“It has been beneficial for our economy that, during these extraordinary times, we have been able to allow employees to withdraw their frozen holiday pay early. Together with the support packages, this has helped the country get through this difficult period as unscathed as possible.”
- Peter Hummelgaard, Minister for Employment
The Minister for Employment points out that employers have reported a total of 108 billion kroner in holiday pay saved by Danes. Just over 52 billion kroner was paid out in 2020, and the Minister for Employment has just submitted a draft bill for consultation to allow for further payouts during spring 2021.
Employers have set aside a total of 108 billion Danish kroner for holiday allowance funds.
Employers are currently finalising their calculations of holiday allowance funds from the transitional year under the new Holiday Pay Act. Currently, 160,000 private and public sector employers have calculated that their 3 million employees are due DKK 108.3 billion in holiday allowance funds. This holiday pay was accrued from 1 September 2019 to 31 August 2020 and, under the original rules, was to be held as savings until the employee left their job. Covid-19 turned those plans on their head, and in August 2020, the Danish Parliament passed a bill by a large majority stipulating that part of the funds should be paid out early to support consumer spending.
Payouts to 2.3 million employees in 2020
From the end of September until the turn of the year, 2.3 million employees have been paid out approximately 3 weeks’ worth of the 5 weeks that were to be frozen as savings for later. The payouts have initially been financed by the employees' holiday allowance fund, which is part of LD Pensions, borrowing the money from the state. In 2020, DKK 52.3 billion was paid out from the holiday allowance funds, equivalent to DKK 31.3 billion after tax. On average, employees received DKK 13,570, which they could spend.
Payouts for additional holiday allowance in 2021
In early December 2020, the government reached an agreement with a broad majority in the Danish Parliament that it should be possible to have the remaining holiday allowance funds paid out in 2021. It is expected that a bill concerning the payouts will be tabled in the coming months.
At the turn of the year, employees are due DKK 56.8 billion in holiday allowance funds. It is these funds that may be paid out in spring 2021. Experience from last autumn shows that around 80 per cent of the holiday allowance funds are paid out early. The remaining 20 per cent belongs to employees who choose to leave their savings in their accounts until the day they leave the labour market. If employees act in the same way in 2021 as they did in autumn 2020, it is estimated that approximately 36 billion Danish kroner will be paid out early in spring 2021, whilst approximately DKK 20 billion is in The Holiday Allowance Fund. On average, employees will be able to receive a payout of approximately DKK 19,000, which, after tax, amounts to approximately DKK 11,500 for spending. However, there will be significant individual variations, partly because some will be able to receive holiday pay for 5 weeks, whilst others have only 2 weeks’ holiday pay remaining in the fund.
Employees receive a share of the fund’s returns
LD Pensions manages the outstanding holiday allowance funds in the Employees' Holiday Allowance Fund. In 2020, a total return of DKK 558 million was achieved. This return comprises, in part, a return on the investment of holiday allowance funds transferred from the Holiday Account during 2020, as well as the indexation of the holiday allowance funds held by employers during the period from 1 September 2020 to the end of the year. The result for 2020 means that employees will receive a positive return on their outstanding holiday allowance of approximately 0.9 per cent after costs and pension return tax.
In mid-March, employees will be able to view their returns for the period up to and including February 2021. The fund will update the returns for each individual employee once a month. The returns are affected by the indexation applied by employers and the fund’s investment performance on the funds paid in by employers, Feriekonto and holiday pay funds.
The result may lead to both positive and negative changes in the year-to-date return received by employees.
Employees are consulted
During February, all employees will receive a letter setting out their employer’s statement of the employees' holiday allowance. The letter refers to borger.dk, where it is already possible to view the employer’s statement of the employees' holiday allowance.
Employees who, according to information provided by their employers, do not have any outstanding holiday allowance will also receive a letter for information purposes. If you disagree with your employer’s statement, you should speak to your employer about the calculation of the reported holiday allowance funds.
On borger.dk, you can also see the amounts that were paid out last autumn and how much is still in the employees' holiday allowance fund.
Employers can make payments
To date, DKK 10.7 billion has been paid in from holiday accounts and holiday allowance funds, which corresponds to approximately 10 per cent of holiday allowance funds. Just over 90 per cent of holiday allowance funds are still held by employers, who now have the option to make voluntary contributions.
Employers are entitled to retain the holiday allowance funds as liquidity within their businesses. In July 2021, employers will receive the first invoice from the fund, and this will only relate to employees who have reached state pension age or have died, as well as employees who, according to the employers’ information, have had only up to DKK 1,500 frozen. Employers are not obliged to make contributions to the Holiday Allowance Fund for employees who have had all their holiday allowance paid out early, without meeting the criteria relating to state pension age, death or the DKK 1,500 limit. In July, the fund will issue an invoice for the amounts that the employer is obliged to pay by 1 September 2021 at the latest.
Employers must pay indexation on the funds they hold within their organisations. The indexation corresponds to an interest rate in line with general wage trends in Denmark. Indexation is applied once a year (in May) to the funds held by employers. Employers may choose to pay the holiday allowance funds – in full or in part – into the fund and thereby avoid the indexation. If the employer makes voluntary payments, the fund will charge indexation in July for the months during which the funds were still held by the employer. In the summer of 2021, indexation will be charged from 1 September 2020 up to and including the month in which the employer makes the payment.
Key facts:
- During February 2021, letters will be sent to 3.4 million citizens, who will be consulted on employers’ calculations of outstanding holiday allowance.
- Employers have calculated the total holiday allowance funds to amount to DKK 108.3 billion.
- 2.8 million employees are due a payment from the Holiday Allowance Fund. For some, this amount corresponds to five weeks’ accrued holiday allowance funds, whilst for others it relates only to the remaining balance after they received up to three weeks’ holiday pay in autumn 2020.
- The government provided the Holiday Allowance Fund with a loan to pay out DKK 52.3 billion in autumn 2020. In total, 2.3 million employees received a payment equivalent to up to three weeks' holiday allowance.
- A further DKK 56.8 billion could potentially be paid out in spring 2021. Employees must apply for the payouts themselves, but if some employees choose not to claim the money, and this happens to the same extent as in the autumn, approximately DKK 36 billion will be paid out early during spring 2021. This will leave approximately DKK 20 billion in the employees' holiday allowance fund, which will be invested alongside the cost-of-living allowance funds with a view to providing continuing employees with a good return until the funds are due to be paid out.
