Understand your pay slips

March 2019.

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

The headlines

The headlines are often general information for the employee: information about your employer, your name and personal information in the payroll system, salary period, date of payment, etc. The more advanced payroll systems, such as KMD, may state your position, 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 %, depending on your residency and income tier
• Net payment to employee (til udbetaling/restbeløb)

You should pay attention to all of the items above, the rate of payment per hour, and the number of working hours. The most common mistakes are often made here, unintentionally or intentionally. The hourly rate should be higher if you have been working overtime or during the holiday. 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 payslip. You can read more about common mistakes in a payslip Here (in Danish), especially for foreign workers Here (in Danish).

The bottom part

This part summarises 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 earnings 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 three lines. In contrast, a payslip on the KMD system used in Copenhagen municipality is five 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. In addition to labour market contributions and VAT, taxpayers 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, saying that they are free is inaccurate – you have paid for them already.

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

” 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).