In the context of increasing international cooperation and globalization of markets, more and more companies are looking for ways to expand abroad and the associated growth. From the perspective of many foreign companies, the country of Denmark, with its exceptionally well-developed labor market and stable economy, is becoming an interesting place both for implementing various types of projects and for providing services. Posting employees from other countries to Denmark is becoming increasingly popular among foreign entrepreneurs.
The posting of employees abroad by an employer brings consequences in the form of numerous obligations and formalities that affect both parties. Employers, when sending their employees to work abroad, must comply not only with the labor, tax and social security regulations in force in their country, but also with the regulations in force in the country to which the employee is posted. In addition, it is necessary to comply with international regulations on the posting of workers and the coordination of social security.
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The law regulating the posting of workers abroad implements a European Union directive on the process. The purpose of this directive is to ensure equal competition and respect for workers' rights when workers are posted to other member countries. Workers posted to countries that are members of the EU or EEA are guaranteed to comply with certain working conditions applicable in their host country.
Based on Directive 96/71, the Danish Posting of Workers Act of March 25, 2011, does not specify the minimum wage rates that foreign service companies should pay their employees posted to Denmark. In addition, there is no requirement in this law for companies from other EU member states to enter into collective bargaining agreements with Danish trade unions.
The Posting of Workers Abroad Act also introduces a European Union directive on enforcement. The purpose of this directive is to improve enforcement of the rights set forth in the Posting of Workers Act, to circumvent regulations and to prevent abuse.
If you run your own company, whose permanent place of business or headquarters is in an European Union member state, and at the same time you employ employees in it, you have the possibility to temporarily delegate them to work in another country of the EU, the European Economic Area (EEA) or Switzerland as part of the services provided by your company. In this case, you become a posting employer.
A company that sends its employees to Denmark to provide services is required to register in the RUT system (www.virk.dk/rut), administered by Erhvervsstyrelsen. Registration must be done no later than the day the posted employee begins work. When taking on subsequent assignments, the company must carry out such registration again, providing information on the employees performing the assignment and the location of the contracted services.
In order for the provisions of the Law on the Posting of Workers to Work Abroad to apply, an employment relationship must exist between the worker and the company posting or making its workers available to another entity. In addition to this, the posting employer must have an actual place of business in its home country, which is effectively the same as doing business in that country.
The posting of employees to another country to provide services can be applied in the following cases:
- When the employer directs employees to a branch or company that is part of a group to which the employer's company belongs.
- When the employer executes a contract between its company and an entity operating in another country.
A foreign company may choose to post its employees to Denmark in specific cases:
- When it sends an employee to work for a company that belongs to the same group of companies or is otherwise directly related to the posting company.
- When a company has a temporary employment agency or similar mechanisms in place to hire a worker to a company in Denmark.
- When a company posts an employee to Denmark to provide services to a recipient in Denmark, such as an individual or a company.
A person who works in another country on a day-to-day basis, but who has been temporarily sent to Denmark or another country by his or her employer as part of his or her services, is a posted worker.
The specific definition of a worker depends on the regulations of the specific country to which he or she is posted. In other countries in the EU, EEA or Switzerland, contract work is considered to be semi-subordinate and co-subordinate to the posting company. In fact, a posted employee can also be a person employed in another country, even on the basis of a contract of mandate.
An employer has the possibility to delegate such an employee to another EU, EEA or Switzerland on practically identical terms and conditions. Also, a foreigner - a citizen of a third country who works for a company with its registered office or permanent place of business in another EU country - may be a posted employee, provided that he or she legally resides and works there. However, it is necessary to check whether the host country will require an appropriate residence title, such as a proper visa to enable the employee to take up employment.
Temporary workers in many cases may be entitled to better terms and conditions of employment than those generally applicable to the rest of the public. The more favourable conditions are usually determined by:
- the laws of the host country,
- universally applicable collective agreements,
- the collective agreements in force at the specific employer to which the employee has been posted.
Whatever the case may be, the user employer must inform the temporary employment agency of the terms and conditions of employment applicable to its company before the posting starts.
If the posted employee is engaged in white-collar work, the employer is obliged to cover all costs that may arise in connection with the employee's travel and stay in Denmark in the context of the work. This rule applies when an employee is sent from his or her permanent place of work in Denmark to work temporarily elsewhere. White-collar work includes standard activities in sales, trade and office work.
The rules on the posting of drivers apply to employees employed by companies based in another EU country. A driver is considered to be posted to work in Denmark if he or she carries goods or passengers, takes part in a road section of combined transport, or performs international transport, which is not bilateral, within Denmark.
