Holst, Newsletter – The new Danish Holiday Act

Henrik Christian StrandAssociate Partner, Holst, Advokater

The new Danish Holiday Act will take effect as at 1 September 2020, and the change in legislation from the present holiday entitlement scheme to concurrent holiday means that the first step of a transitional arrangement was already introduced on 1 January 2019.

Change in holiday entitlement scheme to a concept of concurrency holiday

Previously, employees in Denmark have accrued holiday entitlement during the calendar year 1 January-31 December but have taken holiday during the so-called holiday year 1 May-30 April the following year.

Concurrent holiday means that holiday entitlement is accrued during the new holiday year 1 September-31 August and the employee may take holiday during the holiday period 1 September and 16 months forward, meaning that the period during which holiday can be taken is extended by additional 4 months until 31 December. Hence, an employee may take a holiday in the same year as it is accrued.

Transitional period

Shorter accrual period

The accrual year for 2019 is shortened and runs during the period 1 January 2019-31 August 2019. During this period, holiday entitlement is accrued by employees in accordance with the current rules. Employees must take holiday accrued during the shortened accrual year during the period 1 May-30 September 2020.

Employees entitled to a holiday with pay may take holiday as usual; employees entitled to a holiday with holiday allowance or other holiday pay schemes must have the accrued holiday pay paid into FerieKonto (a scheme administrating holiday allowance in Denmark) or into a similar holiday pay scheme in the usual manner.

Holiday pay provision

Holiday accrued during the period 1 September 2019-31 August 2020 will be frozen, regardless of it being accrued by employees who usually take holiday with pay or by employees who receive holiday allowance.

Such provision/freezing can be made either by employers retaining the holiday funds until the employee retires from the labour market, or by paying the holiday funds into a new fund established under the Danish Employees’ Capital Pension Fund for administrating the frozen holiday funds, i.e. the Employees’ Fund for Residual Holiday Funds, hereinafter referred to as “the Fund”. Should employers choose to retain holiday funds, such will become subject to an annual indexation fixed by the Fund. The interest rate is expected to be around 3%.

To which extent an employer should retain holiday funds or not will depend on the company’s financial situation, cash flow, and deposit and lending rates. Companies should consider such issues both in the short term and in the long term.

Accrued holiday during the period 1 September-31 December will be recognised in the 2019 annual report as a provision for holiday funds payable to the Fund, regardless of whether the company at a later time chooses to pay the holiday funds to the Fund or not. Companies’ liability to the Fund is calculated as 12.5% of salaries subject to income tax during the period 1 September-31 December.

Accrued holiday during the period 1 January-31 August is calculated according to the same principles and will be recognised in the 2020 annual report.

Reporting of frozen holiday funds

Companies must, no later than by 31 December 2020, report holiday funds payable for each individual employee to the Fund. Reporting shall contain information on, among others, the number of accrued holidays and the value of such in terms of money. Hence, a specific calculation and reporting must be made for each individual employee.

However, if an employee resigns from his/her position during the transitional period, the employer should neither report nor pay to the Fund in respect of this employee. Instead, accrued holiday entitlement shall be paid into FerieKonto or into another relevant holiday scheme.

Holst, Advokater recommends that companies:

  • Consider the need for amending contracts of employment and staff policies,
  • Keep an account of holidays for each individual employee, in order for such account to be reported to the Fund, and
  • Pay in holiday entitlement accrued during the period 1 September 2019-31 August 2020 to the Fund or retain holiday pay and statutory indexation in the company, depending on the company’s financial situation, cash flow and deposit and lending rates.