How to Hire Remote Workers as Contractors in Denmark
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 really 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 favored and there are many expected entitlements.
On the other hand, Danish contractors (or expats living there) carry no such obligation, and you will engage them just as you would any business service provider. They handle all of their own taxes, social contributions, and even work visas for non-EU expats. The downside of course is that they may not have the same loyalty or longevity as an employee, and could be looking for other opportunities.
Still, for startups or companies that need a specific skill set for a finite project, hiring a contractor will give you flexibility at a reasonable cost.
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 labor laws
- A good way to give a recruit a ‘probationary’ period prior to 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 are interested in hiring Danish contractors, this guide will review the hiring methods and any compliance issues that might arise for your company.
How to hire and pay remote contractors in Denmark
Once you have recruited your Danish contractor, you will have to decide how to structure the relationship and pay them from abroad. Most experienced contractors will have a preferred method, but those who are new and 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, with the flexibility to work for multiple clients and no complex business registration or incorporation requirements (but they do have to register as contractors with the Danish business authority.) If your new contractor is a freelancer, you will want to make sure that the contract is clear on payment and deliverables, 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.
The umbrella company will also 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 actually 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. The bottom line is that 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 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
Contractor Taxation has a global network of umbrella companies, including in Denmark, who are ready to hire the contractor and administer all the tasks related to taxes, payments, and contributions. As a company looking to hire Danish contractors, you can recommend to the new hire that an umbrella company is used to assist with the relationship. There is a fee, but it could be shared as there are benefits for you both.
Most contractors will be open to this, as it reduces the risk of non-payment with a new client, and relieves them of the administrative burden of self-employment. If the contractor instead is interested in being hired as an employee, Contractor Taxation also has partners that offer an employer of record (EOR) solution. The EOR literally becomes the local employer, and the company is assured to avoid any misclassification risk while complying with all employment regulations.
Please contact us if you are interested in hiring a Danish or expat worker for your company, either as a contractor or a formal employee.