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Hiring in Denmark

Background check in Denmark

Options for employment in Denmark

Language requirements in Denmark

Corporate presence requirements for payroll processing in Denmark

Easily hire employees in Denmark with our EoR solution

Employer of Record in Denmark

If you want to hire employees in Denmark, you usually need to set up a local business structure such as a branch or subsidiary. You’ll also need to fulfil certain administrative obligations, like registering for taxes and social security contributions and setting up a bank account in Denmark.

This can be an expensive and time-consuming process, which may not be worth it if you only want to take on a handful of employees. Of course, there is another option: you could engage workers as independent contractors instead of hiring employees. However, this is a risky solution, because you could end up liable for claims of employee misclassification if your workers are deemed to be disguised employees by the Danish government.

There is an alternative: hiring employees through an employer of record in Denmark.

What is an employer of record (EoR)?

An employer of record (EoR) is a company that hires workers on behalf of other organisations in exchange for a fee. Businesses often use EoR services to hire employees in countries where they don’t (yet) have a legal presence, since it avoids the need to set up a local entity. This means hiring through an employer of record in Denmark could be a faster and easier way to get your Danish operations off the ground.

Using an employer of record in Denmark

Using an employer of record in Denmark can help you avoid the hassle and cost associated with setting up a legal entity. It also avoids the risk of employee misclassification that comes with engaging independent contractors. When you hire employees through an EoR in Denmark, the EoR will be those workers’ legal employer and will handle things like:

Payroll processing
Benefits administration
Onboarding and offboarding
Employee HR support
Taxes and social security
Visas and work permits
Contracts and agreements

There are many different employer of record companies in Denmark, which all offer different services. It’s important to ensure an EoR will be able to meet your company’s specific needs before entering into an agreement.

Hiring in Denmark without an EoR

If you want to hire employees in Denmark without working with an employer of record, you’ll need a thorough understanding of the country’s labour laws. This will help you to ensure your operations are compliant with regulations on things like minimum wage, paid time off and even data protection legislation.

It’s also a good idea to research the norms and expectations surrounding work in Denmark since this will allow you to form better relationships with your Danish team. In this guide, we’ll take you through everything you need to know to hire compliantly and legally in Denmark while providing the employee experience your Danish employees expect.

Hiring in Denmark

Alongside its Scandinavian neighbours, Denmark is known as one of the happiest countries in the world. It also ranks fourth in the world (and first in Europe) for ease of doing business, according to the World Bank. This makes it a popular destination for foreign companies looking to expand overseas.

Before hiring in Denmark, however, you’ll need to understand some of the key rules and regulations that govern employment, as well as the cultural norms that shape Danish employees’ expectations around work. In this section, we’ll discuss a few of the main elements you should know about.

Understanding collective bargaining agreements (CBAs)

Most labour laws in Denmark are not set by the government, but by various collective bargaining agreements (CBAs), which are negotiated between labour unions and employer associations. Around 80% of employees in Denmark are covered by a collective agreement, which differ from one industry to another. These CBAs set minimum standards for things like wages and working conditions. As an employer in Denmark, you’ll need to check which CBA will cover your company so you can ensure your operations are compliant.

The Salaried Employees Act

Many employees in Denmark who are not covered by a collective bargaining agreement are covered by the Salaried Employees Act (funktionærloven). This isn’t a general employment law, because it’s restricted to employees in certain occupations. For those employees it covers, the Salaried Employees Act sets minimum standards for things like sick leave, parental leave, and termination. The Salaried Employees Act covers:

Business and office workers
Qualified technical professionals
People who perform clinical work
Employees in managerial positions

Before hiring employees in Denmark, you should find out whether they’ll be covered by the Salaried Employees Act.

Taxes and social security

Taxes are very high in Denmark, with the average employee paying almost half their salary to the tax authorities. The tax system is progressive, which means that employees who earn more contribute a higher percentage than low earners.

Denmark also has a robust social security system, which is paid for through contributions from both employers and employees.

Employers in Denmark have to withhold the employee portion from their employees’ salaries. The social security system pays for benefits like health insurance, sick pay, disability benefits, and maternity pay.

Employment contracts

Employers in Denmark have to provide their employees with a written employment contract if their employment meets certain conditions. The contract should include all of the relevant terms and conditions of employment, including the employee’s job title and description, salary, and working hours. It should also state which collective bargaining agreement (if any) applies to the employee.

