Employer of Record (EOR) Finland
Article Navigation
An Employer of Record (EOR) acts as the legal employer for workers in Finland. Also known as a Global Professional Employer Organization (Global PEO), this role encompasses comprehensive employment oversight. It ensures strict adherence to local labor laws, manages essential tasks like payroll, taxes, and mandated benefits, and formulates employment agreements.
Key responsibilities of the Employer of Record (EOR) in Finland include:
- Guaranteeing compliance with Finnish employment laws.
- Managing the intricacies of local payroll processes.
- Handling the filing of employment-related taxes and necessary documentation.
- Issuing payslips to the worker.
- Distributing salary payments to the worker.
Optimize your global expansion seamlessly with our Global PEO services – a hassle-free solution that eliminates the need for entity setup. Our Employer of Record (EOR) services in Finland ensure legal compliance, a strong presence, and Intellectual Property protection, allowing your business to concentrate on its core functions. Facilitate smooth global mobility, obtain work visas efficiently, and build a diverse and effective global workforce. Partner with Mercans, your Employer of Record in Finland, for a compliant and streamlined employment experience for your global workforce.
Employee vs Independent Contractor Classification
| Factors | Employee | Independent Contractor |
|---|---|---|
| Employment Laws | In Finland, employment relations are governed by national legal acts, collective bargaining agreements, EU legislation, and local labor courts. Key acts include the Employment Contracts Act, Working Hours Act, Annual Holidays Act, Act on the Protection of Privacy in Working Life, and Co-operation Act. Four types of employment agreements exist: full-time, part-time, fixed-term, and agency contracts. Collective bargaining agreements always apply, and contracts can be verbal. | Independent contractors, operating under specific provisions of the assignment agreement, can be freelancers, sole traders, or limited companies. Engagements are not regulated by the Finnish Labor Code but fall under the 2006 Companies Act. Social security contributions are stipulated in the Self-Employed Person’s Pensions Act (YEL). |
| Hiring Practice | External recruitment through job boards and advertising. Applicants submit CV, receive an offer letter, and contracts (if any) must be provided within 1 month. Background checks allowed during hiring process. Probation period not to exceed 6 months. | Contractors hired directly or through third parties. Recruitment through various channels; CV, portfolio, and references may be requested. Independent contractor agreement includes pay rates, services scope, contract duration, and termination terms. No limitations on the use of independent contractors. |
| Tax Documents | Tax year runs from January 1 to December 31. Employers withhold taxes on salaries. Companies pay health insurance, unemployment and pension contributions, and withhold personal income tax. Reporting options include Palkka.fi and local Incomes Register. | Contractors file annual personal income tax reports and pay social security contributions upon receiving a pre-completed tax return form. Health insurance not mandatory for self-employed individuals. |
| Payer's Tax Withholding & Reporting Requirements | Employers withhold deductions for pension, income tax, municipal tax, insurance, and make flat-rate payments. Independent contractors pay personal income tax, municipal tax, pension, unemployment insurance, group life insurance, and VAT. | Employers taxed at a flat rate of 13% for payments made to contractors not registered in the Finnish Pre-Payment Register. Online payment required. |
| Remuneration | Employees paid via automatic monthly deposits in euros. No obligation to pay independent contractors monthly. Employers responsible for consistent compensation, with terms agreed upon. Payments due after contractor issues invoice. Currencies other than euro allowed. | Independent contractors typically issue monthly invoices on net 30-day terms, including invoice number, date, client's details, contractor's bank details, and payment terms. |
| Workers' Rights | Employees entitled to various rights, including paid annual leave, sick leave, maternity leave, paternity leave, parental leave, premium payment for overtime, termination notice, and severance pay. Independent contractors not entitled to employee rights unless specified in the contract. | Independent contractors not entitled to employee rights. Third-party benefits may apply when hired through professional employer organizations. |
| Benefits | All employees must have health and unemployment insurance, paid by employers. Pension and health insurance contributions deducted from salaries. Additional internal benefits possible. State grants unemployment, maternity, paternity, parental allowances, and pension benefits. | No protection from sudden contract termination. Third-party benefits may apply when hired through professional employ |
| When Paid | Once or twice a month. | Contractor invoices issued monthly on net 30-day terms, including invoice number, date, client's details, contractor's bank details, and payment terms. |
Employment Contracts in Finland
Payroll in Finland
Minimum Wages
In Finland, there is no legally mandated minimum wage. However, to provide an understanding of wage levels, as of the second quarter of 2023, the average monthly wage is approximately 3,883 EUR, with high-skilled workers earning around 4,250 EUR per month and low-skilled workers earning about 1,980 EUR per month (all values converted from USD). It’s important to note that these figures are indicative and may vary across different sectors and regions.
