objectives of your benefits plan in Denmark. 

• Stimulating and motivating the present staff while bringing in new talent
• Creating employee benefits in Denmark while adhering to the decided budget
• Considering all applicable labor laws in Denmark and the collective bargaining agreements.

Step 2: Conduct research on the industry standards and gauge employees’ expectations

Look into the established industry standards and the benefits your competitors provide to make the plan appealing to your employees. You can use these insights to build a competitive compensation and benefits plan in Denmark. 

Apart from the industry standards, you must understand what your employees expect from your benefits plan. You can draft a survey and circulate it to the employees to understand their expectations. The survey results also highlight a few gaps in the plan that you can fix internally. If the survey indicates that a particular benefit will go to waste, you can cut your costs by eliminating that benefit.

Step 3: Add flexibility

Work on developing a compensation structure that accommodates the various needs of every employee. Employers must consider pertinent criteria while creating a flexible benefits plan.

Companies must communicate the usability and the limits they decide for a particular benefit to all the employees.

Step 4: Communicate

When you have a benefits plan, you can let everyone know about the usability and limits of the plan. They can go through the initial plan and provide feedback if any. You can incorporate any relevant suggestion to enhance its value.  

If the employees are disinterested in a benefit, you can try to modify it or remove it altogether. As a benefits curator, your primary objective should be to provide usable employee benefits.

Step 5: Analyse the plan

Businesses work in a setting that is quite dynamic. As a result, your plan should be adaptable to any modifications. Before finalizing it, you must test your Denmark compensation structure in several business scenarios.

You must scan the benefits policy document for flaws or errors before releasing it on a company level. Additionally, examine each component of the benefits plan before beginning the implementation process. To assess the efficiency of the strategy and the entire activity, you must also develop a few measurement metrics to understand how the benefits plan is working.

Types of Guaranteed Benefits in Denmark

Here are some guaranteed benefits that help employees during their tenure with the company. 

Minimum wage

• The minimum wage is the primary component of workers’ compensation in Denmark. The collective bargaining agreements across sectors define the minimum wage for every industry.
• DKK 110 per hour is the generally accepted minimum wage across the country. 
• However, under the pay-limit scheme, the ex-pats have a pre-decided minimum salary that stands at DKK 448,000.

Working hours and overtime

• The maximum working hours in Denmark is 48 hours.
• However, most companies in Denmark have a 5-day working week where the employees work around 37.5 hours weekly.
• Employees who work beyond 37 hours a week are entitled to overtime pay. The overtime payments are decided through any collective agreements that exist.
• The employees are paid between 150% to 200% as overtime, depending on the sector’s collective bargaining agreement.

Paid leaves

• The employees enjoy paid leave benefits in Denmark. The standard number of days given as paid leaves is 25 days in a year. 
• The employees earn 2.08 days of paid leaves on completing their service with the company every month.
• The employees also get a holiday supplement of 1% from their regular salary during the paid leaves—however, the supplement rate increases to 12.5% for blue-collar employees.

Public holidays

• Denmark follows a list of statutory public holidays defined by the Danish Closing Act and the collective bargaining agreements.
• In a regular year, there are 12 public holidays in Denmark. Some of them are New Year’s, Good Friday, Easter, etc. 

Sick leaves

• The employees in Denmark can take sick leave of up to 30 days. 
• The employees receive their regular salaries during the 30-day sick leave period if they have been employed with the company for the last eight weeks or worked for at least 74 hours before taking sick leave.
• Employees who take sick leave beyond 30 days receive their salary from the municipality.
• However, the employee must have worked for at least 240 hours in the last six months to receive the amount from the municipality.
• The maximum sickness benefit an employee can avail of is DKK 4,460 for a week or DKK 120.54 for an hour.

Maternity leaves

• The employees enjoy flexible maternity benefits in Denmark. A pregnant employee can take a maternity leave up to 24 weeks post childbirth.
• Out of the 24 weeks, it is mandatory to take a 2-week leave post the birth of the child. 
• Also, companies in Denmark allow pregnant women to take a 4-weeks leave before their due date.
• According to the Danish Salaried Employees Act, eligible employees are allowed to receive 50% of their regular wage from their company during their maternity leave period.

