Why Denmark is paying salaries for virus-hit companies

AFP's Camille Bas-Wohlert explains why Denmark has dumped the flexicurity model during the coronavirus crisis, instead choosing to pay employees' salaries on behalf of companies.

Why Denmark is paying salaries for virus-hit companies
The SAS Hotel Royal in Copenhagen sends a messages of love on March 27, 2020. Photo: Philip Davali / Ritzau Scanpix / AFP
Denmark has always prided itself on its “flexicurity” model that marries the free market with a welfare society, but in the face of the COVID-19 pandemic, it has chosen another strategy.
The northern European country had long been looked at for how it found a socially acceptable solution to the curse of free market economies: unemployment.
Under Denmark's flexicurity model, employers have been given free rein to hire and fire workers, letting businesses adapt to the ups, downs and shifts in markets.
Those who found themselves out of work could rely on generous unemployment benefits combined with plentiful retraining programmes to get the skills needed to land a new job.
Even during the global financial crisis in 2008, Denmark stuck with its flexicurity model.
But the coronavirus crisis is not one of adapting to market changes. Denmark, like many other countries, ordered many businesses to shut down to stem the spread of COVID-19.
With so much of the economy halted on its orders, the centre-left government has taken a different path.
'Keep on your employees'
Like several other European countries, it chose to effectively fork over money to companies to pay the wages of their staff.
“It is important for me here today to send a signal to companies: Keep on your employees,” Prime Minister Mette Frederiksen said in one of her major public statements as the government sought to develop measures to deal with the health and economic impact of the pandemic.
“The unions and government have agreed to strengthen the temporary system of wage compensation. Together, we will support Danish jobs.”
To encourage firms to not let go their employees, the government is compensating firms for 75 percent of wages of up to 4,000 euros per month ($4,347).
For those on temporary hourly contracts, the state will pay 90 percent. One business which has taken up the state's offer is electrician Hornbaek El-forretning, in the city of Randers in western Denmark. “We want to make sure that we would keep all our employees, as they are all needed,” Lene Tind, who runs the company, told AFP.
Hornbaek El-forretning, like many firms, is paying the rest so their employees don't lose any income.
The firm was quickly affected by the measures meant to slow the spread of the coronavirus.
“The first signs of the shutdown was that we were not allowed in nursing homes with old and weak people,” Tind explained. “Also in some companies and at some private households, they wanted to wait with projects,” she added.
Thanks to the programme, nine of 27 employees were furloughed, but Tind expects to call them back to work as Denmark gradually loosens its confinement restrictions from April 15.
Unemployment still rising
Around 20,000 companies have already applied for the programme, which will remain in place until June 9. This is the first time Denmark has introduced measures like this to make sure employees stay on the job.
Thomas Bredgaard, a professor of economics at Aalborg University, said the magnitude of the coronavirus crisis required a different response. “This crisis is much worse than the financial crisis, and the government had to avoid mass dismissals,” he said.
Before the crisis, the country was near to full employment with an unemployment rate of 3.7 percent, the lowest in over a decade. But even with the programme in place, Denmark, like many other countries, is still seeing a spike in unemployment.
Since the introduction of the country's containment measures in mid-March, twice the usual number of people are registering for unemployment every day, according to the Ministry of Employment.
The Confederation of Danish Industry already estimates that there are about 10,000 more unemployed in the country than at the height of the financial crisis.
For some like Liv Mikkelsen, a part-time chef at a popular restaurant in Copenhagen, the benefits wouldn't be enough.
“It means not working at all and, with what I would have received, I wouldn't have had enough to live on,” she said.
So instead Mikkelsen is collecting unemployment benefits, after having used up the little vacation time she had.
Solid finances
A member of the European Union, but not the euro, Denmark can afford the interventionist approach thanks to its deep coffers.
“The Danish economy was very robust before the crisis. Unemployment was at a record low and there was a budget surplus,” Bredgaard noted. The government has put together several other lifelines for businesses, including covering fixed costs such as rent for small businesses.
However if the crisis keeps going through May-June, the impact on the economy will be severe. Denmark's central bank has said it expects GDP to contract between three and 10 percent.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.
For members


Feriepenge: Denmark’s vacation pay rules explained

If you work for a company in Denmark, your yearly time off is likely to be provided for by the 'feriepenge' accrual system for paid annual leave.

