Salary compensation scheme to be phased out and extended

As a direct consequence of the outbreak of the coronavirus (COVID-19), the serious financial impact continues to cause substantial declines in productivity and turnover levels and is, as a result, triggering huge numbers of redundancies. The Danish government has, therefore, just decided to phase out and prolong the temporary salary compensation scheme for employees otherwise facing termination. Combined with several other measures, the salary compensation scheme thereby remains an important element from the Danish government in its attempt to mitigate the serious effects resulting from this extraordinary situation on the labour market.

With the Act, the Danish government established a temporary salary compensation scheme for companies with employees who would otherwise face mass redundancy. Companies, who are extraordinarily financially affected by the outbreak and who would otherwise need to proceed to termination of at least 30 % of its workforce or minimum 50 employees, are eligible. Calculation of the total number of employees to be used is based on information from the Danish Central Business Register (CVR) and includes employees who were employed by the company before 9 March 2020. Contrary to other schemes, this scheme does not presume the existence of any collective bargaining agreement or collective agreement.

Companies wishing to benefit from the salary compensation scheme must, as previously, send employees home with their full salary during the salary compensation period. Employees may be sent home with one day’s notice. At the same time, it is also a condition that employees do not perform any work during the salary compensation period.

Pursuant to the salary compensation scheme, companies will receive:

• Up to 75 % (but maximum DKK 30,000) for employees subject to the Salaried Employees Act
• Up to 90 % (but maximum DKK 30,000) for employees not subject to the Salaried Employees Act

Holiday during the compensation period

As part of the Act, employees covered by the scheme had to take up to five days of accrued holiday, or subject to individual agreement holiday which has not yet been accrued, and/or time of in lieu of accrued overtime. Alternatively, employees could also elect to take unpaid time off. During this period, the company will not receive salary compensation payments. It’s important to note that the period of five days is based on the maximum three-month period under the scheme wherefore the number of days to be taken will decrease proportionally depending on the period which the company applies for. At the same time, the requirement to take five days off would not apply if the company already had concluded an agreement on salary reduction with the employee representative or the affected employees before applying under the salary compensation scheme. Days off were required, in any case, to be planned pursuant to negotiations with the employee and in case of disagreement, the company may allocate the days proportionally over the salary compensation period.

As part of the new decision to phase out and extend the salary compensation scheme, companies must be aware that the requirement to take holiday remains – but with up to a maximum of 15 days of holiday per employee. This means that companies can only receive salary compensation for up to one month per employee during the prolonged period, before it ceases to exist. Because the prolonged period stretches over the summer holiday, affected employees must take up to three weeks of paid holiday, unless the employee has not accrued holiday under the Salaried Employees Act. Irrespectively, companies will not receive compensation during the three-week period.

Prohibition against terminations during the compensation period

Companies must refrain from terminating employees during the period covered by the salary compensation scheme. Consequently, the salary compensation period commences on the day the first affected employee is sent home and ends earlier if the company gives notice or terminates an employee due to its economic circumstances.

In addition, it’s a condition that the company refrains from using other schemes allowing it to send employees home without pay as discharge or agreements on division of labour. 

Application for the extended period

The scheme was originally applicable from 9 March 2020 until and including 8 June 2020 but has now been prolonged until and including 29 August 2020. Companies that want to receive compensation during the extended period must, therefore, reapply for compensation with the Danish Business Authority.

When submitting the application online, companies must provide information on:

• The number of employees who will be sent home
• CPR-numbers, salary and occupational level of affected employees
• Employment status (salaried employees or non-salaried employees)
• Period for which the company is applying for salary compensation
• Number of days of unpaid leave for each employee
• Solemn declaration from management that the provided information is correct

Companies applying under the scheme must be assisted by an accountant. After receiving salary compensation, companies must document that the provided information was correct. The requirement to document also includes confirmation from the employee representative if applicable that the affected employees were sent home in that period.

Aside from the tripartite agreement, the Danish government has introduced several other measures. Read more about the other measures here.

Companies must be aware that even though employees must not work during the period, the agreement does allow for companies to recall employees fully or partly, for example in case of unexpected orders. Companies applying this option must thereafter repay salary compensation for that period where the employee returned to work. Alternatively, companies may already at the time of submitting the application declare the number of days it expects to recall the employee during the compensation period. Thereafter, the compensation amount will be determined based on the defined compensation period, excluding the number of days the employee returned to work.

IUNO’s opinion

Many companies are still experiencing needs for support measures in connection with the gradual reopening of Denmark, and so the decision to extend the salary compensation scheme has been crucial for many. However, companies must be aware that with the extension until 29 August 2020, compensation cannot exceed one month per employee due to the requirement to take summer holiday.

IUNO recommends that companies thoroughly read through the different conditions for applying the salary compensation scheme to avoid any claims for repayment from the Danish authorities. This is mainly since failure to comply with the conditions towards one employee may result in claims for repayment of compensation for all affected employees.

Together with its announcement on phasing out and extending the salary compensation scheme, the Danish government has clarified that negotiations on a new temporary division of labour scheme is ongoing. We are monitoring the developments closely and will follow up when there is news to report.