Finland — officially the happiest place on Earth (for three years in a row, don’t you know). Hardly surprising either, given that the Finns enjoy an exceptionally high standard of living, set the bar when it comes to work-life balance and lead the way with flexible working.
Although flexible working is now seen as a perk in many countries, it’s been embedded in Finland’s working culture for more than two decades. This style of work is particularly well suited to the Nordic nation’s deep-rooted culture of equality, trust and pragmatism.
Seeing flexible working as a right, rather than a perk, is largely down to the 1996 Working Hours Act, which gives staff the right to adjust their typical daily hours by starting or finishing up to three hours earlier or later. But even by today’s standards, Finland is still way ahead of the flexible working curve thanks to the new 2020 Working Hours Act, which gives the majority of full-time employees the right to decide when and where they work for at least half of their working hours.
Aside from these incentives, there are also plenty of other reasons for doing business in Finland.
For one, the free-market economy is highly industrialised, with a developed infrastructure, skilled workforce and competitive operating costs. Finland also has a highly conducive business environment with minimal red tape to cut through and is one of the least corrupt countries globally.
And despite having a relatively small population (making up just 0.07% of the world’s total), it may surprise you to learn how wealthy Finland is. Coming in at 44th place, Finland’s GDP sits at $289.24 billion, but it has the 20th highest GDP per capita at $52,131 — almost as high as Austria and the Netherlands and slightly above the likes of Germany and Belgium.
Key considerations for payroll in Finland
When expanding into and employing in new countries, understanding the intricacies of global payroll is critical. Payroll practices vary significantly from country to country, and regulations are constantly changing — meaning keeping up can feel like an uphill battle.
So, here are some of the main payroll regulations and requirements to be aware of when doing business in Finland…
Salary and bonuses
Before we get started, there’s one key thing to keep in mind when hiring Finnish workers: Finland applies the principle of generally binding collective bargaining agreements (CBAs). This means you have to follow the generally applicable CBA of your business sector — even if you’re not a member of an employer union.
And since there are almost 200 CBAs covering roughly 90% of business in Finland, it’s not always easy to keep up with what does (or doesn’t apply) to your sector. These CBAs impact a wide range of employment areas, from salary and holiday bonuses to working hours and pension contributions.
Let’s start with salary.
Finland has no statutory minimum wage, and there’s no legislation regarding statutory annual increases. Instead, CBAs play a major role in determining minimum pay levels and yearly (or other) increases across different industries. For example, the CBA for the IT service sector enacted a 1.2% increase in 2021. However, salaries must always be paid on the last working day of the month at the latest.
Although not prescribed by law, many CBAs also include a holiday bonus (typically 50% of an employee’s gross salary, which is paid when they get back to work from their annual holiday — more on that later).
Working hours, overtime and holiday entitlement
The Working Hours Act states that the maximum regular working hours are 40 hours per week. But some CBAs mandate fewer hours (according to the IT service sector CBA, the maximum regular working hours are 37.5 hours per week).
Overtime is permitted in Finland, but 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 roles, it may be possible to include a provision for overtime in the basic salary. In this instance, it’s vital to clearly show the basic salary and the overtime element of the total salary in the employment contract.
As with most employment rules in Finland, holiday entitlement is also governed by the applicable collective bargaining agreement (and, in some cases, the Annual Holidays Act if no CBA is applicable). However, employees typically have 30 days (including Saturdays) of holiday each year. It’s normal for employees to take four weeks of accumulated holiday during the ‘holiday season’ (2 May to 30 September) and the remaining one week of holiday in the winter.
So, how much is the salary tax in Finland? Income tax is levied on a progressive scale (between 6% and 31.25% in 2021). As well as national income tax, any earned income is also subject to local municipal tax (between 16.5% and 23.5%), church tax (between 1% and 2.2%) and public broadcasting tax (2.5%).
Employers must deduct tax at the source for all wages paid to employees and electronically submit a monthly declaration to the Incomes Register no later than on the 12th of the following month after the salary payments have been made.
Finland also has one of the best pension systems in the world, sitting in fifth place just behind the Netherlands, Denmark, Israel and Australia.
This statutory benefit means all employers must take out valid pension insurance and report employees’ earnings to the Incomes Register (contribution amounts vary depending on the applicable CBA). The employee’s pension contributions are also withheld from the employee’s salary, and the entire earnings-related pension contribution is then paid to the pension insurance company.
Employees are also permitted continued salary payment during sickness from the first day of illness and nine subsequent days. After this time, the employee is entitled to a sickness allowance for a number of weeks from the government (again, this will vary depending on the business sector CBA and length of service). If the employer decides to continue paying the salary, they’ll be entitled to the allowance payment instead of the employee.
Social security contributions
In Finland, social security benefits such as family benefits, health insurance, basic unemployment security and social assistance are funded by a combination of taxes and insurance contributions.
Workers’ compensation insurance is administered by private accident insurance companies. It provides cover for all employees in the event of injuries resulting from an accident at work or an occupational disease.
Unemployment insurance contributions are also used to finance costs such as earnings-related unemployment benefits. Both the employee and employer are obliged to make unemployment insurance contributions.
Getting over those global payroll hurdles
One of the main challenges of hiring overseas workers and operating across multiple countries is keeping up with the complexities of global payroll — from handling different currencies to navigating various tax laws.
But don’t let that stop you from doing business in Finland.
We deliver compliant and consolidated payroll processing through our global payroll network, ensuring the entire process is quick and simple. On top of that, we also provide a range of currency and payment capabilities through our foreign exchange (FX) solution. Don’t have access to euros or a Finnish bank account? Not a problem. We can provide a single consolidated invoice in whatever currency you like.
Keen to find out how our global payroll experts can help your business grow and expand into new territories? Whether you want to know how wealthy a country is or you’re not sure how much salary tax is in Finland, we can help. Get in touch today to learn more about our comprehensive global payroll outsourcing services.