EXPLAINED: Denmark’s ‘frozen’ holiday pay: how does it work and what are the problems with payouts?

EXPLAINED: Denmark’s 'frozen' holiday pay: how does it work and what are the problems with payouts?
Photo: Henning Bagger/Ritzau Scanpix
People who are employed in Denmark can look forward to a windfall in October this year when so-called ‘frozen holiday money’ can be paid out.

The payments were approved earlier this year as part of a larger government economic stimulus package in response to the coronavirus crisis.

‘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.

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 borger.dk website, from where you claim it back from national administrator Udbetaling Danmark.

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A new version of the Danish Holiday Act (Ferieloven) comes fully into effect on September 1st, implementing a change in the way the money is earned and used and specifically the dates around which the earning period is set.

As such, the calendar year will no longer applies for earning holiday – instead, wage earners accrue vacation time in the period September 1st — August 31st.

 

The result of this is that a certain amount of money from an overlapping period of accrual would not be paid out. When the Holiday Act was renewed, the intention was that this money would be ‘frozen’ and paid out when you leave the Danish labour market, for example on retirement.

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That was changed in 2020 after the coronavirus lockdown and its resultant economic impact encouraged parliament to pass provisions for the ‘frozen’ holiday money to be paid out as soon as October.

But administrative issues reported this week mean that many may receive incorrect amounts.

That is because many employers are yet to report the correct amounts to Udbetaling Danmark, news agency Ritzau reports.

 

When employers do not report holiday money earnings by deadlines, the payouts are calculated based on earnings alone, but this can result in errors.

That is because the tax register does not take into account other factors – such as holiday or pension deposits – which are included in the calculation.

For example, when someone is on holiday they do not earn holiday money, but the tax register cannot see this. Resultantly, too much may be paid out.

But pension contributions are deducted by the tax system, even though these are eligible for holiday money. It is therefore also possible to receive less than the correct amount of ‘frozen’ holiday money.

Companies will report the correct amounts of holiday money by the end of 2020, Ritzau reports. That is because reporting now would require an overhaul of the registration system, according to the Confederation of Danish Employers (Dansk Arbejdsgiverforening).

In a measure intended to mitigate potential incorrect payments, parliament has now decided to withhold the final two weeks of accrued holiday money from the October 2020 payouts, according to a Jyllands-Posten report.

A decision on when to release the final two weeks for payment will be made following negotiations later this year.

It will also be possible for wage earners to choose not to receive the frozen holiday money in October and instead postpone the payment to a later time.

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