If the posted employee performs domestic work or agricultural work and the accommodation is included in his or her salary, the employer is obliged to provide modern and comfortable accommodation and provide clean towels and bed linen. In addition, the employer must also pay for insurance for the employee's movable property, which should correspond to standard household insurance.
If you have a company offering services in Denmark or if you are employed abroad, you should be aware of and comply with the local regulations applicable in your country. When you work temporarily in Denmark for a foreign company that posts you to perform services, you are subject to the provisions of the Posting of Workers Abroad Act. You must also comply with Danish regulations on pay, equal treatment, non-discrimination and selected working time regulations.
Temporariness characterises the posting of workers - it cannot be a permanent state and must have a fixed duration. An employer who posts a worker for a short period of time may alternatively extend this period to a maximum of 18 months, provided that a reasoned notice of extension of the posting is given. Such notification should be officially submitted before the end of the 12-month posting period of the worker. Where a reasoned notification is given, the posting employer is obliged to guarantee the appropriate working conditions set out for the short-term posting for its entire duration, i.e. up to a maximum of 18 months. The host state normally requires the posting employer to provide the reasons for the extension, but the employer has no right to challenge them, as the extension of the posting is treated as an information obligation of the employer and not as a request, so the state cannot refuse the extension.
You are entitled to a safe and healthy working environment on the same basis as employees in Denmark if you are a posted employee. Although your home country's regulations mainly apply to your holiday entitlement, you are guaranteed minimum standards, which are top-down, set by the Danish Holiday Act.
International labour hire occurs when an employee, employed under an employment contract with one entrepreneur (the formal employer), performs his or her duties abroad for another entrepreneur (the actual employer).
The Danish tax authorities (SKAT) have released an official handbook that details the rules of the new tax on the hiring of foreign labour. The handbook defines ‘international hiring of labour’ as a situation where employees hired by foreign employers are posted to work for Danish companies, performing tasks that are an integral part of the companies' activities. In such a case, three entities are involved:
1. An employee who is a tax resident in another EU country.
2. A foreign employer (formal employer) that posts its employees to Denmark.
3. The Danish company for which the foreign employee performs work (de facto employer).
Act L921 on tax on the hiring of foreign labour, which came into force on 19 September 2012, regulates the hiring of workers. According to this Act, the Danish entrepreneur for whom the work is performed may be considered by the Danish tax authorities as a so-called ‘de facto employer’ under Act L921 and the double taxation treaty. The term ‘de facto employer’ means an employer who actually uses the employee's labour and assumes responsibility and risk for the employee's performance, as opposed to a formal employer with whom the employee has an employment contract.
The work, which is an integral part of the Danish entrepreneur's business, ranges from tasks related to the company's core business to routine services in support of that business, such as accounting or cleaning services.
Danish regulations regarding the calculation of posting periods are not clearly defined. For this reason, before deciding to post an employee, it is important to check whether there are specific regulations on the matter in the chosen destination country. It should be borne in mind that the countries of the European Union, the European Economic Area and Switzerland may apply different rules than those set by the European Commission. According to the official position of the European Commission:
- Posting periods should be counted separately for each service provided.
- Furthermore, if the same employer sends successive workers to perform the same task in the same place, the posting periods of these workers add up. When assessing whether it is the same task, account is taken not only of the type of service provided, but also of the scope of work performed and the addresses where this work is carried out.
A Danish entrepreneur is obliged to withhold tax when paying an invoice for a service provided by a foreign contractor. This obligation applies both when a Danish company employs foreign workers under a contract directly with a foreign employer and when the employment and payment of wages is made through a temporary employment agency or other employer. Every month, a Danish company that deducts tax on the hiring of labour should make a list of all employees providing services and the amount of tax deducted. Both the remuneration and the tax withheld are presented in Danish currency at the exchange rate applicable on the date of the tax withholding.
An entrepreneur conducting his or her business in Denmark is required to pay the tax withheld by the 10th day of the month that follows the month in which the tax withholding was made and the invoice was paid. On the other hand, large Danish companies that settle on an advance tax payment basis are required to pay this tax by the last day of the accounting month at the latest.
The determination of tax residence is based on two criteria, one of which is sufficient. If the employee has a centre of personal or economic interest (centre of life interests) in another European country, this is one of the conditions. The second criterion is to be subject to unlimited tax liability in the country where the employee comes from, which in practice means that the employee must account for all income, including remuneration for work, regardless of where it is earned, provided that he or she is a tax resident in another European country.
