How is pay determined in the collective agreements relating to the DA/FH area?

In Denmark employment and working conditions, including pay, are mainly regulated by collective agreements entered into by the social partners. A collective agreement is an agreement between an employee organisation and an employer organisation or an employee organisation and a company. The agreement sets out the working conditions which are to apply to the employees of a company or in a specific industry.

There is no law governing who can or should enter into collective agreements; nor is there any requirement as to the form or contents of an agreement.

Danish and non-Danish enterprises do not have to comply with or sign a collective agreement in Denmark. However, Danish case law acknowledges that wage-earner organisations are entitled to demand that work be covered by a collective agreement and that union organisations can use strikes or picketing to make an employer abide by the provisions of a collective agreement. This applies both to Danish companies and to non-Danish companies operating in Denmark.

When a company is covered by a collective agreement, it is obliged under labour law to comply with the terms of the agreement.

Collective agreements set out wage levels. Disputes in this respect are resolved by industrial arbitral tribunals and the Danish Labour Court. The Labour Court can also assess whether an employee organisation has used unlawful means to obtain an agreement.

Time-based pay

Four different collective agreement schemes are used for hourly pay in the DA/FH area. Time-based pay means hourly or monthly pay as opposed to performance-related pay such as piecework pay.

Time-based pay is used in the following types of agreements

a) the standard wage system
b) the minimum wage system
c) the minimum payment system
d) a system without specific pay rate

The most widely used time-based pay systems are minimum wage and minimum payment.

A number of agreements include provisions about both time-based pay and performance-related pay. This is true, for example, of the industrial sector and the building and construction sector , where the two agreements feature both a minimum payment system and a piecework pay system. In addition, they include an option to agree on supplementary pay systems in local agreements.

In a large number of agreements in the DA/FH area, including the Industrial Agreement, no payment rates are specified at all for salaried employees other than trainees.

Standard wage system

Under the standard wage system, collective agreements set out:

• fixed hourly pay rates
• supplements for staggered working hours during the daytime and supplements for evening, night and weekend work
• supplements for overtime work

Standard wage agreements may also set out various work-related and seniority-based supplements payable for the performance of a specific job function or for obtaining a particular qualification.

The idea is that total pay can be determined on the basis of the collective agreement and that the pay rates set out in the agreement are the standard rates. When increases in those rates are agreed, all employees meeting the criteria in the pay provisions will benefit. Most standard wage agreements allow for agreements about local pay and contain framework conditions for such agreements. As of 1 March 2022, the framework for local pay will typically be an amount corresponding to DKK 2.50 per hour per employee.

Minimum wage system

The minimum wage system specifies hourly or monthly pay rates.

Minimum wage agreements typically set out the following:

• An hourly or monthly pay rate that represents the minimum personal pay level.
• Personal pay supplements that depend on experience, education, training, responsibilities, etc.
• Supplements for overtime work, staggered hours, shift work, weekend work, etc.
• A wage provision setting out criteria for determining individual wages. The criteria in the agreement are often related to the individual employee’s performance of tasks, experience, responsibilities, etc.

The minimum wage system makes it possible to offset rate increases in personal pay. Rate increases are therefore only relevant for workers who are paid the rates directly Personal pay is determined on the basis of the criteria specified in the collective agreement.

Minimum wage agreements mean that an individual wage assessment must be made and that the pay must reflect the individual worker’s performance, qualifications, skills, etc. If workers are at different levels in relation to the criteria set out in the agreement, the employer will not be able to pay all workers on the basis of the same pay rate.

Consequently minimum wage agreements call for a certain wage spread based on factors such as experience, responsibilities, education, training, performance, etc. Employers have a duty to perform systematic evaluation of their employees and to determine personal pay on the basis of the evaluation.

Minimum wage agreements include a disparity provision which prescribes that there may not be any systematic disparity in the pay levels of employees in one company and the pay levels of comparable employees in similar companies in the region.

Minimum payment system

Under the minimum payment system, collective agreements stipulate a minimum rate and an obligation to enter into an agreement on personal pay:

• In minimum payment agreements the actual remuneration is agreed with each individual employee. There is typically a right to one annual wage negotiation. The collective agreement sets out a rate below which personal pay may not fall.
• Minimum payment agreements set out a wide range of supplements for staggered working hours, shift work, weekend work, etc.
• Minimum payment agreements include rates for overtime work, etc.

The agreements are based on the assumption that personal pay will be above the minimum payment rate and on an assumption of pay differentiation based on a systematic evaluation of a number of criteria.

When determining personal pay, employers must apply a systematic evaluation, and there is consequently pay differentiation in companies with several employees, reflecting differences in the workers' skills, experience, training and performance, as well as job requirements, including any inconvenience associated with the work.

The parties to the agreement are entitled to bring proceedings against each other in the event of a general disparity between actual pay levels and pay levels offered in comparable companies to comparable workers in the area in question.

Agreements without pay rates (non-rate-based agreements)

There are a number of agreements applying to salaried employees which do not set out pay rates. In relation to such agreements it has been agreed that:

• Pay is agreed between the employee and the employer. Pay should reflect the individual employee's performance, qualifications, skills, job flexibility, work performed at special hours and, where applicable, any education and training, as well as the nature of the job and the responsibilities associated with it.
• Supplements are paid for overtime, evening, night and weekend work.
• An individual evaluation and possibly adjustment of pay levels should be made at least once a year.

Agreements that do not set out any pay rates are based on a presumption of wage differentiation based on the criteria specified in the agreement.

An employee covered by the agreement may demand negotiation with the company if the employee’s pay deviates from the basic pay level of comparable groups of employees.

Non-rate-based agreements include a disparity provision stipulating that no systematic disparity in the pay levels of employees in one company and the pay levels of comparable employees in a similar company is allowed. The collective agreements may lay down criteria for the assessment of whether disparity exists.

Piecework payment

Piecework payment, which is a performance-related remuneration system, is included in various agreements with time-based pay, particularly in the building and construction industry and certain other industries. Piecework payment systems are often incorporated into agreements featuring time-based pay systems. In some collective agreement areas piecework payment is mandatory if the employees request it. However, in most areas an agreement must be signed before piecework payment can be applied.

Piecework systems may be in the form of:

• detailed prices for individual services or tasks. These prices are listed in price schedules; or
• rough estimates, where a price is agreed for a task. This price can also be determined on the basis of a measurement of the amount of work. Some agreements contain a guaranteed pay below which pay rates must not drop.

Consequences of non-compliance with collective agreements

If an employer covered by a collective agreement pays wages lower than those stated in the agreement, the employer is in breach of the agreement. For employers posting workers in Denmark, certain amounts paid in the home country may be included in the calculation of pay in accordance with the Danish collective agreement.

An employer who is in breach of the collective agreement may be ordered by the Labour Court to make back payments of all amounts owing. Typically, a fine will also be imposed. Under Danish rules it is the non-breaching party to the agreement that may institute proceedings in the event of a breach and demand back payment of amounts owing and the payment of a fine for the breach. This follows from section 12 of the Danish Labour Court Act.