Employing in Finland
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Finland – the land of the midnight sun. Throughout June and July, Finland enjoys a permanent sunrise — and thanks to around 180,000 islands, over 188,000 lakes and an abundance of emerald green forests, there’s plenty of natural beauty to discover. If you’re a coffee-lover, you’ll also fit right in. The Finnish are renowned caffeine fanatics, with each Finn consuming an average of 12 kilograms of coffee per year!
But there are plenty of other reasons for expanding your business into Finland. The Nordic nation has an industrialised and mostly free-market economy, with a developed infrastructure, skilled workforce, competitive operating costs, and a highly conducive business environment.
Finland is also one of the least corrupt countries in the world and has minimal red tape to cut through.
Despite its skilled workforce, Finland is facing a future labour shortage due to its ageing population. The tech industry, in particular, has taken a hard knock. So, if you’re a tech company looking to expand overseas, Finland could provide an excellent opportunity to bring your talent with you and give your employees’ careers a boost in this sought-after field.
And convincing them to make the move won’t be too hard, either! Even with an average 40-hour working week, those working in Finland enjoy a high standard of living with plenty of time to explore the country’s extraordinary landscapes. Most workers get five to six weeks of annual leave, and Finland currently leads the way in terms of flexible working. The 2019 Work-Life Balance Index even ranked Helsinki as the best city for work-life balance!
Salary Information for Finland
There’s no legislation regarding statutory annual increases; however, annual (or other) increases are regulated in the respective collective bargaining agreements.
Last working day of the month at the latest.
Social Security System
The Social Insurance Institution of Finland, Kela, is responsible for providing social security coverage for both Finnish residents who live in Finland on a permanent basis and, in certain situations, to Finns living abroad.
The social security benefits offered by Kela are family benefits, health insurance, rehabilitation, basic unemployment security, basic social assistance, housing benefits, financial aid for students, disability benefits and basic pensions. These benefits are funded by a combination of taxes and insurance contributions.
Public healthcare in Finland includes:
- Promotion of health and prevention of diseases, as well as care and rehabilitation
- Maternal and child healthcare
- Doctor, dentist and nurse appointments
- Mental health services
- Emergency and on-call service
- Home care
- School and student healthcare
- Occupational healthcare
This is a statutory benefit in Finland, and all employers must take out a valid insurance and report employees’ earnings to the Incomes Register. In 2021, the basic TyEL insurance contribution is 24.80% of the employees’ wages and salary. The employees’ share of the contribution is:
- 17–52 years of age — 7.15% of wages and salary
- 53–62 years of age — 8.65% of wages and salary
- 63–69 years of age — 7.15% of wages and salary
The employee’s pension contributions are withheld from the employee’s salary and the entire earnings-related pension contribution is then paid to the pension insurance company.
- Employee pension insurance — 24.8% (2021) of gross salary (see below for employee element), deducted from the employee’s gross salary
- Sickness insurance payment — 1.34% (employee pays additional 1,18%)
- Unemployment insurance payment — 1.70% (employer part 0.45%, employee part 1.25%)
- Occupational accident insurance — 0.70% of the total annual salary amount paid by the employer
- Group pension insurance — on average 0.07% of the total annual salary amount paid by the employer (this is paid together with the occupational accident insurance
Holiday & Leave
Employees subject to the IT sector CBA are entitled, in addition to their normal salary during annual holiday, a holiday bonus (50% of holiday salary).
The right to annual holiday is established in either the applicable collective bargaining agreement or, if no CBA is applicable, in the Annual Holidays Act. An employee accumulates days of annual holiday during the holiday credit year from 1 April to 31 March inclusive. Two-and-a-half days of holiday are credited for each month during which the employee works ‘a full holiday credit month’. Thus, employees normally have 30 days of holiday each year. Saturdays are calculated into the 30 days, meaning that the employee has five weeks of holiday.
The entitlement is two weekdays of holiday for each full holiday credit month if, by the end of the holiday credit year, the duration of the employment relationship has been an uninterrupted period of less than one year. The annual holiday for these employees is up to 24 days, forming up to four weeks of annual holiday. When the number of days of holiday is calculated, any fraction of a day is rounded up to constitute one full day of holiday.
A full holiday credit month depends on what is agreed in the employment contract as to how much the employee shall work. If the employee is away for a reason other than those listed in section 7 of the Annual Holidays Act, the employee might not earn holiday during that month.
The holiday season, during which the holidays are mainly taken, means the period from 2 May to 30 September inclusive. It’s normal for employees to take four weeks of accumulated holiday during this period and the remaining one week of holiday in the winter.
The employer and employee may also agree on different timing of holidays. Mandatory law, however, stipulates that the employee shall have an uninterrupted period of 12 holiday days (two weeks) during the period from 2 May to 30 September.
According to the Employment Contracts Act, an employee is entitled to continued salary payment during sickness from the first day of illness and for nine subsequent days.
After this time, the employee is entitled to sickness allowance from the government. If the employer continues to pay salary, they’re entitled to receive the allowance payment instead of the employee.
