Hire in Denmark with Confidence
Our workforce compliance guide to Denmark covers everything you need to compliantly hire, onboard, manage and pay independent contractors in Denmark.
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Our workforce compliance guide to Denmark covers everything you need to compliantly hire, onboard, manage and pay independent contractors in Denmark.
Worksuite offers a whole range of professional services and compliance tools, making it easy to compliantly engage independent contractors in Denmark.
We work with the best legal partners in Denmark to create contract templates that are compliant with local laws to protect you and your contractors from fines and penalties.
Our bespoke onboarding workflows and screening questioners will help you determine the worker status in compliance with Danish law, based on which you can decide to engage a worker as a contractor or full-time worker—all without needing to set up your business entity.
Businesses hiring in Denmark should understand the legal distinction between independent contractors and employees. Businesses that are hiring independent contractors under the guise of employment risk facing fines ranging from DKK 10,000 (EUR 1300) to 20 weeks’ salary payment to a worker, in addition to applicable taxation. In Denmark, several legal procedures must be followed by both companies and contractors before establishing a relationship. It’s crucial to work with a partner like Worksuite when engaging contractors abroad, to establish a compliant and legal hiring framework.
There are two distinct legal statuses that govern the relationship between a hiring organization and its employees (medarbejdere) or independent contractors (uafhængige kontrahenter), or sole proprietors, as they are called in Denmark. A standard employment contract (ansættelseskontrakt), as well as a well-founded lack of subordination, indicate the traditional relationship between an employer and an employee. A business contract (forretningskontrakt) indicates a freelance engagement whereby an independent contractor, acting as a legal enterprise, agrees to provide a defined piece of work for a set amount of money.
Danish independent contractors are highly valued among businesses across the globe thanks to their skills, expertise, and proficiency in English.
Danish labor and civil laws are constantly subject to revision and policy changes. In addition, the country’s legislation defines very strict procedures to be followed by a contractor before engaging in work. It is important to work with a partner like Worksuite to ensure that you have an engagement framework that properly classifies freelancers able to work as independent contractors.
In Denmark, employment relations are regulated by various national legal acts, collective bargaining agreements, the European Union legislation, and local labor courts.
There are two types of employment agreements in Denmark:
Collective bargaining agreements (CBAs) may apply.
Employment contracts can be concluded verbally. There is no legal requirement to provide the contract in a particular language.
Independent contractors have a choice of two legal forms in which they can provide services:
Since an independent contractor agreement is effectively a business contract, it is regulated by the Danish Commercial Code. It must be concluded in writing.
Candidates are recruited externally through job boards and advertising. An applicant must submit their CV to the employer.
Selected applicants receive an offer letter, and a written contract, if concluded, must be provided within 1 month of the employment start date.
The following aspects must be collected and included in the contract, in addition to special clauses, if applicable:
Employers reserve the right to perform background checks during the hiring process, but they must not request any information that is not related to the nature of the work. This process can be delegated to third parties, provided that they comply with the European Union privacy regulations.
Danish Labor Law does not regulate probation periods. Employers usually set a three-month probation period with a 14 days notice.
Through professional employer organizations or directly.
Contractors can be hired directly or via a third party, such as a staffing agency. Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references and possibly sign an NDA.
An independent contractor agreement must clearly stipulate that the worker is free to organize his/her work and his/her working time for an agreement to be considered valid and for it not to fall under the scope of employment. Apart from that, an independent contractor agreement contains the same details pertaining to the nature of the work. The following aspects must be stipulated:
There is no limitation on the use of independent contractors.
The tax year runs from 1 January to 31 December. Employers have to submit income and social security tax reports (indberetninger om indkomst- og socialsikringsskat) to the Danish tax authority via its online portal before 1 May upon receiving a tax assessment notice from the SKAT in early March.
Contractors file annual personal income tax reports and pay social security contributions on their own. The following information is needed:
Independent contractors’ earnings may also be subject to VAT.
Employers must withhold the following deductions and make the following flat-rate payments each year for each employee:
Independent contractors must pay:
Payer’s Withholding / Reporting Requirements for Independent Contractors:
N/A
Employers are expected to pay their staff via automatic monthly payroll deposits to their bank accounts.
