Employing foreign workers in Denmark

The practice of sending foreign workers to Denmark is becoming more common among businesses. As markets globalize and international cooperation grows, companies are looking for opportunities to expand and grow overseas. For many foreign businesses, Denmark offers an appealing environment with its stable economy and well-developed labor market, making it a desirable location to deliver services and carry out projects. However, posting employees abroad comes with numerous formalities and responsibilities for both the employer and the employee.

Employers who send employees abroad must be aware that they are not only required to follow labor, social security, and tax laws, but also international regulations regarding worker postings and social security coordination. Additionally, it is likely that the local regulations of the country where the employee will be stationed will need to be followed.

Regulations for sending employees abroad

If you are employed abroad or operate a business offering services in Denmark, it is essential to be aware of and adhere to the applicable laws. When working temporarily in Denmark for a foreign company providing services, you must comply with the Posting of Workers Abroad Act.

As a posted worker, you are entitled to a safe and healthy work environment, with the same rights as Danish employees. You must also follow Danish laws related to equal treatment, wages, non-discrimination, and specific working time regulations. When it comes to leave, you are generally governed by the rules of your home country, but you are assured of the minimum standards outlined in the Danish Holiday Act.

The posting of employees is temporary in nature - it is intended for a defined period and cannot be a permanent arrangement.

An employer can extend the posting of an employee for a short-term period up to a maximum of 18 months by providing a valid notice of extension before the original 12-month posting period ends. The host country typically requires the employer to justify the extension, but the employer cannot contest the reasons. The extension is regarded as an informational duty of the employer, not a request, meaning the host country cannot refuse the extension.

If proper notice is given, the posting employer is required to maintain the working conditions set for short-term postings throughout the entire duration, up until the 18-month period ends.

What does international labor outsourcing mean?

International labor outsourcing occurs when employees from a non-Danish company are assigned to work for a Danish company, carrying out tasks essential to the Danish company's operations.

The work may be a core service of the company or a regular part of its operations, like bookkeeping, cleaning, or cafeteria management. The crucial element is whether the employee is effectively under the control of the Danish company in a way typical of an employee.

When is a situation not regarded as international hiring-out of labor?

Non-Danish employees are not governed by the regulations for international hiring-out of labor if the work they perform:

is not a crucial part of the company's core services or operations, or
has been outsourced to a separate non-Danish business.

Evaluating the Distinction of Services

When there is doubt about whether the services are adequately separated, a detailed evaluation is necessary to determine if the work is well-defined and belongs to an independent non-Danish company. In these situations, it is important to establish which party holds primary responsibility and assumes the majority of the financial risk related to the work being carried out.

When Are the Rules on International Hiring-Out of Labor Not Applicable?

The rules do not apply in the following cases:

The employee is fully liable for taxes in Denmark.
The employee is subject to limited tax liability for earnings in Denmark based on their residency status or because they are directly employed by a Danish employer.
The labor hire agreement is between two Danish companies, so it is not subject to international labor hire regulations.
The non-Danish employer supplying the labor has a fixed place of business in Denmark.
The employee is employed as an entertainer, musician, circus performer, or athlete.
The employer posting the employee and the posted employee.

Employee on assignment

A posted worker is someone who regularly works in a different country but has been assigned to Denmark for a set period by their employer as part of the services being provided.

The definition of a worker is determined by the regulations of the country where they are posted. In other EU, EEA, or Swiss countries, work performed under an assignment contract is considered semi-subordinate or co-subordinate work for the posting company. In practice, a posted employee may also be someone employed in a foreign country under a mandate contract.

A posted employee can also be a foreign national – a citizen of a non-EU country working for a company based or with a permanent establishment in an EU country, as long as they stay and work there legally. An employer can assign this employee to another EU, EEA, or Swiss country under the same conditions as an EU citizen. However, it is important to confirm that the host country does not require the employee to have a valid residence permit (e.g., a visa) to work.

Posting employer

If you are a business owner with a registered office or permanent establishment and employ staff, you can temporarily assign them to work in another EU country, the EEA, or Switzerland as part of your company’s services abroad. Delegation can take place under the following conditions:

In relation to fulfilling a contract between your company and an entity located in another country.
To a branch or subsidiary that is part of the same corporate group as your company.

A company that sends employees to Denmark to provide services must register in the RUT system (www.virk.dk/rut), managed by Erhvervsstyrelsen. The registration must be completed by the start of the work. For each new assignment, the company must re-register, providing details about the employees involved and the location where the services will be carried out.

A foreign company posts employees to Denmark in the following scenarios:

The company sends an employee to Denmark to provide services to a client, whether a business or an individual.
The company operates a temporary employment agency or similar service, allowing it to assign employees to a host company in Denmark.
The company sends an employee to work for a business that is part of the same group or otherwise affiliated with the posting company.

A requirement for being governed by the provisions of the Law on the Posting of Workers Abroad is the existence of an employment relationship between the worker and the company that posts or supplies the workers. Another condition is that the company sending the workers must have a genuine place of business in its home country, indicating that it conducts substantial operations there.