The cost of hiring in Denmark

Hiring in Denmark can be an expensive process, especially for foreign companies. If you want to hire employees in Denmark, you need to consider costs including:

Research into laws and applicable CBAs
Establishing a local entity
Recruiting agencies or headhunters
Employee background checks
Onboarding and training
Renting or purchasing office space

Remember: depending on your situation and the number of employees you want to hire, working with an employer of record (like CXC) could be a more cost-effective way to kickstart your Danish operations.

Background check in Denmark

Conducting employment background checks in Denmark can help you protect your business and develop long-lasting relationships with employees. However, there are certain rules and requirements that businesses have to follow to comply with data protection laws when conducting background checks.

What background checks are legally required in Denmark?

Employers in Denmark are responsible for verifying that the people they employ have the right to work in the country. This means that, if you hire a non-Danish employee in Denmark, you need to check that they have the correct residence and work permit.

Employees from EU countries, the European Economic Area (EEA) and Switzerland have the right to live and work in Denmark without a specific visa. However, they must apply for a registration certificate from the International Citizen Service or the State Administration if they want to stay in the country for more than three months. Citizens of third countries need to apply for a residence and work permit before entering Denmark.

Other possible background checks in Denmark

Here are some of the other types of employment background checks that it’s possible to carry out on your potential hires in Denmark:

Employment history: Verifying a potential employee’s employment history is an important part of the employment process in Denmark. Employers can collect physical copies of professional licences or certificates. They can also interview the potential candidate’s former employer and colleagues, as long as they have consent from the candidate.
Education history: Employers in Denmark can verify the educational history of potential hires by contacting their former educational institutions directly. However, they need written consent from the candidate in order to carry out this verification.
Criminal record checks: Employers can ask potential employees for a copy of their criminal record if they have a substantial reason for requesting it. The Danish Data Protection Authority guidelines recommend that employers only process criminal records for sensitive jobs, in order to protect employees’ privacy.
Credit checks: Credit checks are not normally part of employment background checks in Denmark. However, they are permissible when the role in question will involve dealing with the company finances.
Medical checks: Employers in Denmark can sometimes request information on a potential employee’s medical records or ask them to undergo new medical checks. However, this is only permitted if it’s directly relevant to the candidate’s ability to do a job.
Social media checks: Social media checks are another type of employment background check in Denmark. However, there are limitations on how they can be used. Employers can process public information about candidates from their social media profiles, as long as they have consent from the candidates. However, they can’t discriminate against candidates based on political views or religious beliefs that they have expressed on social media.

Limitations on background checks in Denmark

Employers need to obtain the candidate’s consent before carrying out most types of employment background checks in Denmark. Certain background checks can only be carried out in specific circumstances where they are directly relevant to the job in question. For example, an employer may be able to request medical information from a candidate applying to be a firefighter or airline pilot, since this could help to determine their ability to perform the role. However, this type of check would not be permitted for most other roles.

Options for employment in Denmark

If you want to hire workers in Denmark, you need to decide on the right hiring structure to meet your business needs. As in many countries, there are a few different options for employment in Denmark, depending on your situation. For example, the nature of the work and the length of employment might have an impact on the employment option you choose.

Main options for employment in Denmark

If you want to engage a worker in Denmark, you have three options to choose from:

Employee: Employees are workers who have an employment contract with their employer. They may be hired on a fixed-term or indefinite basis, for either full-time or part-time work. In Denmark, it’s illegal to discriminate against an employee because they are on a fixed-term or part-time contract. There are also limits on how long employees can be hired on a fixed-term basis before they must be offered a permanent position.
Independent contractor: Independent contractors are freelance professionals who do not work under the authority of an employer. Employers can engage independent contractors directly or through a personal services company. They are usually not entitled to the same employment rights and protections as employees. Whether someone is legally considered an independent contractor or an employee depends on the reality of their situation, not just the agreement they have signed.
Agency worker: Employers in Denmark can also hire temporary labour through temporary work agencies. Agency workers have specific rights in Denmark under the Temporary Employment Act. Companies that hire temporary agency workers in Denmark have to provide them with the same minimum pay and conditions that they would be entitled to as a direct employee.

Employees vs. contractors in Denmark

Understanding the differences between independent contractors and employees in Denmark is crucial if you want to protect your business from the consequences of employee misclassification. When deciding on an employee classification, Danish courts consider the reality of the employment situation, not just the type of agreement that the worker has signed.

