Delegating foreign workers to Denmark

The practice of sending foreign workers to Denmark is becoming more widespread among entrepreneurs. As global markets and international collaboration continue to grow, businesses are seeking new opportunities for expansion abroad. For many international companies, Denmark offers an appealing environment with its stable economy and well-developed labor market, making it an attractive location for providing services and executing projects. However, posting employees to Denmark entails numerous formalities and responsibilities for both the employer and the employee.

Employers who send employees abroad must be aware that they are subject not only to local labor, social security, and tax laws but also to international regulations governing the posting of workers and social security coordination. Additionally, it is often necessary to comply with the domestic regulations of the country where the employee will be working.

Regulations for posting employees

If you are working abroad or managing a company offering services in Denmark, it is essential to be aware of and follow the applicable laws. When you are posted to work in Denmark by a foreign company providing temporary services, you are governed by the Posting of Workers Abroad Act.

As a posted worker, you have the right to a safe and healthy work environment, just like Danish employees. You are also protected by Danish laws on equal treatment, wages, non-discrimination, and certain working time rules. While your right to leave is generally governed by the laws of your home country, you are entitled to the minimum standards set by the Danish Holiday Act.

Employee posting is temporary in nature - it is intended for a specific period and cannot be permanent. An employer who posts an employee for a short period can extend the posting for up to 18 months by providing a proper notice of extension before the 12-month period ends. The host country typically requires the employer to justify the extension, although the employer cannot contest these reasons. The extension is considered an obligation to inform, not a request, meaning the host country cannot refuse the extension. Once proper notice is given, the employer must ensure that the working conditions for short-term posting are maintained throughout the extended period, up to 18 months.

International hiring-out of labor

International hiring-out of labor involves the practice where employees from a foreign company are assigned to work for a Danish company, carrying out tasks that are essential to the operations of the Danish business.

The work could involve essential services or regular tasks within the company's operations, such as accounting, cleaning, or cafeteria management. The critical factor is whether the employee is primarily available to the Danish business in a way that is characteristic of an employee's role.

When is a Situation Not Classified as International Hiring-Out of Labor?

Non-Danish employees are exempt from the regulations concerning international hiring-out of labor if the work they perform:

Is not a crucial element of the enterprise’s core services or operations, or
Has been outsourced to a separate, independent non-Danish company.

Evaluating the Distinction of Services

When there is ambiguity regarding the separation of services, a detailed evaluation is needed to determine if the work is clearly defined and belongs to an independent non-Danish enterprise. In these situations, it is essential to identify the party primarily responsible and bearing the majority of the financial risk related to the work being carried out.

The rules on international hiring-out of labor do not apply in the following cases:

The employee is fully liable for taxes in Denmark.
The employee is subject to limited tax liability on earnings in Denmark due to their residential status or being directly employed by a Danish employer.
The labor arrangement occurs between two Danish companies, thus not qualifying as international hiring out of labor.
The foreign employer supplying the labor maintains a permanent establishment in Denmark.
The employee is engaged as an entertainer, musician, circus performer, or athlete.

The employer who posts workers and the posted employee

Posted employee

A posted worker is an individual who typically works in a different country but has been assigned to Denmark for a specific duration by their employer as part of the services the employer offers.

The classification of a worker is based on the regulations of the country to which they are posted. In EU, EEA, or Swiss countries, work under an assignment contract is considered semi-subordinate or co-subordinate work by the employer posting the worker. In practice, a posted employee can also be someone employed in a foreign country under a mandate contract.

A posted employee could also be a foreign national – a citizen from a non-EU country who works for a company based in an EU country, as long as they are legally residing and working there. An employer can send this employee to another EU, EEA, or Swiss country under the same conditions as an EU citizen. However, it's important to verify whether the host country will require a proper residence permit (such as a visa) for this employee to work.

Posting employer

As a business owner with a registered office or permanent place of business, you have the option to temporarily send your employees to work in another European Union (EU) country, the European Economic Area (EEA), or Switzerland as part of your company’s international services. You can delegate employees in the following scenarios:

When fulfilling a contract between your company and an organization in another country.
To a branch or subsidiary of your company that is part of your corporate group.

A company dispatching employees to Denmark for service provision must register in the RUT system (www.virk.dk/rut), managed by Erhvervsstyrelsen. This registration must be completed no later than the day the work starts. For each new assignment, the company is also obligated to re-register and provide details about the employees involved and the location where the services will be carried out.

