Payroll and Employment Taxes in Denmark

Overview of Payroll Taxes in Denmark

Understanding Denmark’s payroll tax system is essential for businesses of all sizes operating in this Scandinavian nation. Danish employers must navigate several types of mandatory contributions, including the Labor Market Contribution (AM-bidrag), income tax withholding, and various social security contributions like ATP. While Denmark’s system is known for its comprehensive social welfare funding, it presents unique challenges for employers who must accurately calculate, withhold, and remit these taxes on time.

This guide will help you understand how to manage payroll taxes in Denmark, covering everything from calculations and deadlines to filing procedures, ensuring your business remains compliant.

Fiscal Year in Denmark

1 January- 31 December is the 12-month accounting period that businesses in Denmark use for financial and tax reporting purposes.

Payroll Cycle in Denmark

The payroll cycle in Denmark is usually Monthly, with employees being paid By the last working day of the month.

Bonus Payments in Denmark

In Denmark, it is not a legal requirement to pay a 13th-month salary payment.

How is Payroll Calculated in Denmark?

Payroll in Denmark starts with the gross salary, from which the 8% AM-bidrag is deducted before applying income tax based on the employee’s skattekort (tax card). Employers must also factor in pension contributions (usually 8% from the employer and 4% from the employee), holiday pay at 12.5% of gross salary, and social security fees like ATP. The final net salary is disbursed monthly, usually on the last working day, with detailed payslips outlining all deductions.

Types of Payroll Taxes in Denmark

Denmark’s payroll tax system includes a range of taxes that fund healthcare, unemployment, and pension benefits. Each type has specific calculation rules, deadlines, and compliance requirements.

Labor Market Contribution (AM-bidrag)

This mandatory 8% tax is deducted from gross earnings before calculating income tax. Though paid by employees, employers must withhold and report it via the eIndkomst system by the 10th of the following month and remit payment by the last working day. Penalties for non-compliance can be up to 0.7% of the due amount monthly.

Income Tax Withholding

Under Denmark’s PAYE system, income tax is based on progressive rates informed by each employee’s tax card. Employers must calculate and remit these withholdings monthly, reporting them to the eIndkomst system by the 10th and paying by month-end. The tax includes state, municipal, and optional church tax.

ATP (Labour Market Supplementary Pension)

Both employers and employees contribute to ATP, a mandatory pension fund. The employer typically pays DKK 189.60 per full-time employee monthly. Contributions vary with working hours and are reported and paid quarterly. Delays can incur interest and fines.

How to Set Up a Payroll in Denmark

Registering with Danish Authorities

Businesses must register with the Danish Business Authority to obtain a CVR number and with SKAT for tax reporting. Employers also need to register for ATP and possibly industry-specific pension schemes. These steps must be completed before hiring staff.

Choosing a Payroll System

Select payroll software that handles Danish requirements like AM-bidrag and eIndkomst integration. Recommended options include:

• Playroll – global payroll platform tailored for Denmark
 
• Danløn – widely used in Denmark
 
• Visma – Nordic HR and payroll integration
 
• Zenegy – cloud-based local solution
 
• ProLøn – focuses on Danish tax compliance

Onboarding Employees for Payroll

Employers must collect each employee’s CPR number, skattekort, bank account details, and documentation on benefits and previous employment. This info is used to configure payroll systems accurately and ensure compliance.

Step-by-Step Payroll Processing in Denmark

Collecting Timesheets and Attendance Data

Danish employers use digital tools or traditional timesheets to track hours. While salaried roles focus on deviations like overtime, hourly staff require detailed time logs. Data should be approved before payroll runs.

Calculating Salaries and Deductions

After calculating gross pay, employers deduct AM-bidrag and income tax based on skattekort. Pension contributions, holiday pay, ATP, and any voluntary deductions are included. Specialized software is often used to handle these complexities.

Generating and Distributing Payslips

Employers must provide payslips detailing all salary components and deductions. Most are delivered electronically through secure systems like e-Boks, with access granted by payday.

Submitting Payroll to Authorities

Payroll data must be submitted through eIndkomst by the 10th of the following month. Other obligations include ATP and maternity fund payments. Timely and accurate submissions help avoid audits and penalties.

Paying Employees

Most salaries are paid monthly on the last working day via bank transfer to employees’ NemKonto. Employers must ensure all salary elements match payslip data and retain transaction records for compliance.

How to Submit Payroll Tax in Denmark

• eIndkomst System: Primary portal for monthly income and withholding reports.
 
• TastSelv Erhverv: SKAT’s portal for reviewing and correcting submissions.
 
• API Integration: Enables automation for large employers with payroll software.
 
• Third-Party Providers: Payroll firms that manage compliance and submission.
 
• Manual Submission: Permitted in exceptional cases with SKAT’s approval.

