On 2 June, the Danish Parliament passed a Bill changing the requirements for remuneration of employees subject to the Pay Limit Scheme: In future, salaries under the Scheme must be paid in cash to a bank account in Denmark. These new requirements will have major consequences for employers who wish to employ foreign employees.

Until now, the Pay Limit Scheme has been the preferred scheme for businesses wishing to employ professionals from non-EU Member States.

Under the Pay Limit Scheme, an employee may obtain a work and residence permit in Denmark, subject to certain conditions. One of the key conditions has been the requirement of a minimum annual salary of DKK 408,800 (2017 level). In other words, this limit is an absolute lower limit.

According to the present provision of the Danish Aliens Act, fixed salary components such as cash pay, per diems, free telephone, free company car, board and residence may be included in the calculation of the employee's annual salary provided that the cash pay constitutes 50% of the total salary package.

Salary is to be paid out in cash

The newly passed Bill dismisses this calculation model as it specifies that the annual remuneration must be paid in cash into a Danish bank account. This means that, in future, the remuneration requirement is met only if the employee is offered employment at an annual salary that complies with the statutory minimum amount and is paid in cash into a Danish bank account.

It should be noted that the requirement for salary payments to be made into a Danish bank account only concerns the part of the salary up to the minimum amount. Consequently, any part of the employee's salary exceeding the minimum amount may still be paid out in another country.

Therefore, when employers are to calculate their employees' annual remunerations, they may no longer include the value of, say, board and residence, per diems, free telephone, free company car or other benefits offered to the employee.

Effective date

The law will take effect from 1 July 2017 and apply to all applications submitted under the Pay Limit Scheme after this date. Applications under the Fast Track Scheme using the Pay Limit Scheme as basis for application will also be affected. However, the law does not apply to applications for extension of residence permits already in force and granted according to the provisions of the Pay Limit Scheme and the Fast Track Scheme. Applications submitted prior to 1 July 2017 will be processed according to previous rules.

Bech-Bruun comments

This legislative amendment is expected to have major significance for employers who have until now availed themselves of the possibility to supplement the annual salaries of foreign employees with the taxable value of for instance free housing, salaries paid out in the employee's home country or per diems in order to reach the amount threshold.