Many people who work with payroll have already heard about the new Danish Holiday Act, which comes into force on 1 September 2020. Naturally, it raises a number of questions and uncertainty about what is going to happen, when it will happen – and not least what it means for the existing ways of doing things.
At Zenegy, we also get quite a few enquiries about exactly these questions, and in particular:
“What are you doing at Zenegy to get ready for the new Holiday Act?”
In this blog post, we'll tell you a little more about the new Holiday Act – and what companies and payroll administrators especially need to be aware of.
The new Holiday Act in general
The most important change with the new Holiday Act is that it becomes possible to take holiday immediately after it has been accrued. This change comes into force on 1 September 2020. There will be a transitional scheme from 1 May 2019, so the switch can be made from the current Holiday Act to the new one.
Why a new Holiday Act?
Back in 2014, the European Commission found that the Danish holiday rules were in breach of the EU's labour market directive, which states that employees are entitled to four weeks of paid holiday a year. The European Commission found that the current Danish Holiday Act didn't meet these conditions, as newly qualified employees could have to wait up to 16 months before they could take paid holiday, because it first had to be accrued. New employees will be able to take 2 days of holiday as early as the month after they have accrued holiday.
The current Holiday Act
Under the current Holiday Act, holiday is accrued in the calendar year to be taken in the following holiday year (1 May to 30 April). In other words, holiday is taken some time after it is accrued.
What are the new rules?
Under the new rules, holiday can be taken in the same period as it is accrued. This is also called concurrent holiday: the employee will be able to take their holiday as early as the month after it has been accrued.
From 1 September 2020, the holiday year in which holiday is accrued changes from the calendar year to the period between 1 September and 31 August.
Holiday is accrued over a 12-month period, the first time from 1 September 2020 to 31 August 2021, while the period in which holiday can be taken will be 16 months, the first time from 1 September 2020 to 31 December 2021. The reason for the 16 months is to give more flexibility over when the holiday can be used.
The new Holiday Act doesn't change the way holiday is generally accrued. There will still be two basic ways of paying holiday. Salaried employees will be entitled to holiday with pay and holiday allowance and will still accrue 2.08 days of holiday per month. Hourly paid employees are still entitled to holiday pay, and the holiday pay will still be 12.5% of the holiday-entitled pay.
A little more about the transitional scheme
A transitional scheme has been necessary because, when the new Holiday Act is introduced, employees will already have accrued days of holiday under the old rules that won't have been taken yet.
It has therefore been decided to introduce a transitional scheme to ensure that employees can (still only) take up to five weeks of paid holiday in the transition year, while keeping their right to the holiday they have accrued. The transitional scheme comes into force on 1 January 2019.
The transitional scheme is also there to make sure employers avoid paying up to ten weeks of holiday to employees in one year.
Holiday accrued in the period from 1 January 2019 to 31 August 2019 (16.7 paid days of holiday) can be taken from 1 May 2020 to 30 September 2020.
Holiday accrued in the period from 1 September 2019 to 31 August 2020 (25 days of holiday) is frozen in a new fund under Lønmodtagernes Dyrtidsfond, which is to administer employees' frozen holiday.
The frozen holiday can't be taken or paid out until the employee leaves the labour market. This corresponds to you, as the employer, paying out the last year's accrued holiday under the current scheme when an employee retires.
How do I get ready as a company?
The new legislation will of course bring some changes for companies. Legally, there will be some things in employment contracts and staff policies that need updating. Some adjustments will be needed in the accounts. Companies will also have to decide whether to pay the holiday pay obligation into the new fund, and so on.
And what happens to your payroll system?
Zenegy is of course also getting ready for the new Holiday Act, so that both the transitional scheme and the new Holiday Act can be handled in Zenegy.
With holiday being accrued and taken on an ongoing basis, a monthly holiday account will be needed for each employee, showing how much holiday has been accrued, taken and is still due.