Payroll Cycle
In Finland, wages are typically paid on the last day of each pay period, with pay periods commonly lasting two weeks or a month. According to the Employment Contracts Act, time-based pay, such as hourly or daily pay, must be paid at least twice a month. Salaried employees receive monthly payments. Performance-based work, including contract work, usually adheres to a pay period of no longer than two weeks.
Employers are required to issue a pay slip with every wage payment, detailing the employee’s earnings during the relevant pay period. The pay slip includes information on working hours, hourly pay, and any additional increments. Standardization guidelines recommend specific details to be included on the pay slip, such as the employee’s and employer’s information, cumulative pay subject to withholding tax, tax withheld, and various increments.
Upon termination of an employment relationship, the pay period ends, and the employee’s receivables fall due on the termination date. However, if the employer and employee agreed to a post-termination payment date during the employment relationship, or if a collective agreement specifies a pay period after termination, such provisions apply.
Additionally, employers must report wage details to the Incomes Register. Employees can verify this information by checking the Incomes Register or confirming with their employer or payer. This reporting ensures transparency and compliance with tax regulations.
Mercans’ Payroll Capabilities
Mercans offers extensive payroll capabilities in Finland, catering to various needs:
Social Security in Finland
The Finnish social security system ensures economic stability and aid across various life scenarios. It encompasses both residence and employment-based eligibility criteria.
Residence in Finland or employment forms the basis for access to social security benefits. Services from Kela and wellbeing service counties are residence-based, while employment-based benefits involve unemployment funds, pensions, and private insurers.
Kela and wellbeing service counties handle benefits for residence, while employment-based security includes earnings-related pensions and occupational insurance. Unemployment benefits depend on both residence and employment.
Responsibility for managing Finland’s social security involves wellbeing service counties, unemployment funds, pension providers, private insurers, and Kela.
Social security aims to provide financial stability in situations related to old age, disability, illness, unemployment, childcare, loss of a provider, rehabilitation, or education.
Employers receive reimbursements for expenses related to employee sickness, family leaves, and the provision of occupational health services.
Social Security Contributions
- Employment Pension Insurance: Varies (average 17.39%)
- Unemployment Insurance:
- 0.52% up to EUR 2,251,500 of total compensation paid
- 2.06% on the exceeding compensation amount
- Statutory Accident Insurance: Average 0.57% of wage total
- Statutory Group Life Premium: Average 0.06% of wage sum
- Sickness Insurance Contribution: 1.53%
- Pension Insurance:
- 7.15% for employees aged 17 to 52 or 63 to 67
- 8.65% for employees aged 53 to 62
- Sickness Insurance Contribution: 1.96%
- Medicare Contribution: 0.60%
- Daily Allowance Contribution: 1.36% (waived if total salary is less than EUR 15,703)
- Unemployment Insurance Contribution: 1.50%
For employees taxed under the foreign expert tax regime, the Sickness Insurance premium is included in a flat 32% tax rate. These contributions are sent to the relevant insurance companies by the employer. However, employees’ Pension Insurance contributions are payable.
- Value-Added Tax (VAT): Standard rate is 24%, reduced rates of 14% and 10% for specific goods/services.
- Net Wealth/Worth Taxes: None in Finland.
- Inheritance, Estate, and Gift Taxes: Tax rates vary based on the value of taxable property received. Rates increase progressively with higher property values.
- Property Taxes: Collected by municipalities on real estates. Rates vary but can range from 0.41% to 2.0% of the taxable value.
- Transfer Tax: Imposed on transfers of real property, Finnish securities, and shares in property-based entities. Rates differ based on the type of transfer.
- Excise Duties: Levied on various items including alcohol, tobacco, fuels, and specific goods. Rates vary for different products.
Employee Hiring Cost in Finland
Let’s consider an example to understand the comprehensive nature of employee hiring costs in Finland. Imagine hiring an employee with a Gross Annual Salary of EUR 9,999.96. When factoring in various contributions and insurances required by law, the Total Annual Employer Costs sum up to EUR 2,142.96. This includes contributions such as the Group Health Contribution (EUR 6.96), Occupational Health Insurance (EUR 36.00), Pension Insurance Contribution (EUR 1,815.00), Unemployment Insurance Contribution (EUR 51.96), Accident Insurance Contribution (EUR 80.04), and Social Security Contribution (EUR 153.00). When adding up these contributions to the Gross Annual Salary, the Total Annual Cost amounts to EUR 12,142.92. This example illustrates the multifaceted nature of employer expenses when hiring an employee in Finland, encompassing various mandatory contributions and insurances.
| Employee Hiring Cost in Finland | |
|---|---|
| Gross Annual Salary | EUR 9,999.96 |
| Total Annual Employer Costs | EUR 2,142.96 |
| Group Health Contribution | EUR 6.96 |
| Occupational Health Insurance | EUR 36.00 |
| Pension Insurance Contribution | EUR 1,815.00 |
| Unemployment Insurance Contribution | EUR 51.96 |
| Accident Insurance Contribution | EUR 80.04 |
| Social Security Contribution | EUR 153.00 |
| Total Annual Cost | EUR 12,142.92 |
Personal Income Tax
Finland employs a comprehensive personal income tax system that applies to residents on their global income. Earned income for residents is subject to progressive tax rates for national purposes and a flat tax rate for municipal (including church and social security) tax purposes.
