Denmark: An Employment Overview

Introduction

As in many other European countries, Denmark experienced high inflation in 2022 and weak economic momentum in 2023. However, from late 2023 through 2025, the Danish economy has shown solid resilience, supported in particular by strong pharmaceutical exports and improving domestic demand. By 2026, Denmark is still experiencing a moderate upswing, with GDP expected to grow by around 2% in 2026, but decreasing to 1.7% in 2027. Meanwhile, inflation has stagnated and is currently below 2%. This means the economic outlook for 2026 is generally positive, though global uncertainty, including trade tensions, continues to pose downside risks.

In recent years, the unemployment rate has been stable, with very little movement, and stood at 3% by the end of 2025. Compared to many other European countries, unemployment remains relatively low in Denmark, and companies have difficulties attracting talent in some professions. This remains an important focus area for the Danish government.

The Danish labour market is characterised by a high number of small and medium-sized companies as well as several large multinationals. Generally, Danish companies are highly specialised, have a well-educated workforce and have an excellent ability to adapt to market changes.

The Danish Model – Flexicurity

The Danish labour market model is known as “flexicurity”, a combination of flexibility and security. On the one hand, the labour market is highly flexible, with relatively short notice periods, low severance pay, etc. In addition to this, the Danish courts cannot (with a few exceptions) reinstate employees who have been dismissed. On the other hand, employees benefit from a high level of social security through the extensive welfare system provided by the Danish state.

Compared to other EU countries, it is quite easy for Danish companies to employ, dismiss and re-employ employees. This is believed to make companies more willing to hire new employees, particularly in the aftermath of an economic crisis. The downside of Flexicurity is a heavy tax burden, particularly high income tax rates in Denmark. To attract specialised foreign talent, highly paid expatriates receive a tax rebate during their initial years in Denmark.

Another feature of the Danish labour market is that a high number of employees are members of trade unions. It is estimated that approximately 65% of Danish employees are unionised, although this number is decreasing.

The Danish Trade Union Confederation (FH) is the largest central employee organisation. Its members are trade unions representing blue-collar and white-collar workers in the private and public sectors.

Danish Labour and Employment Law

The principal sources of law and regulation in the Danish labour market are:

• legislation; and
• collective agreements

Denmark has a long tradition of allowing employment conditions and pay to be decided through collective agreements. This means that there are relatively few acts governing this area of law.

Some acts establish a legal framework for specific groups of employees, such as the Salaried Employees Act, which protects salaried employees and provides certain minimum rights, including notice periods and compensation for unfair dismissal. Other acts govern individual issues relevant to all employees, such as the Holiday Act.

Collective agreements cover the vast majority of the Danish labour market and regulate key employment issues such as pay and working conditions. The majority of those not covered by collective agreements are salaried employees with formal education working in the private sector, although this varies by sector.

Key considerations for companies setting up in Denmark include deciding whether to:

• enter into a collective agreement; and
• join an employer’s organisation.

This also applies to companies that are not covered by collective agreements in other countries. It is recommended to obtain legal advice on these issues, as it is particularly difficult for a company to opt out of a collective agreement after becoming a party to it, eg, through membership of an employer’s organisation.

If no collective agreements apply to a company, its employees do not have a statutory entitlement to a minimum pay rate, overtime compensation, etc. The only limitation in this regard is that the pay must not be unfair or discriminate on the grounds of any protected criteria, including gender, age or disability. If a collective agreement applies, pay must be in accordance with its provisions.

There are no acts providing for pension schemes, but employers can, and often do, set up tax-privileged pension schemes for their employees. Collective agreements usually contain provisions on mandatory pension schemes. Pension contributions under such schemes are typically 12-15% of pay, with:

• employees contributing one-third; and
• employers contributing two-thirds.

The Danish legislation on bonuses for salaried employees/white-collar workers, but not managing directors, is restrictive compared to many other countries. Companies setting up in Denmark should be aware of such legislation and obtain legal advice when using bonus programmes, etc in Denmark.

Further, Danish legislation on restrictive covenants is quite unique compared to that of many other countries, and certain requirements must be met for a restrictive covenant to be valid under Danish law. This includes a requirement for payment of compensation to the employee in question.

Reflecting on the previous year within the context of Danish employment law, it is notable that 2025 did not bring about any major legislative reforms. Instead, amendments to rules on working environment and health and safety were introduced along with adjustments to the legal framework for childbirth-related leave.

Looking to 2026, however, employers in Denmark are planning to implement the EU Pay Transparency Directive, adopted in 2023, with a deadline of June 2026. They are doing so even though the Danish government has not yet tabled a draft bill to transpose the Directive into Danish law. It remains to be seen whether the legislature will delay implementation to give companies more time to prepare for the new rules, which will affect both smaller and larger companies, albeit in different ways.

Effective from 28 December 2024, the EU directive on gender balance on corporate boards of listed companies was implemented in Danish law. By 2026, listed companies covered by these rules must meet targets for the representation of underrepresented genders among their board members and set targets for non-executive directors. In addition, these companies will be required to report on the gender balance on their board as part of their annual reports.

As for business immigration, a new scheme or “route” is expected to come into force by the end of 2026 to address labour shortages in areas where third-country nationals cannot be recruited under current schemes, including manual and skilled work. At the same time, it has been highly important to the legislature and social partners to ensure that standard terms and conditions in the Danish labour market do not put downward pressure on foreign nationals taking up jobs. The new scheme imposes several requirements on employers’ activities and the terms and conditions of employment. In addition, the scheme will only be available to third-country nationals from certain countries.