Understand your pay slips

March, 2019.

Many times, I have heard foreigner employees complain that they have to pay so much in tax in Denmark, and they don’t know what they are paying for. The goal of this article is to give you an understanding of your pay slips and the Danish taxing system on personal income. Among many payroll programs, I have chosen payroll examples from the 3 programs: Letløn, Danløn, and KMD Løn og Personale (KMD). The italicized words indicate the text in Danish in the original pay slips.

The headlines

The headlines are often general information for the employee: information of your employer, your name and personal information in the payroll system, salary period, date of payment, etc. The more advance payroll systems, such as KMD may state your position, your salary category, and other more specific information.

The main part

This part specifies information about your salary for the pay period. The most common items are:

• Items (tekst)
• Rate of payment per hour (enhedspris /grundlag)
• Number of working hours (enhed/producktionsenhed)
• Possible overtime/holiday working hours (tillæg)
• Amount (beløb/udbetalt)
• Possible compensation payment for using your car/bike for work (befordring)
• Collective lifelong pension contribution (ATP bidrag)
• Labour market contribution (AM bidrag) of 8%
• Tax on personal income (A-skat) variable from 35-52,05 %, depends on your residency and income tier
• Net payment to employee (til udbetaling/restbeløb)

In all of the items above, you should pay attention to the items, rate of payment per hour, and number of working hours. The most common mistakes are often made here, unintentionally or intentionally. If you have been working overtime or during the holiday, the rate per hour should be higher. If your employer pays you a different rate or for a different number of working hours from your contract, all evidence you have is the pay slip. You can read more about common mistakes in a pay slip Here (in Danish), and especially for foreign workers Here (in Danish).

The bottom part

This part is the summary of your income and payment for the period and the total amount. You will find information about:

• Your income before tax, after collective lifelong contribution (AM indkomst)
• Payment to labour market contribution (AM bidrag)
• Payment for personal income tax (A-skat)
• Pension payment from the employer and your own (pensionsbidrag)
• Holiday earning in number of days/amount (feriedage/feriepenge)
• Other extra information and payments: travel, driving, sick leave, etc.
  

The length of this part very much depends on the specific payroll system. For the simple Letløn payroll system, this takes only 3 lines. In contrast, a pay slip on the KMD system that is used in Copenhagen municipality is 5 times longer.

What do you get for your tax payment?

Tax on personal income is the main source of income for the Danish tax revenue, up to 41,1% of the total budget in 2017. Adding labour market contribution and VAT, tax payers actually contribute the most to the Danish state’s budget.

Your tax payment pays for the free healthcare and education system in Denmark. It also pays for the generous Danish welfare: child support, nursing homes, social projects, cultural events, etc. Thus, it is inaccurate to say that they are free – you have paid for them already.

In Denmark, people often use the reasoning “I work and pay tax. It is my right to …” to excuse themself from littering the street to receiving social welfare.

”Absolutely, it should not be a must that my son has to help me. I have paid tax all my life; I’m a good member of the society, who worked and raised my son to become a good citizen, so when I get old, I should get help (from the state)” (Debate about who should take care of the elderly: the state or the family. Read the whole article in Danish Here)

Having social help is not something to be ashamed of; it is your right. Now you can say that too: I have paid my tax. It is my right to…(feel free to add).