The settlement follows the recommendations of the Holiday Law Committee, as published in August 2017, regarding a new law following a decision by the European Commission that the Danish rules on carry-over holiday entitlement were contrary to EU law.
The need to freeze the funds arises when a new Holidays Act comes into force, which is expected to take place on 1 September 2020. The new Annual Leave Act is based on the principle of accruing and taking annual leave simultaneously. Even after just one month’s employment, an employee will be entitled to, but not obliged to take, 2.08 days’ annual leave. When the new Annual Leave Act comes into force, employees will have accrued annual leave under the current Annual Leave Act. A transitional arrangement is required to prevent employees from taking double annual leave by using both accrued leave entitlements under the current Annual Leave Act and the new entitlements under the new Act. On the other hand, these accrued entitlements cannot be disregarded. Therefore, the holiday pay already accrued will be held in a fund until the employees leave the labour market. This will affect 2.6 million employees with accrued entitlements amounting to approximately 11 billion euro.
Two aspects of asset management
Presumably, employers may owe the fund the outstanding holiday pay under the old Holidays Act until LD collects the money to cover payments to eligible employees when they leave the labour market. This allows employers to defer raising the funds required to pay the holiday pay they owe under the old Holiday Act until the eligible employees become entitled to receive the money.
For some employers, it will be advantageous to carry this debt for a number of years. For others, it will be possible to secure the necessary funding on different and more favourable terms.
However, the fact that employers can choose whether or not to contribute holiday pay implies that LD will organise the fund’s management on two fronts – partly through contributions from employers and partly through frozen holiday funds transferred to LD.
Once the fund is established, approximately 1.3 billion euros will be transferred from various holiday funds. The amount transferred by employers is unknown, leaving LD unaware of the amount that must be invested.
"It is a challenge, but a good one, which we are happy to take on," says Dorrit Vanglo, CEO of LD.
She points out that only time will reveal the pattern in the choices employers make regarding loan options.
"The loans are not a bad idea. On the contrary, they can be seen as very secure investments," says Dorrit Vanglo
A good match
LD’s structure and organisation are well-suited to the management of the new Holiday Fund. LD’s investment structure is flexible, and the Holiday Fund’s assets can easily be integrated into LD’s existing fund structure. The joint investment with the Salary Benefit Fund and the Holiday Fund will ensure low costs and access to qualified investment advisers from day one across all key areas.
