Summary
An advance payment is a provisional payment of salary made in advance, which is offset against the subsequent payslip so that the employee receives the correct total amount. It is typically used in the event of a delayed tax card, payroll errors or an urgent need for money. An advance payment is taxable, must be reported to eIndkomst and should be based on a clear, written agreement.
Short answer
An on-account payment is a provisional advance payment of wages, made before the final wage can be calculated. The amount is not extra pay – it is offset against the subsequent regular payslip, so that the employee receives the correct total amount for the period. An advance payment is typically used in the event of a delayed tax card, a payroll error, or when an employee urgently needs money before payday. It is taxable in the same way as ordinary pay and must be handled correctly in the payroll system.
What is an on-account salary?
“Aconto” means “on account” – in other words, an amount paid for the time being, to be settled definitively at a later date. An “aconto” payment is therefore a partial or provisional salary payment, which is later included in the final payslip. Think of it as a temporary interim settlement between you and the employee: the employee receives their pay at the appropriate time, and the period is settled during the next payroll run.
When is an on-account payment used?
Typical situations include:
- Delayed or missing tax card, so the exact salary cannot yet be calculated.
- A payroll error, where the employee has been underpaid and is short of money before the next payslip is issued.
- An urgent need, where the employee asks for an advance on their salary.
- A new employee, which starts before the first scheduled payroll run can be reached.
- A bonus, where part of the amount is paid in advance and the final settlement is made on the next payslip.
How set-off works
In practice, an advance on salary is often paid as a net amount via a standard bank transfer. During the subsequent payroll run, the amount is recorded as a net deduction under a separate pay item, so that it is deducted from the salary the employee would otherwise have received. This ensures that the employee does not effectively receive double pay. The payslip typically shows the calculated gross pay, tax, AM contributions and a separate field for the advance payment, so that the entire process can be traced from payment to deduction. A simple example: if the agreed monthly salary is 30,000 kr, and 8,000 kr on account in the middle of the month, the DKK 8,000 is deducted on the payslip, so that the employee receives the remainder on the usual payday.
Tax and reporting
An aconto payment is taxable pay, and how it is treated depends on whether the amount is paid before or after tax. If it is paid as a net advance, the tax is dealt with during the final payroll run, when the advance is offset. If, on the other hand, the aconto payment is treated as gross pay, it is included directly in the income statement and affects tax, social security contributions, holiday pay and any pension. Regardless of the method, the amount must be reported to eIndkomst when it is treated as salary – and you must not pay salary on account month after month without deducting A-tax and AM contributions correctly.
A good rule of thumb
As a general rule, do not pay out more than around half of the gross salary as an advance. This leaves room to account for tax, pension and other deductions when the final salary is calculated – and the employee will not end up “owing” any money back.
Make an agreement and keep track of traceability
Advance payments should be the exception and, ideally, follow a fixed policy. Enter into a brief, written agreement regarding the amount and any set-off, and ensure that each advance payment can be traced from the date of payment to the subsequent set-off. This simplifies both internal controls and communication with the auditor – and if an employee leaves before an advance has been settled, it is important that the interim account is clearly settled.
Aconto pay and pay advances – are they the same thing?
The terms are often used interchangeably, and the mechanism is the same: a payment that is offset at a later date. The difference is typically that an on-account payment is short-term and is settled at the next pay cycle, whilst a genuine salary advance can be repaid over several pay periods. Both should be based on a clear, written agreement.
We can help you with salary payments on account
Advance pay is easy to arrange, but it’s also easy to get it wrong if deductions or tax aren’t handled correctly. At Dansk Løn Service, we ensure that advance payments, tax and adjustments are recorded correctly as an integral part of the payroll process. Contact us, if you want to get to grips with the routine.
The rules have been simplified here. If you have any doubts about tax and settlement, please seek specific guidance.