Employee on temporary assignment

Your employer may temporarily assign you to work in a different EU country. Throughout the posting period, you will be considered a "posted worker" and will have the same fundamental labor rights and working conditions as employees in the host country.

Temporary employees may be entitled to better employment conditions than those typically applicable. These improved conditions may be determined by:

host country regulations,
generally applicable collective agreements,
collective agreements specific to the particular employer where the employee is posted.

In any case, the employer receiving the posted worker must inform the temporary employment agency about the terms and conditions of employment at their company before the posting begins.

Deployment of drivers

The regulations regarding the posting of drivers apply to individuals employed by a company based in another EU country. A driver is considered posted to Denmark when they carry out freight or passenger transport, combined transport involving road travel, or international transport (excluding bilateral transport) within Denmark.

Posting of workers in agriculture

If a posted worker performs agricultural or domestic work and housing is provided as part of their salary, the employer must offer appropriate and modern accommodation, along with clean bedding and towels.

The employer must also cover the cost of insurance for the worker's personal belongings, at a rate comparable to standard household insurance.

Delegating white-collar workers

If a posted employee performs white-collar work, the employer is responsible for covering all travel and accommodation expenses in Denmark. This applies when an employee is sent temporarily from their permanent workplace in Denmark to work at a different location. White-collar work includes tasks typically found in fields such as trade, sales, and office administration.

Long-term and short-term assignments

There are two primary types of employee postings:

Short-term posting: up to 12 months
Long-term posting: over 12 months

The nature of the posting (short-term or long-term) influences the working conditions that must be provided to the posted employee.

Long-term posting

When posting an employee for over 12 months (or up to 18 months with reasonable notice in the host country), you must ensure that the employee receives all employment terms and conditions required by law or generally applicable collective agreements in the host country, except for the following:

Rules concerning the process and conditions for entering into or terminating an employment contract,
Provisions related to non-competition clauses,
Rules governing supplementary employee equity plans.

Short-term posting

If you post an employee for a duration of up to 12 months (or 18 months with reasonable notice in the host country), you must ensure that the employee’s employment terms and conditions adhere to the legal requirements or generally applicable collective bargaining agreements in the host country, covering the following aspects:

Minimum rest periods and maximum working hours,
Minimum paid annual leave,
Wages (including all mandatory components) as specified by national law or commonly applicable collective agreements,
Occupational health and safety,
Protective measures for pregnant women, women immediately after childbirth, and young workers under 18,
Equal treatment between women and men,
Accommodation conditions for workers in the host country, when supplied by the employer,
Allowances or reimbursement for travel, board, and lodging expenses, if required during the posting.

Conditions for posting temporary employees

If you operate a temporary staffing agency and assign employees to work abroad, you must ensure they receive at least the same employment terms and conditions as those given to temporary workers in the host country.

Legislation on the posting of workers abroad

The Law on Posting of Workers Abroad enacts the EU Directive concerning the posting of workers. This directive is designed to promote fair competition and safeguard workers' rights when they are posted to another member state.

The Directive guarantees that workers posted to an EU or EEA member state are entitled to specific working conditions that apply in the host country.

The Posting of Workers Abroad Act also enforces the EU Enforcement Directive, which seeks to improve the implementation of workers' rights under the Posting of Workers Act and to prevent abuse and circumvention.

Under Directive 96/71, the Danish Posting of Workers Act, implemented on March 25, 2011, does not set minimum wage requirements for foreign service companies employing posted workers in Denmark. Additionally, the act does not mandate companies from other EU member states to engage in collective bargaining agreements with Danish unions.

Taxes associated with posting workers to Denmark

The Danish Law L921 on tax for hiring foreign labor was implemented on September 19, 2012. This law applies to the employment of labor, and under it, the Danish entrepreneur for whom the work is carried out may be recognized as a "de facto employer" by the Danish tax authorities, in compliance with the double taxation agreement and the L921 Act.

The term "de facto employer" refers to an entrepreneur who directly utilizes the employee's labor and assumes responsibility and risk for the employee's work, as opposed to the formal employer with whom the employee is officially employed.

When an employee with a contract from one company (the former employer) works for another company abroad (the actual employer), this situation is referred to as "international hiring of labor." The Danish tax authorities (SKAT) have published a guide outlining the rules for the new tax on foreign labor hire. According to the guide, "international labor hire" involves employees employed by foreign companies who are sent to work for Danish businesses and perform tasks that are integral to the Danish company's operations. The international hiring of labor involves three parties:

A Danish company hiring the labor.
A foreign employer providing the labor, such as a temp agency or another company.
A non-Danish employee employed by a non-Danish employer.

The terminology used for the labor supply contract, whether it is called an international hiring-out of labor contract or a project contract, is not important. What matters is whether the non-Danish employee is effectively working for the Danish company under conditions that are similar to being employed by the Danish company itself.

