New Danish Holidays Act
On 27 April 2015, the EU Commission stated that the current Danish Holiday Act is not in compliance with the EU-legislation. According to EU-legislation an employee has to be entitled to minimum four paid weeks of vacation each year. According to the Danish Holiday Act an employee is entitled to a minimum of 5 weeks of holidays per year, but because of the distinguishing of the “accrual year” and the “holiday year” this holiday is not always with pay.
The Danish Holiday Act distinguishes between the “accrual year” and the “holiday year.” Employees accrue 2.08 days of paid holiday for each month of employment during the accrual year (the calendar year). Accrued holidays can be taken in the following holiday year, from 1 May to 30 April. That implies that holidays accrued in the period from 1 January to 31 December 2017 must be taken as paid holiday during the following holiday year, which is from 1 May 2018 to 30 April 2019. If an employee has not accrued the right to paid holiday, he/she still has the right to a 25-day holiday, however this is unpaid. The employer can deduct 4.8 percent of the monthly salary for each day of holiday taken by the employee.
According to the current Holiday Act, an employee who starts working on January 1, 2017, will only be entitled to a paid holiday from May 1, 2018. However, the employee still has the right to an unpaid 25-day holiday. On the other hand, the employer must pay the accrued holiday, which has not taken place, upon the employee’s resignation. The payment must be made to the employee’s holiday account, and the employee will hereby receive a holiday allowance for the holiday, which is not yet paid by the new employer.
For new graduates or cross-border employees who enter the Danish job marked this means that these employees who have not accrued any vacation will have to wait up to 16 months before they have accrued the right to paid vacation.
According to the EU Commission, the current Danish Holiday Act, means that employees who have not yet earned a holiday, does not spend 4 weeks of vacation in the first year. Therefore, the Danish Holiday Act is not in line with EU legislation.
The Danish Parliamentary has therefore adopted a new holiday act, which will be effective from 1 September 2020.
Changes in relation to the current Danish Holiday Act
The main change in the new Holiday Act relates to the accrual year and the holiday year.
According to the new Holiday Act, the accrual year and the holiday year will be coincident so that the employees accrue and take their holidays at the same time from 1 September to 31 August. This means that all employees are entitled to paid holiday already during the first year in the labor market.
In addition, the new Danish Holiday Act implies that the accrual year is extended so that the holiday earned from September 1 to August 31 can be taken in the same year from September 1 to December 31 in the following year. The extension of four months during the holiday will increase the flexibility. The number of accrued days (25 days) and the statutory allowance of 1 percent is not changed by the new act. This means that employees continue to accrue 2.08 days per month.
For example, if an employee is hired in Denmark on September 1, 2020 and wants to spend a week’s holiday in December, he/she may spend five of the days accrued by him/her from September 1, 2020 to December 2020, i.e. 2.08 days per month.
A new feature makes it possible to lend holiday days, to an employee. For example, if an employee is hired in Denmark on September 1, 2020 and wants to spend a week’s vacation in October 2020, the employer may lend the employee the holiday days that the employee has not yet accrued. These may then be deducted from the later accrued days. If the employee resigns before the repayment has taken place, it can be deducted from the employee’s salary.
The notification rules are the same as in the current Holiday Act. The employee must notify at least three months in advance of the main holiday and at least one month for other holidays. The employee still has a right to have a three-week coherent holiday between 1 May and 30 September.
The employer can no longer agree on an enduring derogation from the Holiday Act’s terms of notification. This can only be done by an agreement with the individual in a present and definite situation.
The transitional period
When transitioning to the new Holiday Act, employees who are already in the labor market will have accrued vacation days both under the current holiday act, and at the same time accrue vacation days according to the new Holiday Act.
Figure 1. Employees’ accrual of vacation in the transitional period
To avoid that employees who have accrued holidays in accordance with the current Holiday Act will be able to accrue up to 10 weeks of holidays in the transition period, the holidays accrued in the year prior to the entry into force of the new Danish Holiday Act will be suspended meaning that the employee cannot take the holidays or receive payment in lieu of the holidays. The receivables will be disposed in a newly created fund “Employees’ Fund for Beneficial Vacation Benefits”. These funds will be paid individually, when the employee leaves the labor market. This ensures that the employee only has 5 weeks of paid holiday in the transition year and employers does not have to pay up to 10 weeks of vacation in the year the arrangements overlap. The holiday receivables are secured in the fund against, for example, the employer’s bankruptcy.
In order to provide employers with liquidity, it is stipulated that the employer can wait to pay the accrued holiday resources until the employee leaves the labor market. In this case, an annual indexation of these holiday resources must be made.
The act enters into force on September 1, 2020, and it is important that employers update the employment contracts and their staff policies, to be in line with the new Holiday Act.
Although, there is still time until the new Danish Holiday Act applies, it is our recommendation to already make the necessary changes to, for example, staff policies, additions to existing employment contracts, as well as new standard contracts so that everything is set when the rules apply.
For many years, our team of experts in LEAD – Rödl & Partner has advised both Danish and foreign employers and employees on labor law issues and we are ready to assist you in updating your employment contracts and internal rules so that the transition is as smooth as possible.
For further information, please contact our partner and co-founder of LEAD – Rödl & Partner, lawyer Alexandra Huber.
+45 5116 7494