A foreign company posts employees to Denmark in these circumstances:

The company assigns an employee to Denmark to offer services to a recipient, such as a business or individual.
The company operates a temporary employment agency or a similar arrangement, allowing it to assign an employee to work at a client company in Denmark.
The company sends an employee to work for a company within the same group or affiliated with the posting company.

In order to be governed by the provisions of the Law on the Posting of Workers Abroad, there must be an employment relationship between the worker and the company that posts or supplies the workers. Additionally, the company must have a genuine place of business in its home country, indicating that it conducts substantial operations there.

Employee on temporary assignment

When your employer temporarily assigns you to work in another EU country, you will be considered a "posted worker" for the duration of your assignment. During this time, you will be entitled to the same fundamental labor rights and working conditions as employees in the host country.

Temporary employees may be entitled to better employment conditions than the standard ones. These improved conditions may be set by:

The laws of the host country,
Generally applicable collective agreements,
Collective agreements specific to the employer the employee is assigned to.

In any case, the user employer must notify the temporary employment agency of the employment terms and conditions that apply to their company before the posting starts.

The posting rules for drivers apply to individuals employed by companies located in another EU country. A driver is deemed posted to Denmark when they engage in freight or passenger transportation, the road segment of combined transport, or international transport that is not bilateral, within Denmark's borders.

When a posted worker is engaged in agricultural or domestic work, and housing is included as part of their compensation, the employer must ensure the provision of decent, modern accommodations along with clean bedding and towels. Additionally, the employer must cover the cost of insurance for the worker's personal belongings, equivalent to standard household insurance.

When a posted employee engages in white-collar work, the employer is responsible for covering all expenses related to travel and accommodation in Denmark. This applies when an employee is temporarily assigned to work outside their usual workplace in Denmark. White-collar work typically includes tasks related to trade, sales, and office duties.

Two primary durations for posting an employee

There are two primary durations for posting an employee:

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

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

Long-term posting

When you post an employee for more than 12 months (or up to 18 months with prior notice in the host country), you are required to offer the employee all the terms and conditions of employment mandated by the host country's laws or applicable collective bargaining agreements, with the exception of:

rules regarding the procedure and conditions for entering into or terminating an employment contract,
non-compete clauses,
provisions for additional employee equity plans.

Short-term posting

When posting an employee for a period of up to 12 months (or 18 months with reasonable notice in the host country), you must ensure the employee’s employment terms and conditions align with the laws or generally applicable collective agreements of the host country, covering:

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

Posting conditions for temporary workers

If you operate a temporary employment agency and send workers abroad, you are required to offer them at least the same employment terms and conditions as those provided to temporary workers in the host country.

Law on Posting Workers Abroad

The Law on Posting Workers Abroad enforces the EU Directive regarding the posting of workers. The purpose of the directive is to promote fair competition and safeguard workers’ rights when they are posted to another member country.

The directive ensures that workers sent to an EU or EEA member state receive certain working conditions that are applicable in the host country.

Additionally, the Posting of Workers Abroad Law enacts the EU Enforcement Directive, which aims to strengthen the enforcement of rights outlined in the Posting of Workers Law and prevent misuse and evasion.

According to Directive 96/71, the Danish Posting of Workers Act, enacted on March 25, 2011, does not establish minimum wage requirements for foreign service companies posting workers to Denmark. Additionally, the law does not mandate that companies from other EU member states engage in collective bargaining agreements with Danish trade unions.

Taxes associated with posting workers to Denmark

The Danish Law L921, which imposes a tax on the hiring of foreign labor, came into force on September 19, 2012. This law applies to labor hiring arrangements. According to the double taxation agreement and the L921 Act, the Danish entrepreneur for whom the work is carried out may be regarded as a "de facto employer" by Danish tax authorities.

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

When an employee, who has an employment contract with one company (the former employer), performs work for another company abroad (the actual employer), it is referred to as "international labor hire." The Danish tax authority (SKAT) has published a guide outlining the regulations for applying the new tax on the hiring of foreign labor. According to this guide, "international labor hire" refers to employees hired by foreign employers who are assigned to work for Danish companies and carry out tasks that are integral to the Danish company's operations.

International labor hire always involves three parties:

A Danish company hiring the labor.
A foreign employer supplying the labor, such as a temporary staffing agency or another business.
A non-Danish employee employed by a non-Danish employer.

The designation of the contract as an "international hiring-out of labor" or a "project contract" is not significant. What is important is whether the non-Danish employee is effectively working for the Danish company under conditions that closely resemble being employed by the Danish enterprise. Work that forms an essential part of a Danish business includes not only core business tasks but also routine services that support the company's operations, such as accounting or cleaning services.