Work that is considered an essential part of a Danish business encompasses both core business tasks and routine services that support the main operations, such as accounting services or cleaning.

If a Danish company hires an employee residing outside Denmark, with a non-Danish employer, the employee will be taxed according to the rules for international labor hiring. As a result, the company/you are responsible for paying the applicable taxes.

Law L921 introduces a unique tax rate of 35.6% on the wages of foreign workers. This tax is divided into two components:

An 8% Labor Market Tax on the gross income.
A 30% tax applied to the income after the Labor Market Tax has been deducted.

The Danish company utilizing the labor of foreign employees is responsible for collecting this tax. The tax is calculated based on the gross salary of the foreign employee, as reported by the foreign company that employs them.

The Danish entrepreneur is required to withhold the tax when paying the invoice for services provided by the foreign contractor. This obligation applies whether the Danish company hires foreign employees directly through a contract with a foreign employer, or if the employment and wage payment are handled through another employer or temporary staffing agency.

A Danish entrepreneur who withholds tax on labor hire must create a monthly report listing the employees who have worked for them, along with the amounts of tax withheld (with remuneration and tax amounts converted to Danish currency using the exchange rate on the date of withholding). The entrepreneur must pay the withheld tax by the 10th day of the month following the month in which the tax was withheld and the invoice was paid. Larger Danish companies, subject to advance taxation rules, must pay the tax by the last day of the accounting month.

Tax residency of a posted worker

An employee is considered to have unlimited tax liability in their home country, meaning they are required to report all their income (including wages) regardless of where it is earned, if they are a tax resident in that country.

Taxation of an employee assigned to Denmark

If you are an employee sent from a foreign company to work in Denmark, you may initially seek to be exempt from Danish taxes for the first six months of your assignment. However, if SKAT determines that you are employed by a Danish company, you will be required to pay Danish tax starting from your first day in Denmark. In these situations, the following rules apply:

An 8% "am-bidrag" tax and a 30% income tax
The Danish company is responsible for withholding and paying the tax.

The regulations for hiring employees apply even if the foreign employer is not registered as a taxpayer in Denmark.

According to the European Commission's official position, posting periods should be calculated individually for each service provided.

The posting periods of consecutive employees are cumulative if they are sent by the same employer to the same location to carry out the same task. When determining if the same task is being performed at the same location, factors such as the nature of the service, the work done, and the address(es) where the work is carried out are considered.

The regulations do not provide a clear definition for calculating posting periods. Therefore, it is important to review the specific regulations in the destination country before posting an employee. Keep in mind that EU member states, EEA countries, and Switzerland may have different rules from those outlined by the European Commission.

Terms of payment for posted employees

Whether the posting of a worker is short-term or long-term, you are required to establish and pay the wages of posted employees starting from the first day of the posting.

The remuneration of a posted worker includes all compulsory components of compensation mandated by national laws or collective bargaining agreements that are considered universally applicable or relevant to all local workers within a specific geographical area or economic sector.

In practice, this means you must offer the posted worker all the salary components and allowances that a local worker in the same industry, occupation, and region would receive. While the delegated worker’s salary may not be identical to that of a local worker, the basis for calculating the salary and its components must be the same.

This rule does not apply to the posting of temporary workers, whose wages must match those of the employees of the host employer in the destination country.

Keep in mind that payments made to cover expenses directly related to the posting, such as:

travel expenses to and from the posting location,
costs for food and accommodation, are also considered.

These expenses are reimbursed or paid to the posted worker separately from their wages and should not be included when comparing the actual wages paid with the amounts required by the laws of the host country.

Denmark does not have a statutory minimum wage. Instead, wage rates are determined through collective bargaining agreements between trade unions and employers' organizations. The typical workweek in Denmark is 37 hours, running from Monday to Friday. The average monthly gross salary is 47,000 DKK (7,000 USD), though after taxes, this amount can be substantially reduced, potentially halving.

The employee's gross income, used to calculate the labor hire tax, includes salary, bonuses, commissions, allowances, and other benefits such as:

Compensatory time off earned for work done in Denmark
Holiday pay earned for work in Denmark
Travel and transport allowances
The value of free meals and accommodation if the employee is not considered to be traveling
Other taxable employee benefits

The non-Danish employer must provide documentation that verifies the employee's gross income.

Social security for a posted employee

If you are posting an employee to provide services in another EU, EEA, or Swiss country, the question may arise regarding which country should handle the employee's social and health insurance contributions. The general rule is that an employee can only be subject to the social security legislation of one country at a time.

Generally, the employee is covered by insurance in the country where they perform work, meaning that during the posting period, the employee should be insured in the host country. However, the regulations permit social and health insurance contributions to be paid in the country from which the employee was posted.

Posted employees are eligible for medical benefits in the host country during their posting period. These benefits are provided according to the host country's regulations and through facilities that have agreements with the local health insurance fund. Access to these benefits is available through the European Health Insurance Card (EHIC). The posted employee or the posting employer, with the employee's authorization, can apply for an EHIC card.