Azets' Newsletter for Payroll and HR, Q4 - 2015
This newsletter presents the recent changes, deadlines and information regarding payroll and HR matters from Q4 – 2015 of interest to small entrepreneurs and up to large international groups.
Remember to delete the 70-year rule in employment contracts before 1 January 2016
As from 1 January 2016, it will be considered invalid and a violation of the Danish Act on Employers' Duty to Inform Employees of the Terms of Employment if the employment contract stipulates that the employment terminates when the employee reaches the age of 70.
If the employment contract is not adjusted before 1 January 2016, this may have the effect that the enterprise will have to compensate the employee for the violation of the Act on Employers' Duty to Inform Employees of the Terms of Employment.
If an enterprise enforces the 70-year rule after 1 January 2016, this may also result in a breach of the Danish Act on Prohibition against Differential Treatment in the Labour Market. Such a violation may result in a considerable compensation to the employee aggrieved.
Only in two situations is it possible for an enterprise to avoid deleting the 70-year rule before 1 January 2016:
1) The rule is a result of a collective agreement and may be maintained during the term of the agreement.
2) Employees who reach the age of 70 before 1 January 2016 do not have to receive a new contract as the employment is
terminated before the legislative amendment becomes effective.
Azets recommends that enterprises already now start to revise their employment contracts or send out supplementary agreements, allowing the employment contracts to be correct by 1 January 2016. Enterprises should also consider a health check of their employment contracts in order to correct any potential errors and omissions at the same time.Please contact one of Azets' consultants if you need help to review the employment contracts and to prepare a list of errors and omissions for the purpose of an update.
OK from the Danish Supreme Court to shortened notice of holiday already at the conclusion of employment
Under the Holiday Act, salary earners are entitled to five weeks' holiday. Three weeks are called main holiday, and the remaining two weeks are called remaining holidays.
If an employer wishes to give notice of when holiday has to be taken, the Holiday Act stipulates that the main holiday is notified within three months and the remaining holidays within a month.
Due to the above, an employer has not been able to give notice of when the main holiday was to be taken for a dismissed employee with a notice period of three months or less. This is because the notice period for the main holiday is longer or just as long as the period of notice.
The Holiday Act does, however, contain one exception to the above, according to which the notice period for the main holiday may be derogated from if it is agreed between the parties. The question thus was whether such an agreement could have been entered into already at employment start and therefore not in an actual termination.
Shortened notice of holiday during notice of termination
It is now established in a judgement of the Danish Supreme Court that the employer and employee may agree, already in the employment contract, that the employer at one month's notice may ask a dismissed employee to take his/her main holiday during his/her period of notice.Azets recommends that employers should consider the use of shortened notice of holiday as a standard in their contracts. It should be emphasised that if a provision about shortened notice of holiday is inserted, it is a prerequisite that the wording is clear and unambiguous. By introducing a shortened notice of holiday as a standard, it is possible for the employer to choose whether you want to make use of the provision from case to case.
The new EU regulation on personal data will have an impact on you
A new regulation on personal data is expected to be adopted at the end of the year with a two-year inception period.
The rapid technological development with increasing collection, utilisation and exchange of data has necessitated that the rules for personal data be updated significantly. With this new regulation, the EU wishes to improve the rights of EU citizens in relation to the protection of personal data.
The proposal as it is today places much higher requirements to enterprises which among other things will be required to:
- appoint a person responsible for data protection. The person responsible for data protection is to control and introduce internal guidelines and precautions to ensure that personal data is handled in a responsible way.
- inform the authorities about breach of information security.
The new regulation will moreover introduce the possibility for registered persons to have easier access to his/her own personal data and the possibility of being "deleted" if the person wishes so.
The new data protection legislation will apply to all EU countries, and sanctions will be significantly tightened. It is proposed that the penalty level for violating the provisions of the regulation may amount to EUR 100 million or 2% of the annual revenue of the enterprise.Azets will provide further information when the regulation is adopted.
Travelling employees – get a grip on your control obligation – it may be expensive not to
Each year, Danish employers pay large tax-free amounts to their employees in connection with business trips. The amounts relate to mileage allowance and reimbursements to cover board and accommodation as well as petty acquisitions.
