Payroll in Denmark

Payroll in Denmark can be quite complex, especially for foreign companies, due to the various taxation rules, contributions, and labor laws. The payroll process includes calculating the employee’s gross pay, net pay, overtime, and allowances. All companies must comply with Danish law when managing payroll. Our law firm in Denmarkprovides payroll services in order to help companies adhere to Danish regulations.

Our payroll services in Denmark

Our Danish law firm handles a wide range of tasks involved in managing payroll, including:

• Registering new employees with Danish Social Security and Tax Authorities (SKAT and VIRK). This is an essential step for accurate payroll processing in Denmark;
• Deducting employees’ social security contributions and taxes (including ATP and Labor Market Contributions – AM-Bidrag) from their wages;
• Reporting on E-Payroll and E-Income, as mandated by law for the payroll in Denmark;
• Generate and issue payslips;
• Manage employee benefits and the tax implications of such benefits;
• Ensure accurate financial reporting;
• Keep employee data up-to-date for accurate payroll processing;
• Time-track employee work hours, leaves, and absence, a very important aspect of payroll processing in Denmark;
• Processing refunds or payments for eligible expenses that employees have incurred;
• Handling the termination of employment.

Our payroll services in Denmark can make the process much easier for employers, especially if they are foreign companies.

The Danish labor market and payroll legal context

Understanding the local concept of payroll in Denmark requires context within the broader labor environment. The Danish well-known labor market model, called “Flexicurity”, balances the concepts of flexibility and protection, as employers have the opportunity to hire and dismiss staff members with fewer administrative barriers, while employees can benefit from their vigorous social protections. This approach accentuates the need for payroll procedures and the benefits of these systems that reflect:

• Variable employment durations and everchanging staff dynamics;
• Demanding compliance without administrative delays happening along the process;
• Close coordination between employers and payroll/HR teams in Danish companies.

Our law firm in Denmark is well-informed and trained about the progressive Danish work legislation in order to assist foreign businessesin keeping consistency and compliance with the Danish payroll regulations.

Withholding employee’s taxes

Withholding employees’ taxes is an important part of the Danish payroll. Social security contributions in Denmark are generally lower compared to some other European countries. This is because the Danish social security system is primarily funded through ordinary tax revenue. Our Danish lawyers will briefly explain the main taxes applied to the employee’s wage.

The Arbejdsmarkedets Tillægspension (ATP) is a Danish pension fund. Employers are required to contribute DKK 2,376 annually (paid by the employer, not deducted from the salary). The employee must pay DKK 1,188 per year for ATP, deducted from his/her salary and paid by the employer. Additionally, the employer must also pay:

• Contribution to Maternity Fund, approximately DKK 1,350/year;
• Industrial Injuries Insurance, approximately DKK 5,000/year;
• Other Public Social Security Schemes, approximately DKK 5,300/year.

Please note these rates may vary and might not be applicable to all employers. Our payroll system in Denmark will take into account the specific rates and requirements relevant to each case.

Employees must pay Labor Market Contributions (AM-bidrag), which is 8% of his/her salary. This sum is deducted from the gross salary before calculating other taxes. After deducting AM-bidrag and ATP taxes, the employee must pay the income taxes, which include the national, municipal, and church taxes. The rates are progressive and vary on specific circumstances. Our accountants in Denmark can help you if you have problems with income taxes.

For business owners across Denmark, it is important to understand the potential employer contributions to expect for a full-time employee in Denmark. Moreover, the total employer expense for social security and insurances are approximately DKK 14,000–15,000 per year. This makes more clear on the reason why partnering with our Danish lawyers is an essential step for a precise cost planning and budgeting of a company in Denmark.

Payroll reporting and compliance in Denmark

Efficient payroll in Denmark compliance focusses on timely and accurate reporting. In this way, main payroll timeline reminders for foreign companies in Denmark include:

• Monthly reporting via the e-Income platform is mandatory as the annual-only filings are not accepted in Denmark;
• Annual individual tax returns must be checked and corrected by 1 May (1 July for taxpayers who file an extended tax return, e.g. the self-employed);
• Fines or penalties may apply for reporting delays or inaccuracies, making the constant support from our accountants in Denmark or our Danish law firm essential for foreign employers.

Statistics about employment in Denmark

Regarding payroll in Denmark, our team has gathered some interesting statisticsabout the employment trends in the country in 2022:

• Over 3 million people were actively employed in Denmark, including sole proprietors;
• 302,785 were medium-level employees;
• Over 1 million were basic-level employees;
• Approximately 1.47 million employees were females.

Please contact our attorneys in Denmark if you need payroll services in the country or need assistance in labor-related matters.