For earned income, the national tax rates for 2023 follow a progressive structure. The tax rates increase progressively based on income brackets, ranging from 12.64% for income up to EUR 19,900 to 44% for income exceeding EUR 85,800. Investment income is taxed at rates of 30% and 34%, the latter applicable if annual taxable capital income exceeds EUR 30,000.
Local income taxes, reduced by 12.64% due to the social security reform, range from 4.36% to 10.86% and are levied on taxable income for municipal taxation. Additionally, church tax, applicable to members of specific churches, varies between 1% and 2.10% based on the parish concerned.
Public broadcasting tax is set at 2.5% on income surpassing EUR 14,000 annually, with a maximum amount of EUR 163. Exemptions apply for lower incomes, individuals under 18, or residents of the Province of Åland.
For foreign employees under the foreign expert tax regime, a flat tax rate of 32% applies to Finnish-source salary income if specific conditions, including minimum salary thresholds and residency history, are met.
Non-resident individuals are taxed on Finnish-source income only, with fixed tax rates unless specified otherwise by a tax treaty. Non-residents subject to tax at source generally do not have reporting liabilities in Finland, as tax withholding and reporting are managed by the paying entity.
For non-residents opting for progressive taxation, worldwide earned income is considered when calculating tax on income earned in Finland, adhering to exemption rules with progression. Additionally, various categories like artist and sportsmen remuneration, are subject to specific tax rates at source.
Other Finnish-source incomes, such as rental income, are also taxed according to applicable rates (earned income under progressive rates and capital income at 30% or 34%) unless otherwise specified in a tax treaty.
Employee Benefits in Finland
In Finland, statutory leaves encompass a wide range of scenarios, ensuring employees have dedicated time off for various life events and responsibilities. Here’s an overview:
Maternity Leave
Pregnant employees are entitled to up to 105 weeks of maternity leave.
Paternity Leave
Fathers can take up to 54 weekdays. They can opt for up to 18 weekdays concurrently with the child’s mother, with the remaining days taken after parental leave but before the child turns two.
Parental Leave
Both parents can take up to two leave periods. Each period should last a minimum of 12 working days. It can be taken full-time or part-time.
Childcare Leave
For full-time care of a child under three or two years after adoption, taken before the child starts school.
Sick Leave
Employers cover the first 10 days of sick leave, after which employees receive sickness allowance from KELA.
Partial Childcare Leave
Can be taken until the end of the second school year, or longer for disabled or chronically ill children.
Temporary Childcare Leave
Up to 1-4 workdays for unexpectedly ill children under 10.
Family Care Leave
Provided for caring for a family member or close relative due to illness or accident.
Paid Time Off
Employees are entitled to four weeks of summer holiday and one week of winter holiday. Rollovers and payout of unused hours apply, encouraging the use of the allotted time.
Termination PTO Payout
Holiday pay should be provided before the holiday begins. Upon termination, any earned but unused holiday compensation is paid out according to similar rules as holiday pay.
Termination and Notice Period
Employer’s Notice
The period of notice provided by the employer is contingent upon the length of service:
- 14 days for employment up to one year,
- 1 month for 1–4 years of service,
- 2 months for 4–8 years,
- 4 months for 8–12 years,
- 6 months for over 12 years.
Employee’s Resignation Notice
Employees adhering to resignation notices should observe:
- 14 days for employment lasting up to five years,
- 1 month for employment extending beyond five years.
Adherence to Notice Periods
Both employers and employees must adhere to the specified notice periods unless otherwise outlined in formal agreements or contracts. As the notice period elapses, the employment contract concludes, and the employee fulfills regular job responsibilities during this notice period.
EOR Solutions in Finland
Work Permit in Finland
Obtaining a work permit in Finland necessitates a residence permit for stays longer than 90 days, and in most cases, even for shorter durations of employment. The process begins with the creation of a user account, allowing applicants to submit their own applications through Enter Finland. Employers, following this submission, must add terms of employment and necessary documents to the application using Enter Finland for Employers. For individuals relocating with family, they can collectively apply for residence permits. However, each family member must submit their respective applications. Financial sufficiency for the family is a prerequisite. The types of residence permits vary based on the nature of employment:
Conclusion
Mercans offers comprehensive and meticulously crafted Employer of Record (EOR) services in Finland, providing a seamless bridge for businesses venturing into this dynamic market. Our dedication to compliance, coupled with unparalleled expertise, ensures a smooth and efficient entry into Finland’s employment landscape. Partner with Mercans for expert guidance and tailored solutions that empower your business growth in Finland.