As an employer, you are under an obligation to control that all conditions for paying tax-free allowances exist as you would otherwise risk having to pay tax on allowances paid.
SKAT's focus areas this year are mileage vouchers and mileage allowance, which is why there is every reason to continue reading to make sure that you, as an employer, comply with the rules.
Tax-free mileage allowance
As an employer, you may pay out tax-free mileage allowance when your employee uses his/her own car, motor cycle, moped - and in principle bicycle - for business mileage.
The rule applies irrespective of whether business mileage taking place in Denmark or abroad.
In 2015, the following may be paid free of tax:
|Use of own car or motor cycle||Tax-free rate|
|Up to DKK 20,000 km/year||DKK 3,70/km|
|More than DKK 20,000 km/year||
|Use of own moped or bicycle||Tax-free rate|
|Per km||DKK 0,52/km|
The rate for transportation in own car is lower than in 2014 as the authorities have assessed that it is now cheaper to have a car. One of the arguments being that cars today have more mileage.
If the amount paid exceeds the rates indicated, the entire amount will basically be taxable for the employee.
Conditions for paying tax-free mileage allowance
An employee may receive tax-free mileage allowance in case of business mileage. Business mileage is defined as:
- Transportation between different workplaces for the same employer - e.g. customer visits.
- Transportation within the same workplace - e.g. airports or harbours.
- Transportation between home and the same workplace for up to 60 working days within a 12-month period. The rule implies that the employee, from the 61st day of the period, no longer will receive tax-free mileage allowance as such transportation is no longer considered business mileage. The employee may instead rely on the general mileage allowance.
Employer's control obligation
As mentioned, SKAT has tightened its focus on the area this year. In a recent case, the authorities required additional taxation of more than half a million Danish kroner. This was among other things because mileage allowance for December 2014 had been paid to the employees with the salary for January 2015, which meant that the rate was 2 øre too high per km. The entire amount - and not only the excess amount paid - was considered taxable.
The control obligation is basically deemed fulfilled if the employer's accounting records comprise:
- Name, address and CVR No. of the recipient
- Business purpose of the transportation - e.g. a sales meeting with customer
- Date of transportation
- Goals and potential sub-goals of transportation
- Number of kilometres driven
- Rate used
- Actual calculation of mileage allowance
In addition, the underlying vouchers must state that the employer has performed the supervision required.
Tax-exempt travel allowance
An employee may be entitled to receive tax-free travel allowance if the employee travels for his/her employer and the travel lasts for more than 24 hours.
In 2015, the following may be paid free of tax:
|Travel allowance||Tax-free rate|
|For board and petty acquisitions
(may be paid for up to 12 months)
DKK 19.63/every hour for adjacent travel days
(may be paid for up to 24 months)
The reimbursement rate for expenses for board must be reduced by 15% for free breakfast, 30% for free lunch and 30% for free dinner, respectively. This leaves 25% of the reimbursement which covers petty acquisitions such as coffee, newspapers, etc.
Conditions for paying tax-free travel allowance
As mentioned, an employee may be entitled to receive tax-free travel allowance if the employee travels for his/her employer and the travel lasts for more than 24 hours.
In terms of tax, an employee is travelling when:
- The employee stays at a temporary workplace; this also applies to stationing, AND
- The distance between the employee's residence and the temporary workplace makes it impossible to stay overnight at his/her normal place of residence, OR
- The employee is on business travel, e.g. course, etc., for his/her employer and therefore is not able to stay overnight at his/her normal place of residence.
Employer's control obligation
The employer must ensure compliance with the business goals and sub-goals of the travel, the number of travel days, including start and end dates and check the rates used.
If the travel does not fulfil the conditions, the reimbursement will be considered income taxable at source (A-income) for the employee.
SKAT has recently demanded payment of outstanding A tax (tax deducted from income at source) and labour market contribution directly from the employer who has thus been made overall responsible. In one of the most recent cases, the employer was ordered to pay just under DKK 2.5 million as the employer's supervision and inspection had not been sufficient to ensure compliance with the conditions for tax-free travel allowance.
The payment of tax-free travel allowance AND the employer's inspection must therefore be adequately documented. Documentation assumes that the information mentioned is disclosed in the employer's accounting records, and that the employer's control can be evidenced, e.g. in the form of a signature or a stamp.