Employer of Record (EOR) Finland

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.

Things you need to know before hiring in Finland

Employee vs Independent Contractor Classification

Employment Contracts in Finland

Working Hours

Working hours can be averaged over a maximum of 52 weeks, ensuring a weekly average of 40 hours. The Working Hours Act permits a maximum of eight daily hours, with flexibility to average weekly hours over six days and use a shorter adjustment period.

13th Month Salary

There is no legal obligation to provide a 13th or 14th-month salary. However, it is a common practice to offer holiday bonuses, typically amounting to 50% of the holiday pay when provided.

Probation Period

Both employer and employee can agree on a trial period at the start of the employment. It must be clearly defined before work begins, and both parties can terminate the contract during this period. The maximum trial period is six months, extendable in case of sick or family leave. Fixed-term contracts limit the trial period to half the contract’s length, with a maximum of six months. Collective agreements’ provisions on trial periods must be adhered to if applicable. Termination during the trial period is not allowed based on discriminatory grounds.

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.

Wages must be deposited into the employee’s designated bank account and be available for withdrawal on the due date. The due date for wage payment is adjusted to the previous weekday if it falls on specific occasions, such as a Sunday or a public holiday. Cash payments are allowed only under compelling circumstances, and the employer must provide a receipt or verification if wages are paid in cash.

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:

Paying in Local Currency

Mercans facilitates payments in the local currency (Euro) to ensure compliance with Finnish regulations and convenience for employees.

EOR (Employer of Record)

Acting as an Employer of Record, Mercans manages all employer responsibilities, including compliance, HR, and payroll, allowing companies to expand into Finland without establishing a legal entity.

Payroll Outsourcing

Mercans provides comprehensive payroll outsourcing services in Finland, handling payroll calculations, tax deductions, compliance with local laws, and ensuring timely payments to employees.

Payroll SaaS (Software as a Service)

Mercans might offer a Payroll SaaS solution tailored to Finnish regulations, providing a user-friendly platform for managing payroll processes efficiently. This software could include features like automated calculations, tax compliance tools, and reporting capabilities.

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

Employer’s Social Security Payments

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%

Employee’s Social Security Payments:

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.

In terms of consumption taxes

• 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.

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 Termination: Finnish labor law allows employers to terminate regular employment contracts based on substantial grounds related to the employee or due to redundancy. For temporary contracts, premature termination is contingent upon specific agreement terms initially or agreed upon later during the employment tenure.

Requesting a Written Certificate: Upon the conclusion of employment, employees have the right to request a written certificate from their employer. This document outlines the duration of their employment and delineates the nature of their job responsibilities during that period.

Notice Periods: The notice periods for termination vary based on the duration of employment:

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

• EOR for Prospective Employees: Mercans offers seamless Employer of Record (EOR) solutions for businesses that have already identified their ideal candidates in Finland. Our services encompass every aspect of the employee lifecycle, ensuring compliance with Finnish labor laws and regulations.
• EOR + Recruitment: For those seeking assistance in talent acquisition, our EOR and recruitment services provide a holistic solution. We tap into our extensive network and expertise to help you find, onboard, and retain top talent, streamlining your expansion into the Finnish market.
• Visa Sponsorship and Global Mobility: Navigating the intricacies of expatriate employment is simplified through our visa sponsorship and global mobility services. We facilitate the relocation of your international workforce, ensuring compliance with Finnish immigration and employment laws.
• AOR for Contractor Payments: Businesses grappling with contractor payments can leverage our Assistance on Record (AOR) services. We handle the complexities of contractor payments, guaranteeing accuracy and compliance.
• Converting Freelancers to Employees: Mercans supports the transition from independent contractors to permanent employees in Finland. Our expertise ensures smooth conversions while adhering to legal requirements.
• HCM Integration: Integrate Mercans’ EOR services seamlessly with your HCM system in Finland for real-time data exchange, enhanced compliance, and cost-efficiency. Trust our expertise for a unified, compliant, and efficient approach, elevating your workforce management and payroll operations.

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:

Residence Permit for an Employed Person (TTOL)

Involves labor market testing where employers assess the availability of suitable local or EU/EEA labor. The Finnish Immigration Service decides on the application following an Employment and Economic Development Office’s partial decision.

Residence Permit for Persons Employed as a Specialist or EU Blue Card Application

Geared towards specialists in specific fields or those seeking an EU Blue Card.

Residence Permit for Seasonal Work

Applicable for seasonal workers in agriculture or tourism with employment lasting 3 to 9 months.

Residence Permit Application for Internship or Voluntary Work

For individuals undertaking internships, voluntary work, or participating in a Working Holiday scheme.

Residence Permit for Researchers, Au Pair Status, Entrepreneurs, and Startup Entrepreneurs

Tailored permits for researchers, au pairs, entrepreneurs, startup entrepreneurs, athletes, coaches, and those seeking to look for work or start a business.

Residence Permit on the Basis of Other Employment

Covering various professional roles such as employees of religious communities, cultural professionals, transferred employees within a company, journalists, consultants, and more.