Denmark, known for its robust welfare system, highly educated workforce, and strong labor rights, is an attractive destination for international businesses. But before you make your first hire in this Nordic country, it is essential to understand the full cost of employing staff. In addition to salaries, employers must factor in social contributions, insurance obligations, and common employee benefits.
In this article, we break down the key components of the cost of employing in Denmark to help you plan your HR strategy and payroll budget.
Base Salary
Denmark does not have a statutory minimum wage. Instead, wages are typically regulated by collective bargaining agreements (CBAs) between employer associations and trade unions. These agreements vary by industry but often set clear wage levels, working conditions, and benefits.
As of 2024, the average monthly gross salary in Denmark is around DKK 45,000 (approx. €6,000), although this varies significantly by sector and role.
Employer Contributions: Social Security and Labour Market Costs
Although Denmark’s social security system is largely tax-financed, employers are still required to make several mandatory contributions:
- ATP (Labour Market Supplementary Pension):
Employers contribute DKK 189.60 per month per full-time employee (approx. €25). - Arbejdsmarkedets Erhvervssygdomssikring (AES) – Industrial injury insurance:
Mandatory insurance to cover work-related injuries or illnesses. Rates vary but are typically around DKK 1,000–3,000 annually per employee (approx. €135–400), depending on industry risk. - Labour Market Fund for Posted Workers and Training Funds:
Sector-specific contributions, often negotiated via CBAs. These can add minor additional costs. - Holiday Fund Contributions (Feriekonto or Feriepenge):
Employers are required to pay 12.5% of gross salary for holiday allowance. This applies whether you pay holidays monthly or set aside the funds. - Maternity Reimbursement Scheme:
Employers pay into a scheme that reimburses some costs associated with parental leave. Contributions are approx. DKK 1,200–1,500 per year per employee.
Employee Benefits
Employee benefits in Denmark are shaped both by legislation and collective agreements. Some of the key benefits include:
- Annual Leave:
Employees are entitled to 25 days (5 weeks) of paid holiday each year. Employers typically continue full salary payments during this time. - Parental Leave:
Denmark offers generous paid parental leave. Employers can be reimbursed for a portion of the pay, but some CBAs require employers to top up government benefits to full salary for a period. - Sick Leave:
Employers must cover the first 30 days of sick leave, after which the state reimburses a portion. CBAs may require extended sick pay coverage. - Health Insurance:
While Denmark has public healthcare, many employers offer private health insurance as a benefit to attract talent.
Taxes and Withholding
Employees pay progressive income tax, which includes municipal, national, and labor market contributions. These taxes can reach up to 55% depending on income levels. Employers are responsible for:
- Withholding income tax at source via Denmark’s eIndkomst reporting system.
- Paying AM-bidrag (Labour Market Contribution), which is 8% of the employee’s gross salary, withheld from the employee.
Administrative Costs
Running payroll in Denmark involves strict compliance and regular reporting to Skattestyrelsen (the Danish Tax Authority). Employers must manage:
- Monthly salary reporting
- Pension payments
- Holiday fund contributions
- Handling reimbursements (e.g., for sick or parental leave)
These tasks are often outsourced to local payroll providers to ensure full compliance and accurate reporting, especially for foreign employers unfamiliar with Danish systems.
Hidden Costs: Culture and Retention
Denmark emphasizes work-life balance, trust-based leadership, and flexible work hours. While not a direct cost, companies that align with Danish workplace culture can see higher retention and employee satisfaction—reducing hiring and training costs over time.
Conclusion
The cost of employing in Denmark includes more than just the salary. From pension contributions and holiday pay to parental leave and administrative overhead, employers must account for various mandatory and expected expenses.
However, with its stable economy, transparent regulations, and highly skilled workforce, Denmark remains a compelling market for international companies.
At Internago, we help businesses manage international payroll and navigate local labor laws across Europe. If you are considering hiring in Denmark, let us help you set up compliant payroll processes and optimize your cost structure.
For more details or to speak with our payroll experts, contact us at info@internago.com or visit our Payroll Portal.
Disclaimer
This blog post provides a general overview and introductory examples related to payroll. In practice, there are many additional factors to consider, and this article should not be regarded as comprehensive guidance. For a more in-depth discussion tailored to your specific needs, please feel free to contact us.