How do you pay tax for your employees?

When you hire an employee in Denmark and negotiate their salary, you’ll always be negotiating a gross salary, not a net salary. A gross salary is the amount paid to the individual by an employer, before any deductions are taken, while a net salary is the residual amount following deductions, which include payroll taxes.

Calculating gross salary & taxes withheld

When we receive the payroll from you, we calculate the salary (for more information on payslips, you can listen to our other podcast or read our article, “What Do We Need From You When You Order Payslips?”). Within this calculation, we also note the amount of tax an employee will pay according to their gross salary. After we’ve completed these calculations, we send you an email with the payslip, which lists both the gross salary and the taxes withheld and the net amount that will be transferred to the employees bank account.

Salary payment & tax payment dates

In Denmark, most employers pay out salaries on the last banking day of the month. This isn’t a requirement, but it’s the customary pay-date, because taxes are due on the 10th of the following month. When you receive the payslip, what is paid initially, on the last banking day of the calendar month, is the net salary. The payment from your bank on the 10th will be the taxes withheld from the employees. The payment of the tax happens through the salary system as an automatic payment. This means that you do not need to take any action yourself. When we create your salary system, and agreement for this automatic payment will be signed by you, and that is how they can do these payments later.

*Note: your expense will only be the gross salary. On the last banking day, you transferred the net salary, and ten days later, the tax. You are only withholding these taxes from the employees and then paying the withholdings to the tax office. So the tax is not an extra cost; you agreed upon it, when you negotiated the gross salary. This is something to keep in mind when you’re creating your budget.

Employee tax rates

In terms of the amount employees pay in taxes, Denmark’s tax system is progressive, so there is no real fixed rate. Taxes are entirely dependent upon personal circumstances; some employees pay a higher tax rate, while others pay a lower rate. Tax rates should not be discussed personally with employees. They pay the rate decided by the tax office.

Sometimes, employees will have a large personal tax deduction every month. In Danish, we call this “Personfradrag”. This means an employee can earn up to a certain amount of money without paying tax, and after that, they will pay the tax stated on their preliminary tax registration.

As an employer, all you need to know is their tax rate, which we are informed of directly by the tax office. If you have an employee who is unsatisfied with the net amount they’ve been paid – maybe they think they’ve paid too much tax – they must direct their questions to the tax office and see if there’s been a mistake on their preliminary tax. If not, that’s the tax we must withhold.

A-card & B-card

The only mistake we sometimes see is when the employee chooses the wrong tax card or the employer reports the wrong card to us. The employee has a choice between using their A-card or their B-card. The A-card allows a personal tax deduction every month – that’s the amount they can make without paying tax – while there’s no personal tax deduction with the B-card.
If we create a new employee, and you inform us that the employee requested the B-card when they actually requested the A-card, then the employee is paying more tax than necessary, and this is something we can change.

Do you have any questions about employees?

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