An injection of working citizens’ own money to boost the economy
A deal has been made enabling the pay-out of three weeks of holiday money instead of the imposed retirement pension deposit.
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By Bente D. Knudsen
You may be confused by the discussion of the pay-out of the frozen holiday money.
The money does not belong to the Danish State but is hard-working taxpayers’ own money, which had been allocated to a fund and was not to be paid out until their retirement.
In total it will sum up to five weeks once the old holiday scheme is phased out by the end of August 2020 as Denmark transits to a new holiday payment scheme in accordance with EU legislation.
The new system is to make it easier to move from one EU country to the other for work without changing holiday pay system.
The transition means that citizens working in Denmark will, by the end of August 2020, have saved up the equivalent of five weeks of pay, which they should have spent on their holiday in 2021/2022.
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Originally, the Danish Government had decided that the money was not to be paid out but instead transferred to a fund and paid out at retirement age.
Due to the coronavirus crisis a financial stimulus is needed to get Danes to consume more and releasing part of the five week holiday pay now, instead of at retirement, is intended to stimulate the Danish economy when the financial measures put in place during the lockdown are phased out.
The pay-out is to take place in October 2020, giving employers enough time to deposit the money in the fund who is to make the pay-out.
Whether the pay-out will be mandatory or not has not yet been determined.
For those paying the highest percentage of taxes ( the so-called topskat) it can be interesting to wait until they have retired to have the amount paid out, as when they retire, they may not be paying topskat. Topskat is an extra percentage of the salary paid in taxes by those earning more than DKK 531,000 annually or DKK 44,250 a month.
The total amount, if all five weeks were to be paid out, amounts to DKK 100 billion before taxes or DKK approximately DKK 55 billion after taxes. The three weeks would thus inject DKK 60 billion or roughly DKK 30 billion after taxes.
How much will you get paid out?
From 1 September 2019 until 31 august 2020 12,5 percent of your salary is paid into the fund (what they call frozen).
So, if you for instance earn DKK 30,000 monthly you will have saved up DKK 45,000 of which three weeks amount to DKK 27,000 before tax is deducted.
Or a high wage earner at DKK 60,000 will have saved up DKK 90,000 and the amount paid out will thus be DKK 54,000 before tax is deducted
You can check the amount at this service made by DR1
Find information about the impact on your 2020 paid summer holiday below
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What does the new system mean for the paid three week summer holiday in 2020?
Denmark’s existing holiday payment scheme was complicated for those entering the job market or moving to Denmark for work; most had to work for 16 months before they could take a paid holiday.
In the system, every month employees saved up 2,08 days of paid holiday. However, there was a large gap between when the holiday was saved and when it could be spent.
With the new system implemented from 1 September 2020, the 2,08 days of paid holiday leave can be spent the next month.
What does it mean for your normally 3 weeks of paid summer holiday in 2020? It means that you will have 16,8 days to spend in the period 1 May 2020 until 31 August 2020.
If you do not use them all, you can extend them until 31 December 2020. However, it will impact the amount of days you have to spend for the October autumn break.
You can find all the details at borger.dk, as far as we can see in Danish only. Maybe a Danish colleague can help you translating the explanations – they are quite straight forward.