As an employer, you can choose to pay your employees’ accrued holiday allowance into the Holiday Allowance Fund, or you can retain the holiday allowance within the company. The funds paid into the employees' holiday allowance fund are invested by the fund, whilst those retained by the companies must be index-linked.Â
The latest indexation rate has been set at 3.7 per cent per annum and applies from 1 June 2024 up to and including 31 May 2025. The next indexation rate will be set by 31 May 2026 at the latest and will apply from 1 June 2025 up to and including 31 May 2026.
Annual indexation
If, as an employer, you choose to retain your employees’ accrued holiday allowance funds within the company, you must pay an annual indexation, in line with wage growth, to the employees' holiday allowance fund. Once a year, you will receive a notification stating the indexation rate applicable to the holiday allowance funds that have not yet been paid into the fund.
How holiday allowance funds are indexed
The indexation of the holiday allowance held by employers began on 1 September 2020. The indexation is calculated for each month or part thereof during which the holiday allowance has not been paid into the employees' holiday allowance fund.
The indexation rate is set on 31 May each year and reflects wage trends over the preceding 12 months. The indexation is applied to the amount that the employer must subsequently pay into the Holiday Allowance Fund for each individual employee when that employee leaves the Danish labour market. In the self-service portal on virk.dk, you can see how much the indexation amounts to for the holiday allowance funds still held by the company.
If you make a voluntary payment, we will calculate how much you need to pay in indexation. This means that you only need to pay indexation up to the payment deadline for the voluntary payment. If you pay this in full and on time, you will not have to pay any further indexation for the employees in question.
Return on employees’ money
What an employer has chosen to do has no bearing on the individual employee. All employees receive the same percentage allocation to their savings. For employees, the savings are adjusted in line with the return generated by LD Pensions for the Holiday Allowance Fund. This return comprises both the indexation of the funds held by employers and the return on the holiday allowance funds paid in, which LD Pensions invests. In the fund’s accounts, the indexation is treated as interest income, which is recognised on an ongoing basis.
Returns on investments are subject to PAL tax, as is the case with other pension funds, whilst returns on funds held by employers are not taxed.
