COVID-19: Three-party Agreement on Salary Compensation

15 Mar 2020
On 15 March 2020, the Danish Government together with the labour market parties (unions and employer associations) have agreed on a fixed-term compensation scheme to companies that suffer from lack of work due to COVID-19 and as a result may be facing mass redundancies within the nearest future.

The compensation scheme provides companies an opportunity for compensation retroactively from 9 March 2020 until 9 June 2020.  

Contents of the compensation scheme:

  • Companies that face having to notify redundancies of a minimum of 30% of the employees or more than 50 employees in total are according to the scheme eligible for salary compensation. There is no minimum number of employees when calculating the 30%.
  • The company receives a state salary compensation of 75% of the salaries of the employees concerned, but a maximum of DKK 23,000 per full-time employee per month if the employer sends the employees home during the period instead of laying them off.
  • For hourly paid employees, the salary compensation can be up to 90%, but a maximum of DKK 26,000 per month per full-time employee who is send home instead of being laid off. The difference up to the DKK 26,000 corresponds roughly to the value of the holiday allowance of 12.5%.
  • The company can receive salary compensation for no more than 3 months in the period 9 March until 9 June – i.e. retroactively.
  • It is a condition that each employee for whom the company applies for salary compensation take at least 5 days of either holiday or time off in lieu for overtime work in connection with the compensation period (either prior to the period or after commencing the period).
  • If the employee has no unspent holidays, time off in lieu etc. left, the employee must take at least 5 days off without salary or use holidays from the next holiday year (commencing 1 May 2020).
  • The compensation scheme applies to all industries
  • It is a condition that the companies do not lay off any employee for financial reasons during the period in which they receive compensation under the compensation scheme.

Application and payout

Companies must apply for compensation on the Danish Business Authority's corporate portal:

The Danish Business Authority is working on being ready to receive applications in the middle of week 13 and commencing payouts of the first salary compensation amounts the week after that. 

For companies that have already sent employees home or laid off employees

In addition to the compensation scheme described above, both the labour market parties and several private companies have already agreed that the companies are entitled to send home employees with no salary until the end of March 2020.

Currently, it is not possible to use more than one scheme at a time. Therefore, the companies should consider which scheme will be most beneficial financially – both on a short-terms basis and a long-term basis.

If an employee has already been sent home without salary and the company now instead decides to apply for the compensation scheme, the company only incurs an additional expense corresponding to the difference between the amount the company is compensated and up to the full salary.  

It is unclear whether holidays that have been notified and initiated prior to the commencement of the compensation scheme are holidays in "connection with", however this must be the case if the employee is send home with salary immediately after the end of the holidays.

It is also unclear whether companies, that have already laid off employees, can apply for the compensation scheme. To the extent that the dismissals are a result of COVID-19's impact on the company's activity level, it must be assumed that the employer and employee can agree to revoking the termination and instead apply for the three-party compensation scheme by sending home the employee during the period instead.

Terminations that are maintained cannot be comprised by the compensation scheme, and companies are not entitled to apply for salary compensation for a period in which terminations have taken place for financial reasons.

With this compensation scheme, the parties (the state and the labour market parties) intends to save jobs, postpone any decisions of mass redundancies and maintain employees employed throughout this severe crisis.

Lund Elmer Sandager monitors the situation closely, and we will publish news and updates about Danish employers’ options throughout the crisis on an ongoing basis. You are always welcome to reach out to our employment law specialists if we should discuss your specific situation.

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