The Minister for Employment has tabled a bill on a new holiday law. The bill has received broad support and was passed on Thursday 25 January 2018.
A new pension savings scheme for all employees
The new holiday pay legislation will affect everyone in employment. They will receive a completely new pension savings scheme, which can be paid out when they retire on the state pension. When the new law comes into force, all employees will have their holiday pay for up to five weeks’ holiday frozen in a fund under Dyrtidsfonden (LD Pensions). The frozen holiday allowance will accrue interest, just like any other pension savings scheme, and will be paid out when the employee reaches state pension age or leaves the labour market.
A transitional economic arrangement
Freezing the holiday allowance funds will make the transition to the new holiday legislation easier for employers. Under the new legislation, employees will be able to take their holiday as soon as it has been accrued. This simultaneous accrual and taking of holiday can pose a financial challenge for employers. Nor is it desirable for employers if employees are able to take double the amount of holiday during the transition year from the old to the new holiday legislation. To prevent employers from having to pay out both holiday pay already accrued and new holiday pay within the same year, everyone’s accrued holiday allowance funds will be frozen upon the transition to the new law.
The employees' holiday allowance naturally remains their own money. Each employee will be allocated an account in the new holiday allowance fund under LD Pensions, and it will be the fund’s responsibility to manage the employees’ money.
Newcomers to the labour market are entitled to paid holiday
The new holiday legislation will also have a significant impact on all new entrants to the labour market. As mentioned, it allows employees to take paid holiday right from the start of their employment. This is a major step forward compared with the current situation, where, for example, young people have to wait many months before they can receive pay or holiday pay whilst on holiday. It can take up to 16 months from the date of employment before a person is entitled to holiday pay or wages during their holiday. For everyone other than those new to the labour market, the new Holiday Act does not change anything regarding the right to take holiday with pay or holiday pay.
The new holiday pay fund manages employees’ money
It will be the new holiday pay fund within LD that manages employees’ money and ensures that employees are paid what they are entitled to. Employers are able to retain the money until it is due to be paid out, but employees do not have to keep track themselves of whether an employer is making payments, going into liquidation, merging or relocating abroad. It is the Holiday Pay Fund’s responsibility to ensure that employees receive their money.
Employers must pay to maintain employees’ holiday pay by ensuring that the amount they owe to the holiday pay fund is adjusted once a year in line with wage growth in Denmark. If, instead, employers pay the money directly into the fund, it becomes the fund’s responsibility to invest the money as profitably as possible. The holiday pay fund must ensure that everyone receives an equal rate of return, so it will make no difference to the individual employee whether the money is held by the employer or has been paid into the fund.
LD is well equipped for the task
For the youngest age groups, holiday allowance funds may be frozen for more than 50 years. It is therefore important that the money earns interest over this long period. LD is well equipped to take on the task of managing employees’ frozen funds. Back in 1980, LD also received frozen funds from employees, which have been earning interest ever since.
For an employee who was employed full-time during the period 1977–79, a sum of 4,368 kr was paid into LD. For a member who had not opted for investment funds, this amount had grown to 146,283 kr. by the end of 2017.
Key facts
- The new holiday entitlement legislation comes into force on 1 September 2020.
- Holiday entitlement accrued between 1 September 2019 and 1 September 2020 will be frozen as a pension sum.
- Employees will be able to take holiday as usual during the transition year to the new holiday legislation.
- Frozen holiday pay will be placed in a new fund with LD. ATP will assist with the day-to-day administration, including collecting contributions from employers and making payouts to employees.
Read more about the Government’s agreement on the new holiday law
L 116 Draft Act on Annual Leave
L 117 Bill on the management and administration of outstanding holiday allowance funds
Cover photo: Christoffer Regild