There is no obligation to pay independent contractors monthly. Employers are responsible for providing consistent compensation. There are no standard payment terms. Remuneration frequency is to be agreed upon between the contractor and the employer. Payments become due after the contractor issues an invoice.
In Denmark, employees enjoy the following rights:
Independent contractors are not entitled to any employee rights unless otherwise stipulated in the contract.
There is no protection from a sudden termination of the contract.
All employees must have health and unemployment insurance, which the employer is required to pay for. Pension and health insurance contributions are deducted from employees’ salaries and are paid by employers. Employees may be granted additional internal benefits not otherwise governed by labor laws
Independent contractors are entitled to free public healthcare. They do not enjoy any rights granted to employees unless an agreement says otherwise.
Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e. umbrella company) and is considered their employee.
From 15th to 30th day of the month. The payment is not anyhow stipulated in the contract.
Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:
In Denmark, employment relations are regulated by various national legal acts, collective bargaining agreements, the European Union legislation, and local labor courts.
There are two types of employment agreements in Denmark:
Collective bargaining agreements (CBAs) may apply.
Employment contracts can be concluded verbally. There is no legal requirement to provide the contract in a particular language.
Candidates are recruited externally through job boards and advertising. An applicant must submit their CV to the employer.
Selected applicants receive an offer letter, and a written contract, if concluded, must be provided within 1 month of the employment start date.
The following aspects must be collected and included in the contract, in addition to special clauses, if applicable:
Employers reserve the right to perform background checks during the hiring process, but they must not request any information that is not related to the nature of the work. This process can be delegated to third parties, provided that they comply with the European Union privacy regulations.
Danish Labor Law does not regulate probation periods. Employers usually set a three-month probation period with a 14 days notice.
The tax year runs from 1 January to 31 December. Employers have to submit income and social security tax reports (indberetninger om indkomst- og socialsikringsskat) to the Danish tax authority via its online portal before 1 May upon receiving a tax assessment notice from the SKAT in early March.
Employers must withhold the following deductions and make the following flat-rate payments each year for each employee:
Employers are expected to pay their staff via automatic monthly payroll deposits to their bank accounts.
In Denmark, employees enjoy the following rights:
All employees must have health and unemployment insurance, which the employer is required to pay for. Pension and health insurance contributions are deducted from employees’ salaries and are paid by employers. Employees may be granted additional internal benefits not otherwise governed by labor laws
From 15th to 30th day of the month. The payment is not anyhow stipulated in the contract.
Independent contractors have a choice of two legal forms in which they can provide services:
Since an independent contractor agreement is effectively a business contract, it is regulated by the Danish Commercial Code. It must be concluded in writing.
Through professional employer organizations or directly.
Contractors can be hired directly or via a third party, such as a staffing agency. Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references and possibly sign an NDA.
An independent contractor agreement must clearly stipulate that the worker is free to organize his/her work and his/her working time for an agreement to be considered valid and for it not to fall under the scope of employment. Apart from that, an independent contractor agreement contains the same details pertaining to the nature of the work. The following aspects must be stipulated:
There is no limitation on the use of independent contractors.
Contractors file annual personal income tax reports and pay social security contributions on their own. The following information is needed:
Independent contractors’ earnings may also be subject to VAT.
Independent contractors must pay:
Payer’s Withholding / Reporting Requirements for Independent Contractors:
N/A
There is no obligation to pay independent contractors monthly. Employers are responsible for providing consistent compensation. There are no standard payment terms. Remuneration frequency is to be agreed upon between the contractor and the employer. Payments become due after the contractor issues an invoice.
Independent contractors are not entitled to any employee rights unless otherwise stipulated in the contract.
There is no protection from a sudden termination of the contract.
Independent contractors are entitled to free public healthcare. They do not enjoy any rights granted to employees unless an agreement says otherwise.
Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e. umbrella company) and is considered their employee.
Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:
Self-employment as an independent contractor is a popular income model for many individuals. The latest pandemic restrictions have prompted more and more Danes to work as self-employed independent contractors. Moreover, hiring independent contractors from Denmark is currently a booming trend among organizations from all over the world. More and more representatives of Denmark’s highly-educated workforce choose to be their “own employers” and engage with companies as established self-managed businesses.
In Denmark, independent contractors are defined as “sole proprietors” rendering services as an enterprise. Their relationship with companies is regulated by the Danish Commercial Code.
Who is an Independent Contractor?
Any individual who independently and consistently carries out a gainful activity in the form of providing services for profit to a given organization while not abiding by its internal legal directives under an employment contract, and acting as a registered business, is considered an independent contractor. Independent contractor engagement implies that there is no professional subordination between the worker and the employer.
Under Danish law, an independent contractor is NOT obliged to:
The following aspects also distinguish between employees and independent contractors:
To become a contractor in Denmark, a person must establish a sole proprietorship or a limited liability company. No legal minimum capital is required to set up a sole proprietorship, while a deposit of DKK 40,000 (EUR 5400) is needed for LLC. To register a business, individuals need a Danish digital signature (NemID) and a civil registry number called CPR, both of which can be obtained online. To register a business online, it needs to be registered with the Danish Business Authority by submitting an online application. Once an application is submitted and accepted, the business gets assigned a Central Business Registration Number (CVR number). It must be used when corresponding with public authorities and companies when issuing invoices for services.
Once a business is registered, a contractor must open a corporate bank account and designate it as NemKonto, a bank account used to pay for public services.
Contractors whose annual earnings exceed DKK 50,000 (EUR 6700) must also obtain a VAT number. It can be obtained online.
Self-employed workers with their own business are classified as sole proprietors or limited companies.
There are two primary engagement models for working with independent contractors in Denmark.
A. Direct engagement of the worker as self-employed and registered via their own company. Under this model, the hiring company engages directly with the independent contractor and draws up an agreement for the provision of services. The hiring company then pays the independent contractor directly.
B. Umbrella company. Companies operating under Employer of Record services in Denmark are often split into two categories, but both are essentially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.
Independent contractors typically get paid upon issuing an invoice on net 30-day terms to the employer at the end of each month unless otherwise stipulated in the contract. Payments are made through direct deposits to their bank accounts or another preferred method stipulated in the contractor agreement.
Alternatively, companies may partner with wage processing providers. They can process wage calculations, prepare tax statements, and make deposits and withdrawals for contractors.
Terms, conditions, and frequency of payments can be settled between a contractor and an employer. Currencies other than the Danish Krone can be used in Denmark, and they are subject to fluctuating exchange rates, which may impact the contractor’s paycheck.
If you work with a hiring partner like Worksuite, it becomes significantly easier to streamline contractor payment processes. A dependable partner can help you hire contractors legally and pay them quickly, accurately, in euros, and in a way that complies with Danish regulations.
Independent contractors submit their own income tax reports. Moreover, since they operate as businesses, their annual tax reports are more detailed. Danish contractors benefit from certain tax breaks and deductions of business-related costs. Contractors file annual personal income tax reports and pay social security contributions online before 1 May upon receiving a tax assessment notice from the SKAT in early March using their NemID and CVR number. If a contractor does not receive a notice, he/she must apply for it online before the payment deadline.
Independent contractors’ earnings are not subject to any social security contributions. 74% of the Danish population are members of the Danish National Evangelical Lutheran Church (Folkekirken). They pay a church tax using the customary platform of the Danish Tax Authority.
Gross Income Tax
Income tax in Denmark is unique for every contractor. It varies between 12.10% to 52.07%, inclusive of the 8% labor market tax rate and all applicable state and municipal taxes. There is no tax-free threshold for independent contractors. Expatriates working as independent contractors in Denmark are taxed at a flat rate of 31.92%.
Value-Added Tax
The majority of services, imports of goods and services, and the sales value of items are subject to a VAT deduction of 25%. Contractors must file VAT returns every six months online using their NemID. Some services are exempt from VAT. They are listed on the Danish Tax Authority website.