Paternity leaves

• In Denmark, fathers are given a mandatory paternity leave for two weeks to post the child’s birth. They can also avail of an earmarked paternity leave of 22 weeks.
• However, the company policy decides if they would pay the employees for these leaves. 

Annual bonus

• There are no legal requirements for businesses to pay an annual bonus to their employees.
• However, a few companies in Denmark offer different types of bonuses to their employees to incentivize them.

Employee Benefits for Expatriates

The perks and benefits available to local employees in Denmark also apply to foreign workers. While working in Denmark, ex-pats can benefit from health insurance and travel allowances, which all companies typically provide. Expats have access to the following perks in addition to the benefits required:

• Cost of housing or lodging
• Travel expenses
• Meal stipends

The security system in Denmark also covers the expatriates. They enjoy maternity benefits, sickness benefits, etc., just like any regular employee from Denmark. Expatriates are entitled to all the benefits as agreed upon by the employer during their employment. The employers should include the list of perks in the employment contract, so everything is clear at a later stage. 

How are Employee Benefits Taxed in Denmark?

The employer pays for all the employee benefits that an employee enjoys. However, the employees might have to pay taxes on these benefits depending on their nature and the federal laws governing them. If the company offers any education or skill-based allowances, the employees don’t pay any taxes on these benefits. 

However, special rules apply to allowances and benefits, like free accommodation, mobile charges, etc. If the value of the benefits provided by the employer exceeds DKK 6,500, they are taxable. These benefits primarily include work trips. If the company offers any benefits not directly linked with work, the employees will have to pay taxes on these benefits if their value exceeds DKK 1,200. An employee’s tax rate depends on their income slab.

Restrictions for Denmark Benefits and Compensation

Most fringe benefits are taxed in Denmark. You must understand the monetary worth of these benefits to calculate the employee’s tax liability. All tax payments must be made on time to the appropriate federal agencies and tax authorities by the employer.

Make sure your firm is lawfully formed in Denmark, and you are permitted to do business there before establishing an employee compensation policy in Denmark. Employers must pay employees the minimum wage mandated by their respective sectors as the government decides. While putting together a compensation package in Denmark, you must duly consider all the labor laws that the Government formulates.

Supplemental Benefits for Employees in Denmark

 Here are some of the supplemental benefits offered to employees in Denmark. 

Career development allowance

Several companies in Denmark offer a career development allowance. This allows employees to take an online course or training and upskill themselves. Some companies also allow their employees to take a few days off to study. 

Health insurance

All companies provide free medical benefits for employees in Denmark so that the employees don’t have to bear the cost of any treatments. Some employers offer their employees oral and vision coverage as additional health insurance benefits. 

Private pension fund

Private pension plans are a standard benefit in Denmark, to which the employer and the employee make joint contributions ranging from 5% to 10% of pay, depending on the company policy. Offering a private pension in addition to the pay package increases an employer’s competitiveness and makes them more lucrative because governmental pensions are modest.

Flexible working hours

While it is mandatory for employees to work at least for a duration prescribed by the Government, the employees have a choice on when they want to complete these hours. The employees have the flexibility to choose their timings, ensuring that they have a work-life balance.

Supplemental benefits vary across companies and are given per the company policy and their employee compensation policy in Denmark. 

How Multiplier Can Help with Benefits Management in Denmark

When starting a business abroad, finding suitable employees who contribute to their full capacity may take much work. Employers must follow local laws and ordinances when creating employment contracts and offering employee benefits. You can use this strategy with the help of a global PEO platform like Multiplier.

By helping you follow Denmark’s labor laws, Multiplier gives you access to knowledgeable employees who know about different aspects of the business. You won’t need to establish a subsidiary in the country to manage the personnel effectively with the help of our qualified specialists. Doing this can lower your labor costs and expand into new markets.