Delegation of workers to Denmark

With the rise of global markets and expanding international collaboration, businesses are increasingly exploring avenues for growth and overseas expansion. Nevertheless, sending employees abroad entails numerous formalities and responsibilities for both the employer and the employee.

Employers who send employees abroad need to be aware that they are not solely subject to their own labor, social security, and tax laws. It is essential to consider international regulations governing the posting of workers and the coordination of social security. Additionally, the internal regulations of the host country where the employee will reside will likely need to be followed.

Denmark, known for its stable economy and well-developed labor market, is an appealing destination for many foreign companies looking to deliver services and execute projects. The practice of assigning foreign workers to Denmark is becoming increasingly prevalent among entrepreneurs.

The posted employee and the posting employer

Entrepreneurs with a registered office or a permanent place of business who employ staff can temporarily delegate employees to work in another European Union (EU) country, the European Economic Area (EEA), or Switzerland as part of their company’s services abroad. Delegation for service provision can be applied in the following situations:

• To a branch or subsidiary that is part of the group to which the company belongs.
• In connection with fulfilling a contract between the company and an entity operating in another country.

When a company sends employees to Denmark as part of its service provision, it must register in the RUT system (www.virk.dk/rut), which is managed by Erhvervsstyrelsen. Registration should be completed no later than the day work begins. Additionally, with each new assignment, the company is obligated to re-register and provide details about the employees carrying out the assignment and the location where the services are being delivered.

An individual who works daily in another country but has been sent to Denmark for a specific period by the posting employer as part of the services provided is known as a posted worker. The regulations of the country to which the worker is assigned determine the definition of a worker. Employment under an assignment contract in other EU, EEA, or Swiss countries is classified as semi-subordinate and co-subordinate work by the posting company. In real-world scenarios, an individual employed in a foreign country under a contract of mandate may also be classified as a delegated employee.

A foreign national, specifically a citizen of a third country, can also be considered a delegated employee if they are legally employed by a company that has its registered office or permanent place of business in an EU country. Employers are permitted to assign such employees to another EU, EEA, or Swiss country under the same conditions applicable to EU citizens. It is important to verify that the host country does not require a suitable residence title, such as a valid visa, for the employee to be able to work.

It is possible for your employer to assign you to work in a different EU nation for a limited time. While you are on assignment, you will hold the designation of a "posted worker," granting you the same fundamental labor rights and working conditions as those enjoyed by local employees in the host country.

Employees on temporary assignments could receive better employment conditions than the standard ones that apply broadly. These improved conditions may be established by:

• collective agreements that are generally applicable,
• laws of the host country,
• collective agreements that are specific to the particular employer where the employee is assigned.

Nevertheless, prior to the commencement of the posting, the user employer is required to notify the temporary employment agency about the employment terms and conditions that apply within their company.

For an employee to be covered by the regulations of the Law on the Posting of Workers to Work Abroad, a valid employment relationship must exist between the employee and the company that is either posting or supplying the workers. Additionally, it is essential that the company posting the workers maintains a genuine place of business in the home country, signifying that it has substantial operations in that location.

Legal framework for posting employees

According to Directive 96/71, the Danish Posting of Workers Act, enacted on March 25, 2011, does not establish minimum wage rates that foreign service companies are obligated to pay their posted workers in Denmark. Furthermore, the act does not mandate that companies from other EU member states engage in collective bargaining agreements with Danish trade unions.

The EU Directive on the posting of workers is implemented by the Law on Posting of Workers Abroad. This directive aims to ensure fair competition and protect workers’ rights when they are assigned to another member state. It guarantees that workers posted to an EU or EEA member country receive specific working conditions that are applicable in the host nation.

In addition to the previous regulations, the Posting of Workers Abroad Act also enacts the EU Enforcement Directive. The purpose of this directive is to enhance the enforcement of the rights outlined in the Posting of Workers Act while also preventing abuse and circumvention of these rights.

Permanent and temporary posting of workers

When posting an employee for a duration exceeding 12 months (or 18 months with reasonable notice in the host country), it is necessary to provide the employee with all terms and conditions of employment mandated by law or generally applicable collective bargaining agreements in the host country, with the exception of:

• provisions related to non-competition clauses,
• provisions regarding supplementary employee equity plans,
• provisions concerning the procedures and conditions for entering into and terminating an employment contract.

When posting an employee for a duration not exceeding 12 months (or 18 months with reasonable notice in the host country), it is essential to ensure that the employee's terms and conditions of employment align with the law or generally applicable collective bargaining agreements in the host country, particularly regarding:

• protective measures for pregnant women, women immediately following childbirth, and young people under 18,
• minimum paid annual leave,
• minimum rest periods and maximum working hours,
• allowances or reimbursement for travel, board, and lodging expenses required during the posting,
• equal treatment for women and men,
• occupational health and safety,
• accommodation conditions for workers in the host country, if provided by the employer,
• wages (including all mandatory components) as stipulated by national law or widely applicable collective agreements.