If a Danish company employs a worker who lives outside of Denmark and whose employer is non-Danish, the worker falls under the international hiring-out of labor tax rules. As a result, the business or employer is responsible for paying the relevant tax. Law L921 establishes a specific tax rate of 35.6% on the wages of foreign workers, which consists of two components:

Labor Market Tax (8% on gross income)
Labor Market Tax (30% after the labor market tax deduction)

The responsibility for collecting this tax lies with the Danish company that employs foreign workers. The tax is calculated based on the gross wages of the foreign employee, as reported by the foreign employer. The Danish company must deduct the tax when paying the invoice for services provided by the foreign contractor. This obligation applies whether the Danish company hires foreign workers directly through a foreign employer or through another employer or temporary employment agency handling the employment and payment of wages.

A Danish entrepreneur who deducts tax on labor hire must compile a monthly report listing the employees who have worked for them, along with the corresponding amounts of tax withheld (remuneration and tax amounts should be expressed in Danish kroner, using the exchange rate on the date of withholding). The entrepreneur must remit the withheld tax by the 10th day of the month following the month in which the tax was deducted and the invoice paid. Large Danish businesses, which are subject to advance tax rules, must settle the tax by the last day of the accounting month.

A posted employee is considered a tax resident in their home country if they are subject to unlimited tax liability there. This means they are required to report all their income, including earnings from work, no matter where it is earned.

If you're a foreign employee posted to Denmark, you may aim to avoid Danish taxes for the first six months of your assignment. However, if SKAT determines that you are employed by a Danish company, you may be required to pay Danish taxes from the very first day of your stay. In these instances, the following guidelines are applicable:

8% AM-bidrag tax and 30% income tax
The Danish company is responsible for paying the tax
The tax rules apply even if the foreign employer is not registered as a taxpayer in Denmark

According to the European Commission’s official guidelines:

Posting periods must be counted individually for each service provided.
If consecutive employees are sent by the same employer to the same location to perform the same task, their posting periods are combined. When determining if the same task is being carried out in the same location, factors like the nature of the service, the work being performed, and the address or addresses where the work is conducted are considered.
The regulations do not explicitly define how to calculate posting periods, so it's essential to review specific rules in the destination country before posting an employee. Keep in mind that EU countries, the EEA, and Switzerland may have different rules than those established by the European Commission.

Conditions for compensating posted employees

Regardless of whether the worker’s posting is short-term or long-term, the wages for posted employees must be determined and paid starting from the first day of their posting. The compensation for a posted worker includes all mandatory elements of pay required by national laws or collective bargaining agreements that apply universally or to all local workers within a specific region or industry sector.

In practice, this means that the posted worker must receive all salary components and allowances that a local worker in the same industry, role, and region would be entitled to. While the exact amount of the posted worker's salary may differ from that of a local worker, the calculation basis and the salary components must be consistent.

This rule does not apply to temporary workers, whose wages must match those of the employees of the host employer in the host country. Keep in mind that payments made to cover actual expenses related to the posting, such as travel costs to and from the posting location, and the cost of food and accommodation, are excluded.

These expenses are reimbursed or paid separately from the wages owed to the posted worker and should not be considered when comparing the actual wages paid with the amounts required by the laws of the host country. Denmark does not enforce a minimum wage by law. Instead, wage rates are determined through collective bargaining agreements between trade unions and employers' organizations. The typical workweek in Denmark runs from Monday to Friday, totaling 37 hours. The average gross monthly salary is 47 000 DKK (7 000 USD), but it is important to note that after taxes, this amount can be considerably reduced, potentially to half.

The employee's gross income, which serves as the basis for calculating the labor hire tax, includes salary, bonuses, commissions, allowances, and other benefits such as:

Time off in lieu for work done in Denmark
Holiday pay for work performed in Denmark
Travel and transport allowances
The value of free meals and lodging if the employee is not considered to be traveling
Other taxable employee benefits

The non-Danish employer is required to provide documentation of the employee’s gross income.

Social Insurance for a Posted Employee

When posting an employee to provide services in another EU, EEA, or Swiss country, the question often arises regarding where to make social and health insurance contributions for the employee. The general rule is that an employee can only be covered by the social and health insurance system of one country at a time.

Typically, the employee is insured in the country where they are performing their work, meaning that during the posting period, the employee should be insured in the host country. However, the regulations do allow for social and health insurance contributions to be paid in the country from which the employee was posted.

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

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