Hiring remote contractors in other countries such as Denmark is a great way to add to your company’s talent pool, without incurring the expense of a full-time employee. When you hire an employee abroad, it’s not an arms-length relationship as you must find a way to enter the foreign countries’ employment scheme and run a compliant payroll. This is true in Denmark, where employee rights are favoured and there are many expected entitlements.
Danish contractors carry no such obligation, and you will engage them just as you would any business service provider. They handle all of their taxes, social contributions, and even work visas for non-EU expats. The downside is that they may not have the same loyalty as an employee, and could be looking for other opportunities.
Still, for companies that need specific skill sets for finite projects, hiring contractors offers flexibility at reasonable costs.
Here are some of the benefits of hiring contractors:
- No long-term financial/HR commitment by the company
- Cost-effective when compared to paying employee benefits and entitlements
- Contracting is a B2B relationship, outside of typical labour laws
- A good way to give a recruit a ‘probationary’ period before hiring
- Can hire for short projects or on a repeat basis
- More flexible to scale up or down, or if different skill sets are needed as the company grows
If you want to hire Danish contractors, this guide reviews the hiring methods and any compliance issues that might arise.
How to hire and pay remote contractors in Denmark
After recruitment, you will have to decide how to structure the relationship and pay them from abroad. Experienced contractors typically have a preferred method. However, new contractors who may have only worked as an employee might need an in-country third party to assist.
Hire and pay them as a freelancer
Many contractors work as self-employed freelancers in Denmark. They have the flexibility to work for multiple clients and no complex business registration or incorporation requirements. However, they have to register as contractors with the Danish business authority. If your contractor is a freelancer, you want to make sure that the contract is clear on payment and deliverables. This is necessary to avoid any conflicts or misunderstandings.
Pay them through their limited company
Experienced contractors may have their own limited company set up in Denmark, and will ask that you contract with the company rather than with them individually. In many ways, this is preferable, as the limited company will have been duly registered in Denmark, and does give some assurance that the contractor is a stable service provider.
Use an umbrella company in Denmark
If you want to bring some certainty into a new contracting relationship, you can suggest that the contractor use an umbrella company in Denmark. The umbrella company works to both parties’ advantage, as they are an intermediary to the contract who will facilitate payment and ensure performance milestones are met by the contractor.
Also, the umbrella company will withhold taxes and contributions for freelancers almost as if they are employees, and this can be helpful for those who are new to contracting and are used to being an employee. The umbrella company can also sponsor work permits for expats if that is needed.
Compliance risks when hiring remote workers in Denmark
You may wonder if there are any compliance risks when hiring remote workers in Denmark, given that you don’t have any business presence there other than paying the contractor.
Misclassification risk: Employee vs. contractor
The chief compliance risk for your company is misclassification of the contractor, where under Danish law they are being treated and managed as an employee. The criteria for employee status in Denmark are:
- Supervision and control by a manager
- The worker only has one client
- Fixed work hours and obligations
- Does not bear the financial risk of their performance
Other factors may include paying a fixed ‘salary’ and reimbursing expenses related to work. If you treat the worker as an employee, they may try to claim employee benefits and status. At that point, you would have no choice but to hire them as an employee or end the relationship. Using an umbrella company can mitigate the risk of misclassification.
Permanent establishment risk in Denmark
A less likely compliance risk is that of creating a permanent establishment (PE), which could lead to the corporate taxation of your company. In reality, the only way this might occur is if your employee or contractor is creating Danish revenue through their activity, such as concluding sales contracts for your company with Danish customers.
Typical remote worker roles such as customer service, IT support, and marketing would not be enough to trigger PE, but it’s good to learn the Danish rules on when taxes might be imposed.
How Contractor Taxation helps you hire remote workers in Denmark
Contractor Taxation has a global network of umbrella companies that are ready to hire contractors. They can also administer all the tasks related to taxes, payments, and contributions. As a company looking to hire Danish contractors, you can recommend that an umbrella company assists with the relationship. There is a fee, but it could be shared as there are benefits for you both.
Most contractors are open because it reduces the risk of non-payment with a new client, and relieves them of the administrative burden of self-employment.
Please contact us if you are interested in hiring a Danish or expat worker for your company as a contractor
