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What global businesses need to know about payroll in Finland
If you like to innovate and grow internationally with the help of technology, then Finland could well be the European marketplace for you. This country in the north-eastern corner of Europe has built a reputation for being a high-tech hub, and regularly ranks well inside the top ten of the Global Innovation Index.
This commitment to technology has made Finland an even more diverse economy than it was before. No single sector or export dominates: from machinery and timber to shipbuilding and financial services, Finland has one of the most varied economic make-ups in Europe. This means that whatever your business, you’re bound to find some opportunities in a country often named the happiest in the world.
Finland is a country that takes pride in its work/life balance, but that does mean businesses have to be careful around payroll and employment regulations, especially as collective bargaining is particularly active. This guide gives you the key facts about payroll in Finland.
Getting Started
Setting up a business in Finland is a straightforward process, and in the case of a limited liability company, can be done online through the My Enterprise Finland platform.
Companies must begin by confirming the use of their name in Finland with the Trade Register at the Finnish Patent and Registration Office. After this, an in-country bank account should be opened, although this is relatively easy to set up, and a ‘start of business’ notification should be filed with the Trade Register and relevant Tax Administration registers.
The minimum share capital for public limited companies is €80,000 (approximately £69,000; $95,000). The minimum share capital requirement for private limited companies was scrapped in July 2019. There is, however, a handling fee for online company registration of €330 (approx. £280; $335).
Employment Considerations
A formal written contract is not required for hiring an employee, but employers are required to provide a written statement detailing the basic terms of employment. Collective bargaining plays a strong role in the country’s economy and is usually done at industry level, although it may be done at company level as well.
Finland has a ‘duty of loyalty’ built into employment, meaning both employee and employer must show loyalty to each other. For example, if an organization undertakes a major downsizing, they may be obliged to rehire employees if their finances recover and the employees want to return.
Maximum working hours in Finland are generally eight hours per day and 40 hours per week, although most office-based workers will work 7.5-hour days and 37.5-hour weeks. Anything above this is regarded as overtime, which is limited to a maximum of 138 hours over a four-month period, and 250 hours a year. Overtime should be paid at 150% for the first two extra hours worked each day. Work beyond this, or any overtime work on a rest day or at the weekend, should be paid at 200%.
Notice periods start at 14 days within the first year of employment, after which they rise to a month. They increase again to two months after four years of service, four months after eight years, and six months after 12 years. Collective bargaining can increase these provisions. Probationary periods can last for a maximum of six months.
Compensation, Bonuses and Severance
Finland is one of only five EU countries that does not have a statutory minimum wage. However, collective bargaining determines minimum pay levels on an industry-by-industry basis. Where collective bargaining is not in place, wage levels are entirely up for negotiation between employees and employers, to be agreed in employment contracts.
For reference, according to Statistics Finland, the national average salary at the end of 2022 was around €3800 a month (approx. £3250; $4100). However, it is common for many employers to offer a range of benefits, such as meal vouchers, housing allowances, transport support, gym memberships, and cellphone and internet subscriptions.
Discretionary bonus schemes are commonplace in Finland, and there are few restrictions with regard to these, as long as the awarding of bonuses to some employees and not others is discriminatory under the terms of the Employment Contracts Act.
Severance pay is not mandated, but employers are required to give employees notice of their termination and pay any unused holiday or accrued vacation time.
Tax and Social Security
Income tax in Finland is levied on a progressive scale, and there is no longer any exemption at the bottom. The first €19,900 (approx. £17,000; $21,500) of annual earnings are taxed at 12.64%, after which rates of 19%, 30.25% and 34% progressively apply. The highest rate of 44% applies to earnings over and above €85,800 (approx. £73,400; $92,700).
To cover the removal of the exemption, local income taxes have been reduced by 12.64%, and so now apply between 4.36% and 10.86%, depending on the municipality. Then there is also church tax (between 1% and 2.1%), and public broadcasting tax (2.5%, up to a maximum of €163).
Non-residents are generally taxed at a flat rate of 35% on their income sourced in Finland. Corporate tax is levied at 20%, while the basic VAT rate is 24%, although exceptions apply.
There are a number of social security contributions to make, including:
- Pension insurance: 25.55% employer, 7.15% employee (rising to 8.65% for employees aged between 53 and 62)
- Health insurance: 1.53% employer, 1.96% employee
- Unemployment insurance: 0.52% employer, 1.5% employee
Employers will also be expected to make contributions to accident insurance and group life insurance, and these vary according to employee salary, level of risk, and collective bargaining.
Holidays and Leave
Finland has some unusual rules regarding paid leave. Employees generally get four weeks (or accrue two days per month if in their first year of employment), but this counts as 24 days; Saturdays are counted as working days even if the employee normally only works Monday to Friday. Holiday is normally taken between May and September, and can only be taken outside this period with mutual agreement. At least two weeks of the holiday entitlement must be taken as one continuous block.
There are 15 days of public holidays in Finland each year. Employees should be paid for them, but only if they fall on days when they would normally be working.
Maternity leave entitlement is 105 days, although mothers can continue to work during this period, except for two weeks before and two weeks after the birth. Paternity leave entitlement is 54 days; up to 18 days of it can be taken while the mother is on maternity leave, and the rest is taken in one or two blocks before the child turns two. On top of this, there is also a parental leave allowance of 160 days per parent (single parents can use both, for a total of 320 days), that should be used before the child turns two.
Maternity, paternity, and parental benefits are paid in the same way. Employees are normally entitled to some allowances and benefits from the state, and while there is no legal requirement for employers to pay their staff during these types of leave, many choose to do so (or allow it to be negotiated through collective bargaining).
Paid sick leave entitlement can vary according to collective bargaining, but starts at four weeks for employees with less than three years of service. Employers pay full salary for the first ten days, after which social security picks up the tab, but only at half salary.
In Summary
Finland is a great place to do business, even though it can get extremely cold there in the winter! However, as this guide demonstrates, it can be especially complex in payroll and employment terms, from the rules regarding parental leave to the strong role that collective bargaining plays. It’s worth looking at taking the advice and support of a global payroll partner on board, so that you can address all the challenges of international expansion with confidence.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.