In 2018, the Danish government passed a new version of the Danish Holiday Act, which will come into effect from 1 September 2020. The legislation changes the way holidays are administered in Denmark: under the current system employees cannot take the holiday they earn immediately: the delay is particularly unfair on young people and new entrants to the workforce, who may end up waiting 16 months before they can take a holiday.
The new Holiday Act introduces concurrent holiday, which means employees will be able to take the holiday they earn as soon as they earn it. The change poses potential problems for payroll departments working out employee holiday entitlements: to mitigate this, the Danish government is implementing a transition period.
As an employer, it’s important to prepare your payroll for the new Holiday Act and ensure the transition doesn’t create disruption for your employees or your business.
How has the Danish Holiday Act changed?
Currently, employees accrue holiday during the calendar year, 1 January to 31 December, at a rate of 2.08 days per month (25 days per year). The holiday they earn must be taken during the next ‘holiday year’, which starts on 1 May the following year, and runs until the 31 of April.
From 1 September 2020, the new Holiday Act will allow employees to take holiday as soon as they earn it. This means that the 2.08 days of holiday an employee earns in January, for example, can be taken as 2 full days off in February.
Have holiday earning periods changed?
The period in which employees earn their holiday entitlement has changed. Under the new system, employees will earn their holiday from 1 September to 31 August each year (at the same rate of 2.08 days per month).
Holiday earned can be taken from 1 September (of that year) to 31 December the following year: a 16-month window which offers employees more flexibility for their holiday time.
How will the transition period be implemented?
In order to avoid a situation in which employees earn double holiday entitlement, the Danish government is implementing a transitional period which will run from 1 September 2019 to 31 August 2020.
During that 12-month period, employees will earn holiday in the normal manner, but will not be able to utilise their entitlement. Instead, the holiday pay will be frozen, stored in a government fund, and paid out to employees when they retire or leave the Danish labour market.
Importantly, the transition period shrinks the 2019 holiday earning period, which now runs from 1 January to 31 August 2019. Holiday earned in that period can be taken from 1 May 2020 to 30 September 2020: an allowance has been made to extend the period by 1 month to allow employees to use up outstanding entitlement.
What happens to the ‘frozen’ holiday pay?
Frozen holiday pay must be transferred to the Lønmodtagernes Fond for Tilgodehavende Feriemidler (Employees’ Fund for Outstanding Holiday Funds) by 31 December 2020.
Employers may choose how the money in their fund will be managed:
- Transfer administration to the Holiday Fund itself: The Fund will ensure correct interest is paid and issue annual balance updates to employees.
- Self-administer the money within the fund: This option is useful for liquidity but places the burden of administration, indexing, and interest payments on the employer.
What should employers do now?
Make sure your payroll team knows how to implement the new holiday regime - especially during the transition period. If you haven’t already informed your employees about how their holiday entitlement will change, now is the time to do so - it will also be necessary to amend employment contracts and personnel policy.
There may be some confusion about the notion of ‘frozen’ holiday funds so it will be important to stress that employees will receive their pay in an amount indexed to wage developments, with interest, and will not lose any value.
For more information about payroll and tax in Denmark, explore our dedicated Denmark Global Insight Guide.