Now it is time to decide on the frozen holiday pay

Now it is time to decide on the frozen holiday pay

By 31 August 2021, companies must decide whether they wish to keep or pay the frozen holiday funds into Lønmodtagernes Feriemidler (the Fund).

The company’s choice must be reported by self-service (in Danish):
https://virk.dk/myndigheder/stat/feriemidler/selvbetjening/Jeres_indberetninger_for_overgangsaaret/

If the company wants to pay all the holiday pay

If the company wants to pay all the holiday pay to the fund, you don’t have to take any action.

In this case, the Fund will send a payment order to the company on all frozen holiday pay for payment on 1 September 2021.

If the company wants to keep the holiday pay

Companies can choose to keep all or part of the holiday pay.

If the company wants to keep part or all the holiday pay, the employees whose holiday pay the company wants to keep, must be marked in the self-service solution.

It is important that this choice is reported before 1 September 2021, otherwise the company will be charged all the frozen holiday pay.

If you choose to keep the money, you will need to pay an annual indexation. An indexation is a kind of interest that you pay to keep the holiday pay. The indexation is added on top of the holiday pay that you have chosen to keep in the company. For the period 1 September 2020 to 31 May 2021, the annual indexation rate is 1.5%

Holiday pay that the company must always pay

You will be asked to pay in holiday pay for the transition year for employees who are entitled to have the holiday pay disbursed by Lønmodtagernes Feriemidler. This will happen completely automatically if the employee:

  • dies
  • has applied for payment of the holiday pay
  • reaches the state retirement age
  • has accrued holiday pay that is under DKK 1,500 in the transition year.

You must pay the payment order no later than 1 September of that same year.

It is irrelevant to the employer’s right to keep the holiday funds in the company whether the employee has receivedan early payment at the application rounds in 2020 and 2021. The holiday funds for these employees will have to pay when the employee reaches the state pension age or dies, or if the reported holiday funds do not exceed DKK 1,500.

Should the money be paid or stay in the company?

Whether you should pay all the frozen holiday funds, a share of it or keep the money in the company depends on the company’s finances, cash flow, deposit, and loan rates.

As a general recommendation, if the company has surplus liquidity that is not part of the financial resources, where you do not get interest income or pay negative interest, then it will be advantageous to pay into the fund. However, if you pay interest on loans or overdrafts that are above the interest rate you have to pay to the fund, then you should not deposit. The interest rate is currently 1.5%.

If you choose to keep the money in the company, you should be aware of the administrative burdens that comes with it. These will be administration in relation to the current indexation, as well as annual reporting to the Fund.

Contact us:

Accountant in Denmark
Jerrik Olsen
State Authorized Public Accountant, Partner
+45 5766 2470