Operating a temporary work agency and assigning employees to work in another country requires you to ensure that they receive at least the same terms and conditions of employment as those applicable to temporary workers in the host nation.

Responsibilities of employers for posted workers in various sectors

• When a posted employee engages in white-collar work, the employer is responsible for all expenses related to travel and accommodation in Denmark. This obligation is in effect when an employee is assigned temporarily to a location outside of their permanent workplace in Denmark. White-collar work typically encompasses activities in areas such as trade, sales, and office tasks.

• For posted workers involved in agricultural or domestic labor, where housing is included in their salary, the employer must ensure that the housing provided is modern and of good quality, along with supplying clean bedding and towels. Additionally, the employer must secure insurance for the worker’s movable property at a level equivalent to standard household insurance.

• Drivers employed by a company located in another EU country fall under specific posting rules. A driver is deemed to be posted to work in Denmark if they are engaged in freight or passenger transportation, the road segment of combined transport, or international transport that is not bilateral within Denmark.

Guidelines for employee posting

Understanding and adhering to the applicable laws is essential if you operate a business offering services in Denmark or work abroad. If a foreign company temporarily assigns you to work in Denmark, you will be governed by the Posting of Workers Abroad Act.

The nature of posting employees is inherently temporary, as it is intended for a specific duration rather than serving as a permanent arrangement. An employer can extend a short-term posting up to a maximum of 18 months by submitting a reasonable notice of extension before the initial 12-month period ends. While the host country typically requires the posting employer to justify the extension, the employer does not have the right to contest these requirements. This extension is viewed as an informational duty for the employer rather than a request, meaning the host state cannot refuse the extension. Provided that reasonable notice is given, the posting employer is obligated to maintain the working conditions designated for short-term postings for the entire duration of the assignment, up to the conclusion of the 18-month period.

Posted employees are entitled to a safe and healthy working environment in accordance with the same rules that apply to Danish workers. While the regulations regarding your right to leave are generally dictated by the laws of your home country, you are guaranteed the minimum standards set forth by the Danish Holiday Act. Furthermore, you are subject to Danish laws relating to equal treatment, pay, non-discrimination, and certain working time regulations.

The situation involving the international hiring-out of labor occurs when employees from a non-Danish company are provided to a Danish enterprise to perform work that is essential to its operations. A critical factor in this arrangement is whether the employee is essentially at the disposal of the Danish enterprise in a manner typical of an employee. The tasks performed may include core services of the enterprise or routine activities, such as bookkeeping, cleaning, or canteen management.

The rules are not applicable in certain situations, including:

• When the non-Danish employer supplying the labor has a permanent establishment in Denmark.
• If the labor hire arrangement occurs between two Danish companies, as this does not qualify as international hiring out of labor.
• When the employee is engaged as an entertainer, musician, circus performer, or athlete.
• If the employee has full tax liability in Denmark.
• In cases where the employee is subject to limited tax liability for wages or salaries earned in Denmark, either due to their residential status or because they are directly employed by a Danish employer.

In situations where there is doubt about whether the services are adequately separated, a detailed evaluation is necessary to ascertain if the work is well-defined and associated with an independent non-Danish enterprise. It is essential in these cases to determine which party holds primary responsibility and assumes the majority of the financial risk related to the work performed.

Terms for compensation of posted workers

Denmark does not have a statutory minimum wage. Instead, wage levels are determined through collective bargaining agreements established between trade unions and employers' organizations. The typical workweek runs from Monday to Friday, comprising a total of 37 hours. The average gross monthly salary is approximately 47,000 DKK (7,000 USD). However, it is important to keep in mind that this figure can be considerably decreased after taxes, potentially falling to around half of the gross amount.

The gross income of the employee, which serves as the foundation for calculating the hiring-out of labor tax, encompasses salary, bonuses, commissions, allowances, and various other benefits, including:

• travel and transport allowances,
• time off in lieu accrued for work carried out in Denmark,
• holiday pay earned for work completed in Denmark,
• the value of free meals and accommodation, provided the employee is not categorized as traveling,
• other forms of taxable employee benefits.

Additionally, the non-Danish employer is required to furnish documentation that verifies the employee's gross income.

The compensation for a posted worker comprises all mandatory elements of remuneration mandated by national laws or collective bargaining agreements that are considered universally applicable or relevant to all local workers within a specific geographic area or economic sector.

Whether the posting of a worker is short-term or long-term, it is essential to establish and pay the wages of posted workers consistently from the very first day of their assignment.

In practical terms, this means you are required to offer the posted worker all salary components and allowances that a local employee in the same industry, occupation, and region would receive. While this does not imply that the salary of the posted worker will exactly match that of a local employee, the calculation basis and the components of their salary must remain consistent.

This regulation does not pertain to the posting of temporary workers, as their wages must match those of the employees of the user employer in the host country.