Here are some questions to ask when determining whether a worker is an employee or an independent contractor under Danish law:

Does the worker hold a subordinate position and take instructions from the employer on how to complete the work?
Does the worker have an obligation to complete the work?
Can the worker send a substitute to complete the work, or do they have to do it themselves?
Does the worker bear the financial responsibility of running a business?
Does the worker make use of the same tools and facilities as employees at the company?
Does the worker get paid holidays and other benefits associated with employment?
Does the worker work for more than one client?
Is the worker registered as an independent business with the Danish Business Authority (DBA)?

Penalties for misclassification in Denmark

If an employer is found to have misclassified an employee as an independent contractor in Denmark, they may be subject to fines and penalties, which must be paid to the worker in question. These range from DKK 10,000 (around EUR 1300) for minor violations to 20 weeks’ salary for serious issues. Employers in this situation are also required to pay back taxes covering the period of employment. Misclassified employees may also be entitled to additional payments for benefits they didn’t receive because of the misclassification, such as maternity pay or paid holidays.

Language requirements in Denmark

There are no statutory language requirements for employment documents in Denmark. That means that employers are free to draft contracts and other documents in any language, as long as both parties understand them. An exception is documentation related to stock option schemes, which must be provided to employees in Danish.

Language requirements for visas in Denmark

Applicants for the permanent residence permit in Denmark must prove they have a certain level of competence in Danish in order to be accepted. Specifically, they must pass the Danish language test 2 (Prøve i Dansk 2) or a Danish exam of an equivalent level or higher. This is equivalent to level A2 of the Common European Framework of Reference for Languages (CEFR).

In addition to the basic requirements, applicants for the permanent residence permit must also meet at least two of the four supplementary requirements, which are:

Pass the Danish language test 3 (CEFR level B2)
Have been employed for at least four years
Pass the active citizenship exam or display active citizenship
Have an average annual income above a certain level

Danish citizenship language requirement

Applicants for Danish citizenship generally need to pass the Danish language test 2 or an equivalent test to be eligible for naturalisation. However, there are some exceptions. For example, applicants residing in Greenland or on the Faroe Islands, and those who speak Swedish or Norwegian, do not need to provide evidence of Danish language skills.

Corporate presence requirements for payroll processing in Denmark

There are certain requirements that foreign businesses need to meet before they can hire employees in Denmark. Specifically, you’ll need to have a corporate presence in the country and complete several processes to set up payroll.

Steps to set up payroll in Denmark

Here are the steps you’ll need to follow to set up payroll in Denmark:

Set up a business structure: The first step towards hiring employees in Denmark is to choose which business structure makes sense for your organisation. You can choose to set up a branch, which is an outpost of your existing company. Alternatively, you could set up a limited company such as an Aktieselskab (A/S) or an Anpartsselskab (ApS). It’s important to do some research into the different options to determine which one is most suited to your situation.
Register with the Danish Business Authority (DBA): Businesses that want to hire employees in Denmark must register with the Danish Business Authority (DBA). Once you’ve registered, you’ll receive a Central Company Register (CVR) number, which you’ll need for payroll processing in Denmark. We recommend working with a lawyer to complete this process if you’re not a Danish resident.
Register with the Danish Tax Authorities: Employers must also register with the Danish Tax Authorities. Depending on the nature of your operations, you might need to register for various different taxes.
Open a Danish bank account: Businesses in Denmark must also have a Danish bank account, which you’ll need to set up before you can take on employees. You’ll also need a certain minimum amount of share capital depending on your chosen business structure.
Establish a physical address in Denmark: Companies establishing a subsidiary in Denmark must have a physical address. You’ll need to consider whether it’s best to buy or rent a property.
Take out industrial injuries insurance: Employers in Denmark must take out an industrial injuries policy, which provides employees with compensation if they’re injured at work. You usually need to take out this policy with an insurance company that’s registered in Denmark.

Avoid the hassle with an employer of record

Hiring workers through an employer of record can help you avoid the administrative and financial burden of establishing a corporate presence in Denmark. When you work with an EoR, they’ll act as your workers’ legal employer, so there’s no need to set up a local entity. They’ll also handle important tasks like benefits, HR onboarding, and payroll processing in Denmark on your behalf, so you can simply focus on expanding your business.

Easily hire employees in Denmark with our EoR solution

Hiring employees in Denmark usually means setting up a legal entity, which can be costly and time-consuming. Employers can avoid this hassle by working with an Employer of Record (EoR), like CXC.

Through our EoR solution, you can confidently hire employees in Denmark, without worrying about compliance issues. We’ll handle everything from payroll to benefits to employment contracts on your behalf — so all you have to think about is finding the right person for the job.

Read about EoR services

Compliantly hire workers anywhere with CXC

With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.

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