Politics and Analysis
The Danish Wage Compensation Scheme helping companies and employees through the Covid-19 pandemic
16. June 2020
During the Covid-19 crisis in Denmark, the Wage Compensation Scheme has been of huge importance to both companies and employees, making it unnecessary for companies to lay off their employees as a result of an acute downturn in activities in consequence of the current pandemic. The scheme became effective on March 9th 2020 and was originally to run until the 8th of June, but was later extended till 29th of August.
Securing workers with a swift and effective tripartite
The scheme is based on a tripartite agreement between the Danish government and the social partners (the Danish Trade Union Confederation and the Confederation of Danish Employers) and was adopted by the Danish parliament with an agreement of all political parties immediately after the tripartite had ended. It was vital to get the scheme quickly up and running to create as much security as possible for company finances.
The main ambition with the scheme has been to guarantee jobs and earnings of workers, while giving the companies an opportunity to maintain their production capacity intact – that way allowing for a fresh restart once the health situation improves.
At the end of May 2020 around 220,000 wage earners, or slightly more than 1 per cent of the payroll employment in the private sector, has received money through the scheme.
Assessment of the Confederation of Danish Employers (DA)
DA finds that the Wage Compensation Scheme has worked as designed. It was vital to set the scheme up very fast, in order to give companies a more solid foundation to make decisions on.
An expert group of three leading Danish economists recommended on May 29th 2020 that the Danish Government should not, with certain exceptions, extend the temporary subsidy schemes for a longer period of time, but should instead seek to set up other policy measures with a more long-term perspective.
It is clear that getting out of the temporary compensation schemes in an expedient way will be difficult. There are lines of business that are still directly affected by restrictions. And a second wave must be expected to hit, too, when export businesses are affected from the economic slowdown in Denmark’s trading partners.
In broad outline, the Wage Compensation Scheme is organised as follows:
- It covers all private employers who need to lay off at least 30 per cent of their workforce or 50 employees. Instead of being laid off, wage earners can be put on furlough with their previous pay, while the company is compensated for their wages from day one.
- The wage compensation scheme covers 75 per cent of the monthly gross pay for waged employees and 90 per cent of the monthly gross pay for non-waged workers. The maximum coverage is DKK 30,000 (EUR 4,000). The originally agreed maximum compensation covered a monthly pay of maximum DKK 23,000 for full-time waged employees and DKK 26,000 for full-time non-waged workers.
- During the compensation period, wage earners must take up to 5 days of holidays, time off in lieu or other time off accumulated during employment.
- The employees whose job is under threat must have been hired before 9 March 2020 and must not work in the period when they are on paid furlough.
- If a company announces redundancies for financial reasons, it must withdraw from the scheme from the date of such announcement.
- A precondition for the wage compensation scheme is that the company opt out of other existing options for employee furlough without pay and that there be no coverage overlap with other aid schemes introduced as a result of Covid-19.