Payroll Tax Due Dates in Denmark

Payroll Contributions in Denmark

Understanding the tax obligations for both employers and employees is crucial when operating in Denmark's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in Denmark.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 8% - 56.5% on top of the employee salary in Denmark. The % contribution is an estimate, given the amounts are fixed amounts and not percentages of the employee's salary.

Employee Payroll Tax Contributions

In Denmark , the typical estimation for employee payroll contributions cost is around 1%.

Individual Income Tax Contributions

Income tax in Denmark is 'Pay As You Earn'. The individual income tax ranges from 8% to 56.5%. Income tax is calculated according to progressive rates.

Pension in Denmark

Denmark's pension system integrates both public and private schemes to ensure retirees' financial well-being. The Basic State Pension, funded by taxes, offers a fundamental income upon retirement. Supplementary pensions, managed by private providers or pension funds, allow workers to enhance their retirement benefits. This comprehensive approach underscores Denmark's dedication to securing retirees' financial stability.

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Managing Common Payroll Challenges in Denmark

Global employers operating in Denmark often encounter unique payroll challenges that can affect compliance and efficiency, like navigating evolving tax laws and managing employee data. With a need for real-time accuracy, modern organizations must develop strategies to overcome these challenges effectively. Below, we explore some of the most common payroll hurdles and provide actionable solutions to streamline payroll processes in Denmark.

Maintaining Accurate and Detailed Payroll Reports

Maintaining accurate global payroll reports is often challenging due to currency exchange complexities, data integration issues, and the need to keep employee information up-to-date – including tax information, hours worked, leave balances, and any changes in salary or job status. Generating accurate reports is easy with a comprehensive payroll automation tool that consolidates fragmented data sources, and can keep track of employee payments and deductions.

Keeping Up With Ever-Changing Tax Laws & Compliance Laws

In Denmark, tax laws and compliance regulations can change frequently, presenting a significant challenge for global employers. Monitoring updates to federal, state, and local tax codes is crucial to avoid non-compliance and costly penalties, but requires significant time and resources. Partnering with local experts or a reputable global HR platform is an effective way to maintain compliance. These services can help employers stay compliant with evolving regulations while freeing up time for more strategic work.

Consolidating Multi-Vendor Payroll Analytics

Managing payroll across multiple vendors often leads to fragmented data and inefficiencies, making it difficult to consolidate analytics. These challenges can hinder decision-making, especially when trying to gain a clear view of workforce costs and trends. To address this, organizations can invest in a centralized payroll management system that unifies data from multiple vendors. A consolidated platform simplifies payroll tracking, ensures data accuracy, and provides actionable insights into payroll expenditures.

Integrating Multiple HR & Payroll Systems

Global companies are prone to using multiple HR or payroll systems across regions, which can easily lead to fragmented payroll data, increasing the risk of delays and errors in employee compensation. To combat this, seamless integration between payroll and other systems is critical.

Payroll management systems that connect with existing HR and financial platforms can help streamline workflows by reducing manual inputs and ensuring that all departments operate with up-to-date, accurate information. In turn, this helps guarantee on-time, accurate payroll, boosting employee satisfaction.

What Does a Global Payroll Management Platform Cover?

A global payroll management platform is a software solution designed to streamline and automate the payroll processes for organizations with employees across multiple countries. It helps ensure accurate and timely payment while maintaining compliance with legal and regulatory requirements in Denmark.

Key functions of a payroll management platform can include:

• Consolidate payroll data: Streamline fragmented payroll data into one source of truth when you’re operating in multiple regions.
   
• Analytics and reporting: Advanced capabilities to analyze payroll data and generate automated reports per region.
   
• Monitor and standardize payroll: Get an accurate view of employee costs, bonuses, and taxes per region, catch variances, and standardize payroll processes across regions to minimize errors.
   
• Compliance and record-keeping: Maintains accurate payroll records and ensures adherence to labor laws and regulations, reducing the risk of legal issues.
   
• Employee self-service: Provides portals where employees can access pay stubs, update personal information, and manage benefits selections.

How Playroll Can Streamline Payroll & Taxes in Denmark

Expanding globally is an exciting milestone for any company, but it comes coupled with complex payroll challenges. It doesn’t have to be complicated. At Playroll, our easy-to-implement global payroll management software combines automation with hands-on support to make global payroll truly simple. Here's how Playroll helps:

• Multi-Vendor Integration: Our platform syncs seamlessly with your providers and in-house systems to unify global payroll services in one platform.
   
• Standardize Payroll Processes: Unify your operations in one dashboard to ensure payroll is running smoothly globally, with advanced approval flows and reports.
   
• Improve Governance & Compliance: Improve compliance by centralizing all your compliance tasks and processes. Easily track your payment obligations, with digitized audit trails.
   
• Advanced Reporting: Access and configure your data, your way, with a comprehensive suite of payroll analytics and reporting tools.