If you work in Denmark, a good understanding of 'feriepenge' (holiday allowance) rules will help you plan time off in the summer and around the calendar.
If you work in Denmark, a good understanding of 'feriepenge' (holiday allowance) rules will help you plan time off in the summer and around the calendar. Photo by Felipe Correia on Unsplash

One of the perks of being a full-time employee in the country, Danish holiday usually adds up to five weeks of vacation annually. There are also nine days of public holidays, which everyone benefits from.

The Danish Holiday Act (Ferieloven) provides the basis for paid holiday through accrued feriepenge (‘vacation money’ or ‘vacation allowance’). This covers most salaried employees, although some people, such as independent consultants or freelancers, are not encompassed.

What is feriepenge?

‘Holiday money’ or feriepenge is a monthly contribution paid out of your salary into a special fund, depending on how much you earn.

You can claim back the money once per year, provided you actually take holiday from work. It is earned at the rate of 2.08 vacation days per month.

If you are employed in Denmark, you will be notified when the money can be paid out (this is in May under normal circumstances) and directed to the website, from where you claim it back from national administrator Udbetaling Danmark.

Anyone who is an employee of a company registered in Denmark and who pays Danish taxes is likely to receive holiday pay, as this means you will be covered by the Danish Holiday Act (ferieloven). You are not an employee if, for example, you are self-employed, are a board member on the company for which you work or are unemployed.

How do I save up time off using feriepenge?

The law, which covers the five standard weeks or (normally 25 days) of paid vacation, states that you are entitled to take vacation during the vacation year period. You earn paid vacation throughout a calendar year at the rate of 2.08 days per month.

You earn vacation time in the period September 1st-August 31st. You can then use your vacation in the same year that you earn it and up to December 31st the subsequent year – in other words, over a 16-month period.

These rules also mean that holiday earned during a given month can be used from the very next month, in what is referred to as concurrent holiday (samtidighedsferie).

So when can I take time off using this accrued vacation?

The Danish vacation year is further broken down so that there is a “main holiday period” which starts on May 1st and ends on September 30th. During this time, you are entitled to take three weeks’ consecutive vacation out of your five weeks.

A lot of people take three weeks in a row while others break it up – which is why you often hear Danish people who work full time wishing each other a “good summer holiday” as if it’s the end of the school term.

Outside of the main holiday period, the remaining 10 days of vacation can be taken whenever you like. You can take up to five days together but may also use the days individually.

If your employer wants to decide when you should take any of your vacation days, they have to let you know at least three months in advance for main holiday, or one month in advance for remaining holiday (barring exceptional circumstances, such as an unforeseen change to the company’s operations or if the company closes for the summer shortly after you begin employment).

If you have not earned paid vacation, you still have the right to take unpaid holiday.

Public Holidays

In addition to the vacation days, there are also public holidays. These are bunched up mostly in the early part of the year and around Christmas. However, the period between June and Christmas includes the above-mentioned main annual leave, so there’s not usually long to wait until you can take time off.

Denmark has public holidays on:’

  • New Year’s Day  
  • Maundy Thursday
  • Good Friday
  • Easter Monday  
  • Great Prayer Day (Store Bededag)
  • Ascension Day
  • Whit Monday
  • Christmas Day
  • Boxing Day

In addition to the usual public holidays, companies can choose to give extra time off, for example on Christmas Eve or New Year’s Eve. There are also differences regarding Labour Day and Constitution Day, depending on where you work, what kind of work you do, or the collective bargaining agreement under which you are employed.

Sometimes you can get a whole day off for these extra holidays, sometimes just a half day. Check with your employer for details.