Understanding Payroll in Finland: What Global Companies Need to Know About Finland's Payroll
Finland is the happiest place on Earth - officially. In 2020, it was awarded the top ranking in the World Happiness Report for the third year in a row. And when viewed from a purely economic perspective, the results are hardly surprising.
Its GDP per capita ranks in the top 20 globally and its average wage is among the highest within the European Union. Having run a largely agricultural economy until the last six or seven decades, Finland has now emerged as a leader in energy, forestry, raw materials and in electronics. On top of all this, with more than 185,000 lakes and nearly 180,000 islands spread between just 5.5 million people, and with the magic of Lapland combined with warm summers, Finland enjoys an excellent general quality of life, too.
There is much to look forward to for international business coming into Finland. The workforce is highly educated, English is widely spoken, and Finns take pride in their work. What’s more, Finland’s tax structure and payroll regulations are relatively straightforward. This guide sets out the key basics about business and payroll in Finland.
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, while there is a €380 (approx. £325; $450) application fee to set up a branch of a foreign trader. For all types of companies, a €120 (approx. £105; $140) permit fee is applicable for companies from outside the European Economic Area.
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. Probationary periods are allowed and can last for up to six months.
Finland has a ‘duty of loyalty’ built into employment, meaning both employee and employer must act loyally 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. Overtime, for which employers must get the employee’s consent, should result in a total number of hours worked per week no greater than 48, averaged over a four-month period. This period can be extended by collective agreement. Overtime pay should be at least 150% of salary for the first two hours each day, and 200% thereafter. Any working hours beyond 40 per week should be paid at a minimum of 150%, even if it doesn’t count as overtime.
Compensation, Bonuses and Severance
Finland has no statutory minimum wage, but collective bargaining plays a major role in determining minimum pay levels across different industries. Employers are required to honor the terms of trade unions, including the set minimum wage, but are also allowed to negotiate special terms of employment at company level, subject to employee agreement.
Discretionary bonus schemes are commonplace in Finland, and there are few restrictions with regards 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. All other termination obligations are decided either through collective agreements or on an individual level, and so notice periods can vary between 14 days and six months.
Tax and Social Security
Income tax in Finland is levied on a progressive scale. The first €18,600 (approx. £16,000; $22,000) of annual earnings is exempt, and everything over and above this is taxed across four bandings:
- Beyond €18,600 up to €27,900 (approx. £24,000; $33,000): 6%
- Beyond this up to €45,900 (approx. £39,000; $55,000): 17.25%
- Beyond this up to €80,500 (approx. £69,000; $95,000): 21.25%
- Beyond €80,500: 31.25%
Further taxes are also levied in the form of local municipal tax (between 16.5% and 23.5%), church tax (between 1% and 2.2%), and public broadcasting tax (2.5%).
Corporate tax is levied at 20%, while the basic VAT rate is 24%, although exceptions apply.
Social security contribution is 2.04%, covering the daily allowance and Medicare premiums. Employee pension insurance contributions are 7.15% from employees, rising to 8.65% for employees between the ages of 53 and 62. Unemployment insurance contributions are 1.4%.
Holidays and Leave
Under the Annual Holidays Act, employees are entitled to up to 30 days of paid leave each year. These days are accrued from the start of employment at a rate of two days off for the first full-time month worked and two and a half days off for each month thereafter. The holiday year runs from 1 April to 31 March. Additionally, there are approximately ten national holidays celebrated in Finland which employees can take off paid.
Expectant mothers may begin their leave as many as 50 days before they give birth and may take 105 days of maternity leave in total. Their salary is paid by social security during this time. New fathers may take 54 days off to help care for their new child.
Employers are required to pay employees at 100% of the usual rate for the first nine days of illness or injury-related absence, after which sickness allowance from the government picks up the payments. If the absence is found to have been caused willfully or through gross negligence, employees are not entitled to be paid while they are absent.
Finland is an excellent country for international businesses to operate in. The workforce is organized, positive, and willing to put in a hard day’s work for a fair day’s pay. But Finland is not without its idiosyncrasies when it comes to payroll and other business requirements. To ensure your compliance with regulations and to get up and running as smoothly as possible, it’s worth considering a third-party global payroll partner who can use their expertise to navigate a smooth way forward.
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.