It’s important to note that amounts paid to cover expenses actually incurred in connection with the posting include:

• the cost of travel to and from the place of posting,
• the cost of food and accommodation.

Reimbursement or payment of these expenses to the posted worker occurs separately from their owed wages. Additionally, these expenses cannot be factored in when evaluating the actual wage amounts paid against those required by the host country's laws.

Social coverage for posted workers

When posting an employee while providing services to another EU, EEA, or Swiss country, a question may arise regarding the country where social and health insurance contributions should be made for that employee. The general principle is that an employee can be subject to the legislation of only one country at a time.

Typically, an employee is covered by insurance in the nation where they carry out their job. This means that while on assignment, the employee ought to be insured in the host country. Nonetheless, the laws permit social and health insurance contributions to be made in the country of origin from which the employee was sent.

Employees on assignment have the right to receive medical benefits in the host country throughout their posting period. These benefits are governed by the regulations of that country and are offered in facilities that have agreements with the local health insurance fund. Access to these benefits is facilitated through the European Health Insurance Card (EHIC). Either the posted employee or the employer authorized by the employee can apply for an EHIC card.

Tax regulations for workers posted in Denmark

Unlimited tax liability applies to an employee in their country if they qualify as a tax resident. This designation obligates them to declare all sources of income, including wages, regardless of where that income is earned.

When working in Denmark as an employee assigned by a foreign company, you might seek exemption from Danish taxes for the initial six months of your employment. However, if SKAT concludes that you have been employed by a Danish company, you could be liable for Danish taxes from your very first day in the country. In such cases, the following regulations apply:

• The Danish company is responsible for paying the taxes.
• An 8% am-bidrag tax and a 30% income tax must be paid.
• These hiring rules apply regardless of whether the foreign employer is registered as a taxpayer in Denmark.

According to the European Commission's official position, the durations of posting for consecutive employees accumulate when they are dispatched by the same employer to the same location for the same task. To determine if the same task is being conducted at the same site, factors such as the nature of the service provided, the work executed, and the specific addresses where the work takes place are considered. It is important to note that periods of posting should be recorded separately for each distinct service rendered.

Clear guidelines for calculating posting periods are not defined within the regulations. Therefore, it is crucial to verify the specific rules in the destination country before assigning an employee. Additionally, keep in mind that EU member states, EEA countries, and Switzerland may differ from the general rules set by the European Commission.

When a Danish company hires an employee living outside of Denmark, whose employer is not Danish, the employee falls under the regulations governing the international hiring of labor. As a result, the business, or you, are obligated to pay the relevant taxes.

Law L921 establishes a specific taxation structure for the wages of foreign workers, set at 35.6%. This tax comprises two components:

• An 8% Labor Market Tax applied to gross income.
• A 30% tax on income after deducting the Labor Market Tax.

A tax withholding obligation falls on the Danish entrepreneur at the moment the invoice for services rendered to the foreign contractor is paid. This requirement applies not only when a Danish firm hires foreign workers directly under a contract with a foreign employer but also in situations where wages are processed through another employer or a temp agency.

The responsibility to prepare a monthly report of employees who provided services, along with the amounts of tax withheld, rests with the Danish entrepreneur who withholds tax on labor. The remuneration and withheld tax must be recorded in Danish currency, using the exchange rate applicable on the date of withholding. It is required to pay the withheld tax by the 10th day of the month following the withholding and payment of the invoice. For large Danish companies subject to advance taxation rules, the deadline for tax payment is the last day of the accounting month.

The Danish company that employs foreign workers is responsible for collecting this tax. The calculation of the tax is based on the gross remuneration reported by the foreign company that employs the individual.

The term "international hiring of labor" describes the scenario when an employee has a contract with one company (the formal employer) but works for another company abroad (the actual employer). The Danish tax authorities (SKAT) have published a handbook outlining the regulations related to the new tax on hiring foreign labor. This handbook defines "international labor hire" as referring to employees provided by foreign entrepreneurs who are dispatched to work for Danish entrepreneurs, engaging in tasks that are essential to the Danish business's operations. This process involves three parties:

1. An employer from outside Denmark, such as a temp agency or another firm, supplying the labor.
2. A non-Danish employee working for a foreign employer.
3. A Danish company that is utilizing the labor.

The designation of the contract as either a contract for international hiring of labor or a project contract is inconsequential. What is important is whether the non-Danish employee is effectively working for the Danish enterprise under conditions that closely resemble being directly employed by that enterprise.

The legislation regarding the taxation of foreign labor hiring, known as L921, came into force on September 19, 2012. This law specifically applies to the hiring of labor. Under the provisions of the L921 Act and the double taxation agreement, the Danish entrepreneur for whom the work is conducted may be classified as a "de facto employer" by the Danish tax authorities.

A "de facto employer" is an entrepreneur who truly employs the labor of an employee and takes on the responsibility and risk associated with their performance, as opposed to the formal employer who holds the contractual employment relationship.