Subcontractors in Denmark
Do you want to work as a subcontractor in Denmark? Or are you considering hiring subcontractors in Denmark? In the following, we have summarized important tax and HR-related topics, that must be considered in this respect.
During the latest months, we have received several questions from foreign companies providing construction services in Denmark and using foreign subcontractors. Many companies are surprised about the liability risks they are exposed to. Therefore, we would like to give a brief overview on this subject.
Overall, we recommend that you inform your subcontractors well about all relevant topics, so that your subcontractors are also well prepared for when starting their works in Denmark.
CHECKLIST for subcontractors
|Ο||Corporate tax: Will construction work create a permanent establishment in Denmark?|
|Ο||Payroll tax: Will posted employees be subject to Danish payroll tax? Does the hiring-out-of-labour tax regime apply?|
– Does the subcontractor have to register for VAT in Denmark?
– How is invoicing done between subcontractors and your company?
|Ο||Cars: May cars with foreign license plates be used in Denmark?|
|Ο||Registration in the Register for Foreign Service Providers (RUT) is always required.|
|Ο||Do the subcontractors workers need a work and/or residence permit?|
|Ο||Will the subcontractors workers still be covered by social security in their home country when working in Denmark? Is supplementary insurance required? Please note, that special rules apply for third country nationals.|
|Ο||According to the posting directive, which working conditions must the subcontractor observe?|
|Ο||What are the minimum wages? Which other wage elements need to be considered?|
|Ο||How does the subcontractors handle potential trade union claims?|
|Ο||Do the subcontractors workers need recognition of foreign professional qualifications?|
HOT TOPIC: MINIMUM WAGE AND TRADE UNIONS
Unlike in most other European countries, minimum wage is not regulated by law in Denmark, but by collective agreements. Danish collective agreements do not generally apply to all foreign companies (no erga omnis applicability). However, in order to determine the working conditions to be observed in Denmark, the Danish collective agreements still need to be considered.
If the workers carry out work that falls within the scope of a nationwide collective agreement (områdeoverenskomst), then the wage rates from the collective agreement are to be considered when determining the applicable wage level. However, this only applies to blue collar workers.
White collars staff, such as construction managers, project managers or commercial employees are not genuinely covered by a collective agreement. Their salary may therefore be set freely. However, we recommend to ensure, that secondment contracts for white collar staff meet the minimum requirements according to the Danish Posting of Workers Act. In particular, additional vacation claims may appear, when working in Denmark.
WHEN IS A FOREIGN COMPANY BOUND BY A COLLECTIVE AGREEMENT?
A collective agreement is individually binding for a subcontractor in two situations:
On the one hand, if the subcontractor becomes a member of a Danish employers’ association, for example Dansk Industri – the Danish Confederation of industries, which also represents the employers of the Danish construction industry in the department DI Dansk Byggeri.
On the other hand, by concluding a so-called accession collective agreement with a Danish trade union, for example 3F – the Union of Danish Workers, BJMF – the Union of Danish Concrete Workers or Dansk Metal – the Union of Danish Industrial Workers.
If the general contractor is bound by collective agreements in Denmark, he is obliged by the collective agreement to ensure that the subcontractor is fully aware of the applicable Danish collective agreement and its working conditions. According to the collective agreement, it is also recommended that the general contractor obliges the subcontractor in contractual clauses to comply with the Danish working conditions and that a breach is to be regarded as a breach of the contractual relationship between general contractor and subcontractor.
If the subcontractor is bound by a collective agreement, he must comply with the rules of the collective agreement. In particular, the rules on working time and remuneration are the subcontractor’s own obligation.
If general contractors or subcontractors do not comply with the collective agreement they are bound by, this is considered a violation of the collective agreement. In this case, the union may initiate proceedings for breach of a collective agreement. In such proceedings, the company may be obliged to make additional payments/back payments. Also, a fine may be imposed for breach of collective agreement, typically amounting to 25% of the back payments.
WHAT IS THE RISK WITHOUT A COLLECTIVE AGREEMENT?
If neither general contractors nor subcontractors are bound by collective agreements, the Danish trade unions have the possibility to force the general contractor or subcontractor to conclude a Danish collective agreement by means of industrial action. For this purpose, on the one hand, a strike or a so-called sympathy strike can be used.
In the event of a strike, the trade union members of the foreign company carrying out the contract are not allowed to work. Since foreign workers typically are not members of a Danish trade union, such a strike usually has no effect.
In the event of a sympathy strike, workers from other trades are also not allowed to work on the construction site or make deliveries to the company concerned, do not dispose of waste, etc. The aim of a sympathy strike is to exert pressure on the subcontractor, thus persuading him to agree to a collective agreement in the form of a accession collective agreement.
A sympathy conflict can lead to contractual delays and also to a significant negative public impact, which will also have negative effect on the Danish client. Therefore, foreign companies carrying out construction work in Denmark, should therefore define a strategy for how to handle collective agreements before commencing work in Denmark. The contracting company should also be in regular contact with its client on this topic in order to avoid negative publicity in connection with the project.
HOW SHOULD CONTRACTING ENTITIES BEHAVE WHEN AWARDING SUBCONTRACTS?
From the point of view of the general contractor who engages foreign subcontractors, it is most preferable, if the subcontractor is bound by collective agreements, for example through an accession collective agreement with a Danish trade union. Hereby, the subcontractor takes over own obligations for following the collective agreement towards the Danish unions.
The subcontractor contract should clearly specify what the subcontractor must commit to with regard to compliance with wage and working conditions in Denmark. Provisions in the subcontractor contract should therefore reflect the provisions of the contract with the Danish contracting entity. Contracts with Danish public authorities usually provide for so-called labour clauses, which regulate this issue and provide for severe contractual penalties for non-compliance.
In principle, there is no chain liability of the general contractor for the subcontractors obligations arising from collective agreements. However, such liability may arise contractually, if the general contractor has assumed such an obligation towards his Danish client. In addition, contracts with public authorities often include the possibility for the contracting authority to withhold part of the remuneration to the general contractor in order to cover potential claims of the workers of a subcontractor towards their employer.
Against this background, we recommend that subcontractor contracts be formulated carefully and meaningfully, especially with regard to working conditions and collective agreement.
We will be happy to support you in all questions regarding Danish collective agreements.