Being a seconded employee from a foreign company to work for a Danish company, you may wish to avoid paying Danish tax for the first six months. However, a situation may arise where SKAT considers that you have been hired by a Danish company, in which case you may be liable to pay Danish tax from the first day of your stay in Denmark. In such a case, the following regulations apply:
- The tax rates are 8% so-called am-bidrag and 30% income tax.
- The Danish company is responsible for paying the tax to the relevant institutions.
- The rules for hiring employees regardless of whether the foreign employer is registered as a taxpayer in Denmark.
The special form of taxation on the wages of foreign employees, as set by Act L921, is exactly 35.6%. The responsibility for collecting this tax lies with the Danish entrepreneur who employs foreign employees. The basis for calculating the tax is the gross salary of the employee, which is reported by the foreign company employing the employee. The total tax consists of two parts:
- 30% labour hire tax, after taking into account the labour market tax.
- 8% labour market tax, calculated on gross income.
When you send an employee to another EU, EEA or Swiss country for the provision of services, you may face questions about where to pay health and social security contributions for that person.
In principle, the employee should be insured in the country where he or she performs his or her work, i.e. the host country during the period of posting. In general, the legislation allows the employee to be subject to the legislation of only one country. However, it is possible for social and health insurance contributions to be paid in the country from which the employee has been posted. If, for some reason, you do not meet all the requirements for a posted employee to be covered by insurance in his or her country of origin, it will be necessary to report the employee to social and health insurance in the country where he/she works during the posting.
During the posting period, employees are entitled to receive medical benefits in the country to which they are posted. These benefits are provided in accordance with the rules of the country in question and are provided in facilities that have an agreement with the local sickness fund. The European Health Insurance Card (EHIC) is the document allowing access to these benefits. In order to obtain an EHIC, an application must be submitted to the branch of the local sickness fund which corresponds to the employee's place of residence. An application for an EHIC card can be submitted by both the posted employee and his/her authorised employer.
The regulations do not specify in detail how long a posting can last, but divide it into two main periods:
- Short-term posting, which covers a period of up to 12 months.
- Long-term posting, which exceeds 12 months.
The type of posting, whether short-term or long-term, has an impact on the working conditions that must be provided to the posted employee.
If the worker is posted by the company for a period not exceeding 12 months, or 18 months after the relevant notification in the host country, it is necessary to ensure that the worker is provided with terms and conditions of employment that are in accordance with local laws or applicable collective agreements in that country. These conditions should include:
- Remuneration, which should include all mandatory components and be determined by national law or applicable collective agreements.
- Accommodation conditions, if provided by the employer in the host country.
- Health and safety provisions.
- Minimum paid annual leave.
- Allowances or reimbursement of travel, food and accommodation expenses, if required during the assignment.
- Minimum rest periods and maximum working hours.
- Principles of equal treatment of women and men.
- Protection measures for pregnant women, women after childbirth and young people under the age of 18.
When you run a temporary work agency and post employees abroad, you are obliged to provide them with at least the same terms and conditions of employment as those applicable to temporary employees in the specific host country. In the event that the conditions of employment of an employee in his or her country of origin are more favorable to him/her than those applicable in the country to which you are posting employees, you must maintain labor standards corresponding to those in their country throughout the posting. In addition, you are obliged to comply with foreign regulations on the employment of temporary workers and the provision of temporary employment services.
When your employee is posted abroad for a period of more than 12 months (or 18 months if you give reasonable notice in the host country), it is necessary to ensure that the employee's terms and conditions of employment are such that they comply with the local law or generally applicable collective agreements in the host country. In this case, however, the following should be disregarded:
- regulations concerning the procedures and conditions for the conclusion and termination of the employment contract,
- regulations on supplementary capital plans for employees,
- provisions on non-competition clauses.
The remuneration for a posted worker must take into account all mandatory components that are required by national legislation or collective agreements that are commonly applied in the region or sector. This means that the posted worker should receive all elements of remuneration and allowances to which local workers in the same industry and region are entitled. Although the total remuneration for a posted worker may differ from that of a local worker, the components and basis of calculation must be comparable. However, it is worth noting that this rule does not apply to temporary workers, whose remuneration should be equal to that of local workers employed by the employer in the host country.
There is no statutory minimum wage in Denmark. Wages are set within the framework of collective agreements, which are negotiated between trade unions and employers' organisations. Whether the posting is short-term or long-term, the wages of posted employees must be determined and paid in accordance with the applicable rules from the first day of the posting. It is worth remembering that amounts intended to cover the actual expenses of the posting, such as food, accommodation and travel to and from the place of posting, should not be included in the posted worker's remuneration. Such costs should be reimbursed to the employee or paid separately and should not be included in comparisons between the remuneration paid and the amounts that are due according to the rules in force in the host country.