According to the IT service sector CBA, an employee is entitled to continued salary as follows:
- Employment <3 years — 3 weeks
- Employment 3–5 years — 5 weeks
- Employment 5–10 years — 6 weeks
- Employment >10 years — 8 weeks
Mothers who have just had a baby are entitled to a maternity grant (äitiysavustus) and maternity leave (äitiysvapaa), and fathers to paternity leave (isyysvapaa). In addition to these, either parent can take parental leave (vanhempainvapaa) providing that certain eligibility criteria are met. Mothers receive a maternity grant when they’re pregnant either in the form of a maternity package or as a tax-free lump sum of EUR 170.
Maternity leave begins at the earliest 50 working days, and at the latest 30 working days, before the estimated due date. When maternity leave begins, Kela (The Social Insurance Institution of Finland) will pay maternity allowance (äitiysraha) for a duration of 105 working days.
Fathers can, after the birth of the child, take paternity leave for a maximum of 54 working days. Of this, the father can be at home at the same time as the mother for a maximum of 18 working days, i.e., approximately three weeks. During paternity leave, Kela pays a paternity allowance (isyysraha).
Parental leave begins after maternity leave. Parental leave can be taken by either the mother or the father. Kela pays parental allowance (vanhempainraha) for 158 working days. If employees receive pay during maternity, paternity or parental leave, Kela will pay a daily allowance for this time to the employer.
The maximum allowed is six months. It’s not possible to extend the probationary period for performance-related issues. If the employee is away from work during the probationary period due to incapacity for work or family leave, the employer is entitled to extend the probationary period by one month for every 30 calendar days of sickness leave or family leave.
If employment is terminated during the probationary period in accordance with the probation period conditions, the employment ends with immediate effect. If employment is terminated due to other reasons, then agreed notice periods have to be observed (please see below).
Notice period is applied from the beginning of employment, also during the probationary period.
The maximum notice period is six months. Notice periods to be followed based on the Employment Contracts Act and IT service sector CBA are:
- 14 days (employment up to 1 year)
- 1 month (employment of more than 1 year but no more than 4 years)
- 2 months (employment of more than 4 years but no more than 8 years)
- 4 months (employment of more than 8 years but no more than 12 years)
- 6 months (employment of 12+ years)
- 14 days (employment of no more than 5 years)
- 1 month (employment of 5+ years)
The maximum regular working hours according to the Working Hours Act is 40 hours per week.
According to the IT service sector CBA, the maximum regular working hours are 7.5 hours per day and 37.5 hours per week.
Overtime must always be at the employer’s request and in each case, the employee has to confirm approval to work the overtime offered. An employee cannot work on average more than 48 hours per week (including any possible overtime) during a four-month period.
For some more senior management-type roles, it may be possible to deem that the basic salary includes a provision for overtime. In this case, it’s imperative to include a clear indication in the contract of employment to show the basic salary and the overtime element of the total salary.
There has recently been an update to Finnish legislation regarding non-competition agreements with employees, which will result in the employer having to pay the employee a monetary compensation during the time of the non-competition restriction. These changes will take effect on 1 January 2022. For non-competition agreements entered into before the new legislation takes effect, the new rules would apply after a one-year transition period i.e. 1 January 2023. During the transition period, the employer is entitled to terminate any unnecessary non-competition agreements that have been made before the new law comes into force, without the notice period set out in the new legislation.
The key non-compete changes
- The compensation would be at least 40% of the employee’s salary during the duration of the non-competition restriction where the non-competition period doesn’t exceed six months. The compensation would be at least 60% of the employee’s salary for the whole period where the non-competition period is more than six months.
- The employer has a unilateral right to terminate the non-competition agreement (with notice) but not after the employee has terminated their employment. In this case, the employer is required to pay compensation even if it’s not necessary to limit the employee’s competing activities.
- The compensation is paid throughout the non-competition period, on the regular salary payment days.
The employment contract can be terminated under two scenarios:
- Production, financial and reorganisation related grounds
- Employee’s person related grounds
To terminate the employment under option one, the available work has to have reduced substantially and permanently, and there must be no other suitable positions vacant. If the employer employs regularly at least 20 employees, the employer has to undergo consultation negotiations before making decisions about termination(s).
To terminate with option two, the employee has to have seriously breached or neglected their substantial obligations arising from the employment relationship. Option two also offers the possibility to terminate employment with immediate effect without notice if there’s a serious breach of obligations on the part of the employee.
Workers’ compensation insurance is part of Finnish social security. It provides cover for all employees and compensation is paid, in accordance with the Employment Accidents Insurance Act, for injuries resulting from an accident at work or an occupational disease.
In Finland, the statutory workers’ compensation insurance is administered by private accident insurance companies. TopSource Worldwide has a policy with If P&C Insurance — a private accident insurance company.
The Employment Fund (Työllisyysrahasto) was launched on 1 January 2019 through the merger of the TVR and the Education Fund. It’s an organisation established by law, regulated by the Finnish Financial Supervisory Authority and forms part of the Finnish social security system.
Unemployment insurance contributions are used to finance costs such as earnings-related unemployment benefits, adult education allowances, pension benefits and Kela benefits. The employee and employer are obliged to make unemployment insurance contributions.
Keen to engage an EOR in Finland?
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