Denmark had to amend its holiday regulations after the European Commission ruled that the Danish rules on deferred holiday entitlement were contrary to EU law. Consequently, the Holiday Law Committee was set up in 2015 to draft a new law designed to resolve this issue.
Following the introduction of a new holiday scheme in September 2020, a full year’s accrued holiday entitlement (equivalent to five weeks) will be frozen for employees who have been in continuous employment throughout the previous holiday period. The Holiday Law Committee recommends that LD should be responsible for the frozen holiday funds until the employee retires from the labour market.
Why freeze the holiday funds?
The need to freeze holiday funds arises when a new holiday law 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 – though not obliged – to take 2.08 days’ annual leave. When the new Act comes into force, employees will have accrued annual leave under the current Annual Leave Act. Consequently, the Holiday Law Committee does not consider it appropriate for employees, during the transition year between the old and new holiday laws, to be entitled to double holiday entitlements. Therefore, the excess holiday funds are frozen in a fund.
Points to bear in mind for employers
The Holidays Committee has proposed that employers may owe the fund the outstanding holiday pay under the Old Holiday Act until the fund is required to pay the funds to the employees. This prevents employers from having to raise liquidity to settle their holiday pay obligations under the Old Holiday Act, whilst employees continue to accrue new holiday entitlement.
Two aspects of asset management
The capital management of the Holiday Fund will be organised in the same way as the management of the funds in LD (the frozen cost-of-living allowance fund). However, the management of the Holiday Fund will be based on two components: partly loans from employers and partly frozen holiday funds transferred to LD.
The Holiday Law Committee estimates that around 25 billion DKK will be transferred to LD for investment, whilst the remainder will remain with the employers for a shorter or longer period. However, this estimate is subject to considerable uncertainty, and it is expected that the amount of loans to employers will vary over time.
A good match
LD’s investment structure in this area is flexible, and the Holiday Fund’s assets can be easily 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 in all key areas.
